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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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):
October 19, 2000
INTERWORLD CORPORATION
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(Exact Name of Registration business as Specified in Its Charter)
Delaware 000-26925 13-3818716
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
395 Hudson Street, 6th Floor,
New York, NY 10014-3669
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(Address, including zip code, of Principal Executive Offices)
(212) 301-2500
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(Registrant's telephone number including area code)
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<PAGE>
Item 5. Other Events.
On October 12, 2000, InterWorld Corporation ("InterWorld") entered into a
Securities Purchase Agreement with Jackpot Enterprises, Inc., which is being
renamed J Net Enterprises, Inc. ("J Net"), pursuant to which InterWorld agreed
to issue and sell to J Net, and J Net agreed to purchase from InterWorld,
InterWorld's Series A Convertible Preferred Stock and related Warrants for an
aggregate purchase price of $20 million in a private placement. InterWorld
expects the closing of the transaction to occur in the next 30 days. The
transaction is subject to the terms and conditions specified in the Securities
Purchase Agreement attached hereto as Exhibit 10.1. The Series A Convertible
Preferred Stock is subject to the terms and conditions of the form of
Certificate of Designations, Rights and Preferences attached hereto as Exhibit
3.1. The Warrants are subject to the terms and conditions of the form of Warrant
attached hereto as Exhibit 4.1. Pursuant to a Registration Rights Agreement, the
form of which is attached as Exhibit 10.2, to be entered into by InterWorld and
J Net at the closing, InterWorld has agreed to prepare and file with the
Securities and Exchange Commission a registration statement covering the resale
of the shares of InterWorld common stock issuable pursuant to the terms of the
Series A Convertible Preferred Stock and related Warrants. Pursuant to a
separate agreement, J Net has acquired a $12.4 million loan from a brokerage
firm that made the loan to Michael Donahue, InterWorld's Chairman, which is
secured by Mr. Donahue's shares in InterWorld. Pursuant to the agreement, J Net
affected a secured loan transaction that provides for an equity participation in
the shares that secure the loan.
Item 7. Financial Statements, PRO FORMA Financial Information and Exhibits
(a) Financial Statements.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits
EXHIBIT DESCRIPTION
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3.1 Form of Certificate of Designations, Rights and Preferences
4.1 Form of Warrant
10.1 Securities Purchase Agreement
10.2 Form of Registration Rights Agreement
99.1 Press Release
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
INTERWORLD CORPORATION
Date: October 19, 2000 By: /s/ Jeremy M. Davis
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Name: Jeremy M. Davis
Title: President and Chief Executive
Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
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3.1 Form of Certificate of Designations, Rights and Preferences
4.1 Form of Warrant
10.1 Securities Purchase Agreement
10.2 Form of Registration Rights Agreement
99.1 Press Release
<PAGE>
EXHIBIT 3.1
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EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
INTERWORLD CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
INTERWORLD CORPORATION, a corporation organized and existing under the Delaware
General Corporation Law (the "Corporation"), hereby certifies that the following
resolutions were adopted by the Board of Directors of the Corporation on October
, 2000 pursuant to authority of the Board of Directors as required by Section
--
151 of the Delaware General Corporation Law ("DGCL"):
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:
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
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The designation of this series, which consists of Five Million Five Hundred
Thousand (5,500,000) shares of 8% PIK Preferred Stock, is Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and the stated value shall be
Six Dollars and Twenty-Five Cents ($6.25) per share (the "Stated Value").
II. RANK
----
The Series A Preferred Stock shall rank (i) prior to the Corporation's common
stock, par value $.01 per share (the "Common Stock"); (ii) prior to any class or
series of capital stock of the Corporation hereafter created (unless, with the
consent of the holders of Series A Preferred Stock obtained in accordance with
Article IX hereof, such class or series of capital stock specifically, by its
terms, ranks senior to or pari passu with the Series A Preferred Stock)
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(collectively, with the Common Stock, "Junior Securities"); (iii) pari passu
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with any class or series of capital stock of the Corporation hereafter created
(with the consent of the holders of Series A Preferred Stock obtained in
accordance with Article IX hereof) specifically ranking, by its terms, on parity
with the Series A Preferred Stock ("Pari Passu Securities"); and (iv) junior to
---- -----
any class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of Series A Preferred Stock obtained in accordance
with Article IX hereof) specifically ranking, by its terms, senior to the Series
A Preferred Stock ("Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
III. DIVIDENDS
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The holders of the Series A Preferred Stock shall be entitled to receive
dividends on a quarterly basis at a rate of 8% per annum per share, payable out
of any assets or funds legally available therefor. Such dividends shall be
cumulative and shall accrue, whether or not declared by the Board of Directors,
but shall be payable only when, as and if declared by the Board of Directors.
If, at any time, the Market Price (as defined in Article VI) of the Common Stock
falls below the Floor Price (as defined in Article VI), then the rate will
increase to 12% for such time as the Market Price remains below the Floor Price.
Accrued but unpaid dividends will be paid upon conversion of the Series A
Preferred Stock. The Corporation shall have the option to pay such dividends on
the Series A Preferred Stock in additional Series A Preferred Stock or in cash;
provided that the dividends which accrued during each quarterly period shall be
payable in cash only if the Corporation provides written notice to each holder
of Series A Preferred Stock at least five days prior to the relevant dividend
payment date.
In no event, so long as any Series A Preferred Stock shall remain outstanding,
shall any dividend whatsoever be declared or paid upon, nor shall any
distribution be made upon, any Junior Securities, nor shall any shares of Junior
Securities be purchased or redeemed by the Corporation nor shall any moneys be
paid to or made available for a sinking fund for the purchase or redemption of
any Junior Securities (other than a distribution of Junior Securities), without,
in each such case, the written consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock, voting together as a class.
IV. LIQUIDATION PREFERENCE
----------------------
A. Liquidation Event. If the Corporation shall commence a voluntary case under
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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, 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, 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 sixty (60) 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 (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation
<PAGE>
(other than Senior Securities) upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series A Preferred Stock, subject
to Article VI, shall have received the Liquidation Preference (as defined in
Article IV.C) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series A Preferred Stock and holders of Pari Passu Securities
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(including any dividends or distribution paid on any Pari Passu Securities after
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the date of filing of this Certificate of Designation) shall be insufficient to
permit the payment to such holders of the preferential amounts payable thereon,
then the entire assets and funds of the Corporation legally available for
distribution to the Series A Preferred Stock and the Pari Passu Securities shall
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be distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
liquidation preference payable on all such shares. Any prior dividends or
distributions made after the date of filing of this Certificate of Designation
shall offset, dollar for dollar, the amount payable to the class or series to
which such distribution was made.
B. Certain Acts Deemed Special Liquidation Event. At the option of any holder of
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Series A Preferred Stock, a Change of Control Transaction (as defined in Article
VI) shall either: (i) be deemed to be a liquidation, dissolution or winding up
of the Corporation pursuant to which the Corporation shall, at the option of the
holders of the Series A Preferred Stock, be required to distribute upon
consummation of and as a condition to such transaction an amount equal to 150%
of the Liquidation Preference with respect to each outstanding share of Series A
Preferred Stock or (ii) be treated pursuant to Article VI.C(b) hereof.
C. Liquidation Preference. For purposes hereof, the "Liquidation Preference"
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with respect to each share of the Series A Preferred Stock shall mean an amount
equal to the sum of (i) the Stated Value thereof plus (ii) an amount (the
"Premium Amount") equal to all accrued but unpaid dividends as set forth in
Article III for the period beginning on the date of issuance of the Series A
Preferred Stock (the "Issue Date") and ending on the date of final distribution
to the holder thereof (prorated for any portion of such period), plus (iii) all
Conversion Default Payments (as defined in Article VI.E below), Delivery Default
Payments (as defined in Article VI.D below) and any other amounts owed to such
holder pursuant to Section 2(c) of the Registration Rights Agreement. The
liquidation preference with respect to any Pari Passu Securities shall be as set
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forth in the Certificate of Designation filed in respect thereof.
V. REDEMPTION
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A. Mandatory Redemption. If any of the following events (each, a "Mandatory
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Redemption Event") shall occur:
(i) The Corporation (a) fails to issue shares of Common Stock to the
holders of Series A Preferred Stock upon exercise by the holders of
their conversion rights in accordance with the terms of this
Certificate of Designation if such failure is solely as a result of
the circumstances governed by the second paragraph of Article VI.E
below and the Corporation is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable,
(b) fails to transfer or to cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares
of Common Stock issued to the holders upon conversion of the Series A
Preferred Stock as and when required by this Certificate of
Designation or the Registration Rights Agreement, dated as of October
, 2000, by and among the Corporation and the other signatories
--
thereto (the "Registration Rights Agreement") or (c) fails to remove
any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate or any shares of Common Stock
issued to the holders of Series A Preferred Stock upon conversion of
the Series A Preferred Stock as and when required by this Certificate
of Designation, the Securities Purchase Agreement dated as of October
12, 2000, by and between the Corporation and the other signatories
thereto (the "Purchase Agreement") or the Registration Rights
Agreement.
(ii) If on or before April 12, 2001 the Corporation has not entered
into a Change of Control Transaction with the holder of a majority
of the outstanding shares of Series A Preferred Stock;
(iii)The corporation or any subsidiary of the Corporation shall make
an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for all or
substantially all of its property or business; or such a receiver or
trustee shall otherwise be appointed; or
<PAGE>
(iv) Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the
Corporation or any subsidiary of the Corporation;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i) or (ii), at the option of the
holders of at least 50% of the then outstanding shares of Series A Preferred
Stock exercisable by delivery of written notice (the "Mandatory Redemption
Notice") to the Corporation of such Mandatory Redemption Event, or upon the
occurrence of any Mandatory Redemption Event specified in subparagraph (iii) or
(iv), the then outstanding shares of Series A Preferred Stock shall become
immediately redeemable and the Corporation shall purchase each holder's
outstanding shares of Series A Preferred Stock for an amount per share equal to
the sum of (a) 150% multiplied by the Stated Value per share of the shares to be
redeemed plus (b) an amount equal to 150% multiplied by the Premium Amount per
share of the shares being redeemed plus (c) all Conversion Default Payments (as
defined in Article VI.E below) payable with respect to each such share, Delivery
Default Payments (as defined in Article VI.D below) payable with respect to each
such share and any other amounts owed with respect to each such share to such
holder pursuant to Section 2(c) of the Registration Rights Agreement (the
"Mandatory Redemption Amount").
B. Trading Market Redemption. If the Series A Preferred Stock ceases to be
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convertible by any holder as a result of the limitations described in Article
VI.A(b) below (a "Trading Market Redemption Event"), and the Corporation has
not, prior to, or within forty-five (45) days of, the date that such Trading
Market Redemption Event arises, (i) obtained the Stockholder Approval (as
defined in Article VI.A(b)) or (ii) eliminated any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the
Corporation or any of its securities on the Corporation's ability to issue
shares of Common Stock in excess of the Maximum Share Amount (as defined in
Article VI.A(b)), then the Corporation shall be obligated to redeem immediately
all of the then outstanding Series A Preferred Stock, in accordance with this
Article V.B. An irrevocable redemption notice (the "Trading Market Redemption
Notice") shall be delivered promptly to the holders of Series A Preferred Stock
at their registered address appearing on the records of the Corporation and
shall state (i) that the Maximum Share Amount (as defined in Article VI.A) has
been issued upon conversion of the Series A Preferred Stock, (ii) that the
Corporation is obligated to redeem all of the outstanding Series A Preferred
Stock and (iii) a specified date (the "Mandatory Redemption Date"), which shall
be a date within five (5) business days of the earlier of (a) the date of the
Trading Market Redemption Notice or (b) the date on which the holders of the
Series A Preferred Stock notify the Corporation of the occurrence of a Trading
Market Redemption Event. On the Mandatory Redemption Date, the Corporation shall
make a cash payment for each share required to be redeemed equal to the greater
of (i) the Mandatory Redemption Amount (as defined in Article V.A above) per
share required to be redeemed or (ii) 150% of the Market Price (as defined in
Article VI) on the day a Trading Market Redemption Notice is given.
C. Failure to Pay Redemption Amounts. In the case of a Mandatory Redemption
---------------------------------
Event, if the Corporation fails to pay the Mandatory Redemption Amount, within
five (5) business days of written notice that such amount is due and payable,
then (assuming there are sufficient authorized shares) in addition to all other
available remedies, each holder of Series A Preferred Stock shall have the right
at any time, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to immediately issue (in accordance with and
subject to the terms of Article VI below), in lieu of the Mandatory Redemption
Amount, the number of shares of Common Stock of the Corporation equal to such
applicable redemption amount divided by the lesser of the Conversion Price, the
Floor Price, or 65% of the Market Price (as defined below), as chosen in the
sole discretion of the holder of Series A Preferred Stock, in effect from the
date of the Mandatory Redemption Event until the date such holder elects to
exercise its rights pursuant to this Article V.E. In addition the Corporation
shall immediately nominate and recommend a slate of members of its Board of
Directors a majority of which would constitute persons selected by the holders
of a majority of the outstanding Series A Preferred Stock and shall call a
meeting of its stockholders to approve the election of such slate.
<PAGE>
VI. CONVERSION AT THE OPTION OF THE HOLDER
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A. Optional Conversion
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(a) Conversion Amount. Each holder of shares of Series A Preferred
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Stock may, at its option at any time and from time to time, upon
surrender of the certificates therefor, convert any or all of its
shares of Series A Preferred Stock into Common Stock as set forth
below (an "Optional Conversion"). Each share of Series A Preferred
Stock shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as such Common Stock exists
on the Issue Date, or any other shares of capital stock or other
securities of the Corporation into which such Common Stock is
thereafter changed or reclassified, as is determined by dividing
(1) the sum of (a) the total Stated Value per share to be
converted plus (b) the Premium Amount per share to be converted by
(2) the then effective Conversion Price (as defined below);
provided, however, that in no event (other than pursuant to the
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Automatic Conversion (as defined in Article VII)) shall a holder
of shares of Series A Preferred Stock be entitled to convert any
such shares in excess of that number of shares upon conversion of
which the sum of (x) the number of shares of Common Stock
beneficially owned by all of the holders as a result of the
ownership of the Series A Preferred Stock and the Warrants (as
defined below) and any Common Stock issued or issuable thereunder
(other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted
portion of the shares of Series A Preferred Stock or the
unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the warrants issued by
the Corporation pursuant to the Purchase Agreement (the
"Warrants")) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number
of shares of Common Stock issuable upon the conversion of the
shares of Series A Preferred Stock with respect to which the
determination of this proviso is being made, would result in
beneficial ownership by all of such holders and such holders'
affiliates of more than 19.999% of the outstanding shares of
Common Stock. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (x) of such proviso.
(b) Trading Market Limitation. Unless the Corporation either (i) is
-------------------------
permitted by the applicable rules and regulations of the principal
securities market on which the Common Stock is listed or traded or
(ii) has obtained approval of the issuance of the Common Stock
upon conversion of or otherwise pursuant to the Series A Preferred
Stock in accordance with applicable law and the rules and
regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the
Corporation or any of its securities (the "Stockholder Approval"),
in no event shall the total number of shares of Common Stock
issued upon conversion of or otherwise pursuant to the Series A
Preferred Stock (including any shares of capital stock or rights
to acquire shares of capital stock issued by the Corporation which
are aggregated or integrated with the Common Stock issued or
issuable upon conversion of or otherwise pursuant to the Series A
Preferred Stock for purposes of any such rule or regulation)
exceed the maximum number of shares of Common Stock that the
Corporation can so issue pursuant to any rule of the principal
United States securities market on which the Common Stock trades
(including Rule 4460 of the Nasdaq or any successor rule)(the
"Maximum Share Amount") which, as of the Issue Date, shall be
5,866,905 (19.999% of the total shares of Common Stock outstanding
on the Issue Date), subject to equitable adjustments from time to
time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock
occurring after the Issue Date. With respect to each holder of
Series A Preferred Stock, the Maximum Share Amount shall refer to
such holder's pro rata share thereof determined in accordance with
--- ----
Article X below. In the event that the sum of (x) the aggregate
number of shares of Common Stock actually issued upon conversion
of or otherwise pursuant to the outstanding Series A Preferred
Stock plus (y) the aggregate number of shares of Common Stock that
----
remain issuable upon conversion of or otherwise pursuant to the
Series A Preferred Stock at the then effective Conversion Price,
represents at least one hundred percent (100%) of the Maximum
Share Amount (the "Triggering Event"), the Corporation will use
its best efforts to seek and obtain Stockholder Approval (or
obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event.
<PAGE>
B. Conversion Price. The "Conversion Price" as used herein, shall initially be
----------------
$6.25 per share and shall be subject to adjustment as set forth in this
Certificate. All such adjustments shall be successive. On the six month
anniversary of the Issue Date, the Conversion Price shall be adjusted, if lower,
to 90% of the average Closing Price of the Common Stock for each Trading Day
during the six month period from the date of issuance, but in no event shall
such adjustment reduce the Conversion Price below Two Dollars ($2.00) (subject
to adjustment for stock splits, stock dividends and similar events prior to the
end of such period (the "Floor Price").
C. Adjustments to Conversion Price. The Conversion Price shall be subject to the
-------------------------------
following provisions:
(a) Adjustment to Conversion Price Due to Stock Split, Stock Dividend,
------------------------------------------------------------------
Etc. If at any time when Series A Preferred Stock is issued and
---
outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend,
combination, reclassification, rights offering below the Trading
Price (as defined below) to all holders of Common Stock or other
similar event, then the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend,
combination, reclassification, rights offering below the Trading
Price or other similar event. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the
effective date thereof. "Trading Price," which shall be measured
as of the record date in respect of the rights offering, means (i)
the average of the last reported sale prices for the shares of
Common Stock on Nasdaq as reported by Bloomberg, as applicable,
for the five (5) Trading Days immediately preceding such date, or
(ii) if Nasdaq is not the principal trading market for the shares
of Common Stock, the average of the last reported sale prices on
the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot
be calculated as of such date on any of the foregoing bases, the
Trading Price shall be the fair market value as reasonably
determined in good faith by (a) the Board of Directors of the
Corporation or, (b) at the option of a majority-in-interest of the
holders of the outstanding Series A Preferred Stock by an
independent investment bank of nationally recognized standing in
the valuation of businesses similar to the business of the
Corporation.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when
--------------------------------------------
Series A Preferred Stock is issued and outstanding and prior to
the conversion of all Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which
shares of Common Stock of the Corporation shall be changed into
the same or a different number of shares of another class or
classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Corporation other than in
connection with a plan of complete liquidation of the Corporation
(each, a "Change of Control Transaction"), then the holders of
Series A Preferred Stock shall thereafter have the right to
receive upon conversion of the Series A Preferred Stock, upon the
basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets which
the holders of Series A Preferred Stock would have been entitled
to receive in such transaction had the Series A Preferred Stock
been converted in full immediately prior to such transaction
(without regard to any limitations on conversion contained
herein), and in any such case appropriate provisions shall be made
with respect to the rights and interests of the holders of Series
A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon
the conversion of Series A Preferred Stock. The Corporation shall
not effect any transaction described in this subsection (b) unless
(a) it first gives, to the extent practical, thirty (30) days'
prior written notice (but in any event at least fifteen (15)
business days prior written notice) of the record date of the
special meeting of stockholders to approve, or if there is no such
record date, the date of consummation of, such Change of Control
Transaction (during which time the holders of Series A Preferred
Stock shall be entitled to convert the Series A Preferred Stock)
and (b) the resulting successor or acquiring entity (if not the
Corporation) and, if an entity different from the successor or
acquiring entity, the entity whose capital stock or assets the
holders of the Common Stock are entitled to receive as a result of
such Change of Control Transaction, assumes by written instrument
the obligations of this Certificate of Designation (including this
subsection (b)); provided, if such Change of Control Transaction
--------
occurs prior to April 10, 2001, it shall at the option of the
holder be a deemed
<PAGE>
Liquidation Event under Section IVB. The above provisions shall
similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
(c) Adjustment Due to Distribution. Subject to Article III, if the
------------------------------
Corporation shall declare or make any distribution of its assets
(or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire
shares) of capital stock of a subsidiary (i.e., a spin-off) (a
"Distribution"), then the holders of Series A Preferred Stock
shall be entitled, upon any conversion of shares of Series A
Preferred Stock after the date of record for determining
shareholders entitled to such Distribution, to receive the amount
of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such
conversion had such holder been the holder of such shares of
Common Stock on the record date for the determination of
shareholders entitled to such Distribution.
(d) Purchase Rights. Subject to Article III, if at any time when any
---------------
Series A Preferred Stock is issued and outstanding, the
Corporation issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the
"Purchase Rights") pro rata to the record holders of any class of
Common Stock, then the holders of Series A Preferred Stock will be
entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common
Stock acquirable upon complete conversion of the Series A
Preferred Stock (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue
or sale of such Purchase Rights.
(e) Antidilution Provisions. The Conversion Price shall be subject to
-----------------------
adjustment from time to time as provided below:
(i) Adjustment of Conversion Price. If and whenever on or
------------------------------
after the Issue Date, the Corporation is deemed to have
issued or sold, any shares of Common Stock for no
consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or
underwriting discounts or allowances in connection
therewith) less than the Market Price (a "Dilutive
Issuance"), then immediately upon the Dilutive Issuance,
the Conversion Price will be reduced to a price determined
by multiplying the Conversion Price in effect immediately
prior to the Dilutive Issuance by a fraction, (I) the
numerator of which is an amount equal to the sum of (x)
the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the
quotient of the aggregate consideration, calculated as set
forth in subsection (ii) below, received by the
Corporation upon such Dilutive Issuance divided by the
Market Price in effect immediately prior to the Dilutive
Issuance, and (II) the denominator of which is the total
number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such Dilutive
Issuance.
(ii) Effect on Conversion Price of Certain Events. For purposes
--------------------------------------------
of determining the adjusted Conversion Price, the
following will be applicable:
(A) Issuance of Rights or Options. If the Corporation in any
-----------------------------
manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for
or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and
options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and
the price per share for which Common Stock is issuable
upon the exercise of such Options is less than the Market
Price, then the Conversion Price shall be adjusted in
the manner set forth in subsection(e)(i) above. For
purposes of the preceding sentence, the "price per share
for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total
amount, if any, received or receivable by the Corporation
as consideration for the issuance or granting of all such
Options, plus the minimum aggregate amount of additional
consideration, if any, payable
<PAGE>
to the Corporation upon the exercise of all such Options,
plus, in the case of Convertible Securities issuable upon
the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the
conversion or exchange thereof at the time such
Convertible Securities first become convertible or
exchangeable, by (ii) the number of shares of Common
Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Conversion
Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or
upon the conversion or exchange of Convertible Securities
issuable upon exercise of such Options.
(B) Issuance of Convertible Securities. If the Corporation
----------------------------------
in any manner issues or sells any Convertible Securities,
whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and
the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market
Price, then the Conversion Price shall be adjusted in the
manner set forth in subsection (e)(i) above. For the
purposes of the preceding sentence, the "price per share
for which Common Stock is issuable upon such conversion
or exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Corporation
as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof at
the time such Convertible Securities first become
convertible or exchangeable, by (ii) the number of shares
of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities. No further adjustment
to the Conversion Price will be made upon the actual
issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
(C) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional
consideration payable to the Corporation upon the
exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Corporation upon
the conversion or exchange of any Convertible Securities;
or (iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other
than under or by reason of provisions designed to protect
against dilution or to automatically adjust for stock
splits, stock dividends, combinations, reclassifications
or other similar events), the Conversion Price in effect
at the time of such change will be readjusted to the
Conversion Price which would have been in effect at such
time had such Options or Convertible Securities still
outstanding provided for such changed additional
consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold.
(D) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares
----------
of Common Stock issuable upon exercise of any Option or
upon conversion or exchange of any Convertible Securities
is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible
Securities shall have expired or terminated, the
Conversion Price then in effect will be readjusted to the
Conversion Price which would have been in effect at the
time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination
(other than in respect of the actual number of shares of
Common Stock issued upon exercise or conversion thereof),
never been issued.
(E) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued,
granted or sold for cash, the consideration received
therefor will be the amount received by the Corporation
therefor, before
<PAGE>
deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid
or incurred by the Corporation in connection with such
issuance, grant or sale. In case any Common Stock,
Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than
cash, the amount of the consideration other than cash
received by the Corporation will be the fair value of
such consideration, except where such consideration
consists of securities, in which case the amount of
consideration received by the Corporation will be the
Market Price thereof as of the date of receipt. In case
any Common Stock, Options or Convertible Securities are
issued in connection with any acquisition, merger or
consolidation in which the Corporation is the surviving
corporation, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation as
is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities
will be determined in good faith by the Board of
Directors of the Corporation.
(F) Exceptions to Adjustment of Conversion Price. No
--------------------------------------------
adjustment to the Conversion Price will be made (i) upon
the exercise of any warrants, options or convertible
securities granted, issued and outstanding on the Issue
Date, including the Series A Preferred Stock or the
Warrants; (ii) upon the payment of any dividends on the
Series A Preferred Stock and any conversions thereof; or
(iii) upon the grant or exercise of any stock or options
which may hereafter be granted or exercised under any
employee benefit plan of the Corporation now existing or
to be implemented in the future, so long as in the case
of any grant in the future the issuance of such stock or
options is approved by a majority of the independent
members of the Board of Directors of the Corporation or a
majority of the members of a committee of independent
directors established for such purpose.
(iii) Certain Definitions.
-------------------
(A) As used in this certificate, "Common Stock" includes the
------------
Common Stock, par value $.01 per share, and any
additional class of stock of the Corporation having no
preference as to dividends or distributions on
liquidation, provided that the shares issuable pursuant
to the Series A Preferred Stock shall include only shares
of Common Stock, par value $.01 per share, in respect of
which the Series A Preferred Stock is convertible, or
shares resulting from any subdivision or combination of
such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the
character referred to above hereof, the stock or other
securities or property provided for in such paragraph.
(B) "Closing Price," as of any date, (i) means the reported
-------------
closing price for the shares of Common Stock on Nasdaq as
reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and
hereafter designated by the holder and the Corporation
("Bloomberg"), or (ii) if Nasdaq is not the principal
trading market for the shares of Common Stock, the
average of the reported closing price on the principal
trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if closing
price cannot be calculated as of such date on any of the
foregoing bases, the Closing Price shall be the fair
market value as reasonably determined in good faith by
(a) the Board of Directors of the Corporation or, at the
option of a majority-in-interest of the holders of the
Series A Preferred Stock, by (b) an independent
investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the
Corporation. The manner of determining the Closing Price
of the Common Stock set forth in the foregoing definition
shall apply with respect to any other security in respect
of which a determination as to market value must be made
hereunder.
<PAGE>
(C) "Market Price," as of any date, (i) means the average
------------
reported closing prices for the shares of Common Stock on
Nasdaq for the five (5) Trading Days immediately
preceding such date as reported by Bloomberg, or (ii) if
Nasdaq is not the principal trading market for the shares
of Common Stock, the average of the last reported closing
prices on the principal trading market for the Common
Stock during the same period as reported by Bloomberg, or
(iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Market Price
shall be the fair market value as reasonably determined
in good faith by (a) the Board of Directors of the
Corporation or, at the option of a majority-in-interest
of the holders of the Series A Preferred Stock, by (b) an
independent investment bank of nationally recognized
standing in the valuation of businesses similar to the
business of the Corporation. The manner of determining
the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any
other security in respect of which a determination as to
market value must be made hereunder.
(D) "Trading Day" shall mean any day on which the Common
-----------
Stock is traded for any period on Nasdaq, or on the
principal securities exchange or other securities market
on which the Common Stock is then being traded.
D. Mechanics of Conversion. In order to convert Series A Preferred Stock into
-----------------------
full shares of Common Stock, a holder of Series A Preferred Stock shall: (i)
submit a copy of the fully executed notice of conversion in the form attached
hereto as Exhibit A ("Notice of Conversion") to the Corporation by facsimile
---------
dispatched prior to Midnight, New York City time (the "Conversion Notice
Deadline") on the date specified therein as the Conversion Date (as defined in
Article VI.D(d)) (or by other means resulting in, or reasonably expected to
result in, notice to the Corporation on the Conversion Date) to the office of
the Corporation or its designated Transfer Agent for the Series A Preferred
Stock, which notice shall specify the number of shares of Series A Preferred
Stock to be converted, the Conversion Price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the first page of each certificate to be converted); and (ii) surrender the
original certificates representing the Series A Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed, along with a copy of the
Notice of Conversion to the office of the Corporation or the Transfer Agent for
the Series A Preferred Stock as soon as practicable thereafter. The Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion, unless either the Preferred Stock
Certificates are delivered to the Corporation or its Transfer Agent as provided
above, or the holder notifies the Corporation or its Transfer Agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
subparagraph (a) below). In the case of a dispute as to the calculation of the
Conversion Price, the Corporation shall promptly issue such number of shares of
Common Stock that are not disputed in accordance with subparagraph (b) below.
The Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion. The accountant shall review the calculations and notify the
Corporation and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant's calculation shall be
deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the Corporation of
---------------------------
evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A
Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity reasonably satisfactory to the Corporation, and upon
surrender and cancellation of the Preferred Stock Certificate(s), if
mutilated, the Corporation shall execute and deliver new Preferred
Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon the surrender of
----------------------------------------
certificates as described above together with a Notice of Conversion,
the Corporation shall issue and, within five (5) business days after
such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of agreement and indemnification
pursuant to subparagraph (a) above) (the "Delivery Period"), deliver
(or cause its Transfer Agent to so issue and deliver) in accordance
with the terms hereof and the Purchase Agreement (including, without
limitation, in accordance with the requirements of Section 2(g) of
the Purchase Agreement) to or upon the order of the holder (i) that
number of shares of Common Stock for the portion of the shares of
Series A Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance
of the shares of Series A Preferred Stock not
<PAGE>
converted, if any. In addition to any other remedies available to the
holder, including actual damages and/or equitable relief, the
Corporation shall pay to a holder $1,000 per day in cash for each day
beyond a two (2) day grace period following the Delivery Period that
the Corporation fails to deliver Common Stock (a "Delivery Default")
issuable upon surrender of shares of Series A Preferred Stock with a
Notice of Conversion until such time as the Corporation has delivered
all such Common Stock (the "Delivery Default Payments"). Such
Delivery Default Payments shall be paid to such holder by the fifth
day of the month following the month in which it has accrued.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Corporation's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the holder and its compliance with
the provisions contained in Article VI.A and in this Article VI.D, the
Corporation shall use its reasonable best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) No Fractional Shares. If any conversion of Series A Preferred
--------------------
Stock would result in a fractional share of Common Stock or the
right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of
Common Stock issuable upon Conversion of the Series A Preferred
Stock shall be rounded down to the next highest number of shares.
(d) Conversion Date. The "Conversion Date" shall be the date specified
---------------
in the Notice of Conversion, provided that the Notice of Conversion
is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Corporation or its
Transfer Agent before 12:00 noon, New York City time, on the date so
specified, otherwise the Conversion Date shall be the first business
day after the date so specified on which the Notice of Conversion is
actually received by the Corporation or its Transfer Agent. The
person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the
record holder or holders of such securities as of the Conversion Date
and all rights with respect to the shares of Series A Preferred Stock
surrendered shall forthwith terminate except the right to receive the
shares of Common Stock or other securities or property issuable on
such conversion and except that the holders preferential rights as a
holder of Series A Preferred Stock shall survive to the extent the
Corporation fails to deliver such securities.
E. Reservation of Shares. A number of shares of the authorized but unissued
---------------------
Common Stock sufficient to provide for the conversion of the Series A Preferred
Stock outstanding (based on the Conversion Price then in effect) shall at all
times be reserved by the Corporation, free from preemptive rights, for such
conversion or exercise. As of the date of issuance of the Series A Preferred
Stock, 20,000,000 authorized and unissued shares of Common Stock have been duly
reserved for issuance upon conversion of the Series A Preferred Stock (the
"Reserved Amount"). The Reserved Amount shall be increased from time to time in
accordance with the Corporation's obligations pursuant to Section 4(h) of the
Purchase Agreement. In addition, if the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Series A Preferred Stock
shall be convertible, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Preferred Stock.
If at any time a holder of shares of Series A Preferred Stock submits a Notice
of Conversion, and the Corporation does not have sufficient authorized but
unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (a "Conversion Default"),
subject to Article X, the Corporation shall issue to the holder all of the
shares of Common Stock which are available to effect such conversion. The number
of shares of Series A Preferred Stock included in the Notice of Conversion which
exceeds the amount which is then convertible into available shares of Common
Stock (the "Excess Amount") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the holder's option at any time after) the date
additional shares of Common Stock are authorized by the Corporation to permit
such conversion, at which time the Conversion Price in respect thereof shall be
the lesser of (i) the Conversion Price on the Conversion Default Date (as
defined below) and (ii) the Conversion Price on the Conversion Date elected by
the holder in respect thereof. The Corporation shall use its reasonable best
efforts to
<PAGE>
effect an increase in the authorized number of shares of Common Stock as soon as
possible following the earlier of (i) such time that a holder of Series A
Preferred Stock notifies the Corporation or that the Corporation otherwise
becomes aware that there are or likely will be insufficient authorized and
unissued shares to allow full conversion thereof and (ii) a Conversion Default.
In addition, the Corporation shall pay to the holder payments ("Conversion
Default Payments") for a Conversion Default in the amount of (a) .24 multiplied
by (b) the sum of (x) the Stated Value of the shares held by such holder through
the Authorization Date (as defined below) plus (y) the Premium Amount with
respect to the Shares held by such holder through the Authorization Date,
multiplied by (c) (N/365), where N equals the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Corporation authorizes a sufficient number of shares of Common Stock to effect
conversion of the full number of shares of Series A Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the applicable Conversion Price, at the holder's option, as follows:
(a) In the event the holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month
following the month in which it has accrued; and
(b) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock
at the Conversion Price (as in effect at the time of Conversion) at
any time after the fifth day of the month following the month in
which it has accrued in accordance with the terms of this Article VI
(so long as there is then a sufficient number of authorized shares of
Common Stock).
The holder's election shall be made in writing to the Corporation at any time
prior to 9:00 p.m., New York City Time, on the third (3rd) day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Corporation's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law or
in equity (including a decree of specific performance and/or injunctive relief).
F. Notice of Conversion Price Adjustments. Upon the occurrence of each
--------------------------------------
adjustment or readjustment of the Conversion Price pursuant to this Article VI,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series A Preferred Stock.
G. Status as Stockholders. Upon submission of a Notice of Conversion by a holder
----------------------
of Series A Preferred Stock, (i) the shares covered thereby (other than the
shares, if any, which cannot be issued because their issuance would exceed such
holder's allocated portion of the Reserved Amount or Maximum Share Amount) shall
be deemed converted into shares of Common Stock and (ii) the holder's rights as
a holder of such converted shares of Series A Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. Notwithstanding the
foregoing, if a holder has not received certificates for all shares of Common
Stock prior to the tenth (10th) business day after the expiration of the
Delivery Period with respect to a conversion of shares of Series A Preferred
Stock for any reason, then (unless the holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Corporation) the holder
shall regain the rights of a holder of such shares of Series A Preferred Stock
with respect to such unconverted shares of Series A Preferred Stock and the
Corporation shall, as soon as practicable, return such unconverted shares of
Series A Preferred Stock to the holder or, if such shares of Series A Preferred
Stock have not been surrendered, adjust its records to reflect that such shares
of Series A Preferred Stock have not been converted. In all cases, the holder
shall retain all of its rights and remedies (including, without limitation, (i)
the right to receive Delivery Default Payments pursuant to Article VI.E to the
extent required thereby for such Delivery Default and any
<PAGE>
subsequent Delivery Default and (ii) the right to have the Conversion Price with
respect to subsequent conversions determined in accordance with Article VI.E.)
for the Corporation's failure to convert the Series A Preferred Stock.
VII. REDEMPTION OR CONVERSION AT MATURITY
------------------------------------
So long as (i) all of the shares of Common Stock issuable upon conversion of all
outstanding shares of Series A Preferred Stock are then (x) authorized and
reserved for issuance, (y) registered for re-sale under the 1933 Act by the
holders of the Series A Preferred Stock (or may otherwise be resold publicly
without restriction) and (z) eligible to be traded on Nasdaq, the NYSE, the AMEX
or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory Redemption
Event or Trading Market Redemption Event, each share of Series A Preferred Stock
issued and outstanding on October 10, 2004 (the "Maturity Date"), shall be
either (i) redeemed in cash by the Corporation for the Liquidation Preference or
(ii) at the option of the holder, converted into shares of Common Stock on such
date at a Conversion Price equal to the lesser of 85% of the Market Price or the
Conversion Price as of the Maturity Date. After the initial Maturity Date, the
Maturity Date shall be delayed by one (1) Trading Day for each Trading Day
occurring prior thereto and prior to the full conversion of the Series A
Preferred Stock that (i) any Registration Statement required to be filed and to
be effective pursuant to the Registration Rights Agreement is not effective or
sales of all of the Registrable Securities otherwise cannot be made thereunder
during the Registration Period (as defined in the Registration Rights Agreement)
(whether by reason of the Corporation's failure to properly supplement or amend
the prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise, including during any Allowed Delays (as defined
in Section 3(f) of the Registration Rights Agreement)), (ii) any Mandatory
Redemption Event or Trading Market Redemption Event exists, without regard to
whether any cure periods shall have run or (iii) that the Corporation is in
breach of any of its obligations pursuant to Section 4(h) of the Purchase
Agreement.
VIII VOTING RIGHTS
-------------
The holders of the Series A Preferred Stock will vote on an as converted basis
together with the shares of Common Stock, except as otherwise provided by the
Delaware General Corporation Law ("DGCL"), in this Article VIII, and in Article
IX below. For so long as at least 25% of the Series A Preferred Stock remains
outstanding, the holders of the Series A Preferred Stock, voting together as a
single class, shall be entitled to elect two (2) directors.
Notwithstanding the above, the Corporation shall provide each holder of Series A
Preferred Stock with prior notification of any meeting of the Corporation's
shareholders (and copies of 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 sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least five (5) days prior to the record date
specified therein (or fifteen (15) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and 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 DGCL the vote of the holders of the Series A
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 shares of the Series A
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. To the extent that under the DGCL holders
of the Series A Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A 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 A Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other 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 DGCL.
<PAGE>
IX PROTECTIVE PROVISIONS
---------------------
So long as shares of Series A Preferred Stock are outstanding, the Corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by the DGCL) of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock:
(a) alter, amend or repeal (whether by merger, consolidation or
otherwise) the rights, preferences or privileges of the Series A
Preferred Stock or any capital stock of the Corporation so as to
affect adversely the Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation
(as previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari passu
with the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Pari Passu Securities");
---- -----
(d) increase the authorized number of shares of Series A Preferred Stock;
(e) issue any Senior Securities or Pari Passu Securities;
---- -----
(f) increase the par value of the Common Stock, or
(g) 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 A Preferred Stock under Section 305
of the Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from time to time
amended).
X PRO RATA ALLOCATIONS
--------------------
The Maximum Share Amount and the Reserved Amount (including any increases
thereto) shall be allocated by the Corporation pro rata among the holders of
Series A Preferred Stock based on the number of shares of Series A Preferred
Stock issued to each holder. Each increase to the Maximum Share Amount and the
Reserved Amount shall be allocated pro rata among the holders of Series A
Preferred Stock based on the number of shares of Series A Preferred Stock held
by each holder at the time of the increase in the Maximum Share Amount or
Reserved Amount. In the event a holder shall sell or otherwise transfer any of
such holder's shares of Series A Preferred Stock, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any Series A
Preferred Stock shall be allocated to the remaining holders of shares of Series
A Preferred Stock, pro rata based on the number of shares of Series A Preferred
Stock then held by such holders.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the
Corporation this day of October 2000.
--
INTERWORLD CORPORATION
By:
---------------------------------------
Jeremy M. Davis, President and Chief
Executive Officer
<PAGE>
EXHIBIT 4.1
-----------
EXHIBIT B
TO
SECURITIES
PURCHASE
AGREEMENT
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN THE SECURITIES PURCHASE
AGREEMENT DATED AS OF OCTOBER 12, 2000, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
Right to
Purchase
Shares of
Common Stock,
par value $.01
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, or its
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registered assigns, is entitled to purchase from INTERWORLD CORPORATION, a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Paragraph 2 hereof, a number of fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock") as determined hereunder, at an exercise price of $7.25 per
share (the "Exercise Price"). The term "Warrant Shares," as used herein, refers
to the shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to
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the provisions hereof, this Warrant may be exercised by the holder hereof, in
whole or in part, by the surrender of this Warrant, together with a completed
exercise agreement in the form attached hereto (the "Exercise Agreement"), to
the Company during normal business hours on any business day during the Exercise
Period (as defined below) at the Company's principal executive offices (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of the
Exercise Price for the Warrant Shares specified in the Exercise Agreement or
(ii) if the resale of the Warrant Shares by the holder is not then registered
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), delivery to the Company of a written
notice of an election to effect a "Cashless Exercise" (as defined in Section
11(c) below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof or
such holder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and payment shall have
been made for such shares (or an election to effect a Cashless Exercise has been
made) as set forth above. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
two (2) business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by
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such holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
The number of Warrant Shares issued hereunder shall equal 5,866,905 (subject to
equitable adjustments from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events occurring after the
date of this Warrant) less the number of shares of Common Stock into which the
original amount of Series A Preferred Stock may be converted into on the date of
exercise of this Warrant. Accordingly, and not by way of duplication, in no
event shall the Holder of this Warrant be entitled to exercise this Warrant to
the extent that, these total number of Common Stock issuable upon conversion of
the original amount of Series A Preferred Stock (defined below) plus the number
of shares of Common Stock issuable pursuant to all shares of the Company's
Series A Preferred Stock (the "Series A Preferred Stock"), including all
adjustments of the conversion price and all shares of Common Stock issuable
under any pay-in-kind provisions (in each case whether or not issued and whether
or not the Series A Preferred Stock remains outstanding), would result in
beneficial ownership by the Holder and its affiliates of more than 19.9% of the
shares of Common Stock outstanding on October 12, 2000. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder.
2. Period of Exercise. This Warrant is exercisable at any time or from time to
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time on or after the date on which the maximum number of shares of Common Stock
issuable under the Series A Preferred Stock has been finally determined (after
all conversion adjustments and issuances of shares under any pay-in-kind
provisions) and before 5:00 p.m., New York City time on the fifth anniversary of
the Issue Date (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and agrees as
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follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
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accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges
with respect to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
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shall at all times have authorized and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of this Warrant in
accordance with the terms of Section 4(h) of the Securities Purchase
Agreement, dated October 12, 2000 between the Company and the
Investors (the "Securities Purchase Agreement").
(c) Listing. The Company shall promptly secure the listing of the shares
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of Common Stock issued upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to
official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so
list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same
class shall be listed on such national securities exchange or
automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of its
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charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying
out of all the provisions of this Warrant and in the taking of all
such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of
this Warrant against dilution or other impairment, consistent with
the tenor and purpose of this Warrant. Without limiting the
generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise
of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this
Warrant.
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(e) Successors and Assigns. This Warrant will be binding upon any entity
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succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price and
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the number of Warrant Shares shall be subject to adjustment from time to time as
provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
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Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4
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(e) hereof, if and whenever on or after the Issue Date of this
Warrant, the Company issues or sells, or in accordance with Paragraph
4(b) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the
Exercise Price and the Market Price (a "Dilutive Issuance"), then
immediately upon the Dilutive Issuance, the Exercise Price will be
reduced to a price determined by multiplying the Exercise Price in
effect immediately prior to the Dilutive Issuance by a fraction, (I)
the numerator of which is an amount equal to the sum of (x) the
number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration, calculated as set for the in Paragraph 4(b)
hereof, received by the Company upon such Dilutive Issuance divided
by the Market Price in effect immediately prior to the Dilutive
Issuance, and (II) the denominator of which is the total number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
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determining the adjusted Exercise Price under Paragraph 4(a) hereof,
the following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
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issues or grants any warrants, rights or options, whether or
not immediately exercisable, to subscribe for or to purchase
Common Stock or other securities convertible into or
exchangeable for Common Stock ("Convertible Securities") (such
warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is
issuable upon the exercise of such Options is less than the
Exercise Price and the Market Price, then the Exercise Price
shall be adjusted in the manner set forth in Section 4(a). For
purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon the exercise of such
Options" is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for
the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional
consideration payable upon the conversion or exchange thereof
at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the number of shares of
Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will
be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
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manner issues or sells any Convertible Securities, whether or
not immediately convertible (other than where the same are
issuable upon the exercise of Options) and the price per share
for which Common Stock is issuable upon such conversion or
exchange is less than the Exercise Price and the Market Price,
then the Exercise Price shall be adjusted in the manner set
forth in Section 4(a). For the purposes of the preceding
sentence, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by
dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of all
such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or
exchangeable, by (ii) the number of shares of Common Stock
issuable upon the conversion or exchange of all such
<PAGE>
Convertible Securities. No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible
Securities.
(iii) Change in Option Price or Conversion Rate. If there is a change
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at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii)
the amount of additional consideration, if any, payable to the
Company upon the conversion or exchange of any Convertible
Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common
Stock (other than under or by reason of provisions designed to
protect against dilution or to automatically adjust for stock
splits, stock dividends, combinations, reclassifications or
other similar events), the Exercise Price in effect at the time
of such change will be readjusted to the Exercise Price which
would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
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Securities. If, in any case, the total number of shares of
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Common Stock issuable upon exercise of any Option or upon
conversion or exchange of any Convertible Securities is not, in
fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have
expired or terminated, the Exercise Price then in effect will
be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than
in respect of the actual number of shares of Common Stock
issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
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Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of
this Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with
such issuance, grant or sale. In case any Common Stock, Options
or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash,
the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case
the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued in
connection with any acquisition, merger or consolidation in
which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-
surviving corporation as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will
be determined in good faith by the Board of Directors of the
Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
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the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and
outstanding on the date of issuance of this Warrant, including
the Series A Preferred Stock and the Warrants; (ii) upon the
payment of any dividends on the Series A Preferred Stock and
any conversion thereof; or (iii) upon the grant or exercise of
any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now
existing or to be implemented in the future, so long as in the
case of any grant in the future the issuance of such stock or
options is approved by a majority of the independent members of
the Board of Directors of the Company or a majority of the
members of a committee of independent directors established for
such purpose.
(c) Subdivision or Combination of Common Stock. If the Company at any
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time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the
shares of Common Stock acquirable hereunder into a greater number of
shares, then, after the date of record for effecting such
subdivision, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common
Stock acquirable hereunder into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise
Price in effect immediately prior to such combination will be
proportionately increased.
<PAGE>
(d) Adjustment in Number of Shares. Upon each adjustment of the Exercise
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Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall
be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares
of Common Stock issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any consolidation of the
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Company with, or merger of the Company into any other corporation, or
in case of any sale or conveyance of all or substantially all of the
assets of the Company other than in connection with a plan of
complete liquidation of the Company, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will
be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the
shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore acquirable
and receivable upon exercise of this Warrant had such consolidation,
merger or sale or conveyance not taken place. In any such case, the
Company will make appropriate provision to insure that the provisions
of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not
effect any consolidation, merger or sale or conveyance unless prior
to the consummation thereof, the successor or acquiring entity (if
other than the Company) and, if an entity different from the
successor or acquiring entity, the entity whose capital stock or
assets the holders of the Common Stock of the Company are entitled to
receive as a result of such consolidation, merger or sale or
conveyance assumes by written instrument the obligations under this
Paragraph 4 and the obligations to deliver to the holder of this
Warrant such shares of stock, securities or assets as, in accordance
with the foregoing provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or make any
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distribution of its assets (including cash) to holders of Common
Stock as a partial liquidating dividend, by way of return of capital
or otherwise, then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon
exercise of this Warrant for the purchase of any or all of the shares
of Common Stock subject hereto, to receive the amount of such assets
which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the
determination of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which requires
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any adjustment of the Exercise Price, then, and in each such case,
the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease in the number of Warrant
Shares purchasable at such price upon exercise, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the
chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the Exercise
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Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to
be made, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward,
shall amount to not less than 1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to be
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issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the
Market Price of a share of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
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(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in
cash out of retained earnings) to the holders of the Common
Stock;
<PAGE>
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or
substantially all its assets to, another corporation or entity;
or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If any event occurs of the type contemplated by the
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adjustment provisions of this Paragraph 4 but not expressly provided
for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the Company's Board of
Directors will make an appropriate adjustment in the Exercise Price
and the number of shares of Common Stock acquirable upon exercise of
this Warrant so that the rights of the Holder shall be neither
enhanced nor diminished by such event.
(l) Certain Definitions.
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(i) "Common Stock," for purposes of this Paragraph 4, includes the
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Common Stock, par value $.01 per share, and any additional
class of stock of the Company having no preference as to
dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only
shares of Common Stock, par value $.01 per share, in respect of
which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case
of any reorganization, reclassification, consolidation, merger,
or sale of the character referred to in Paragraph 4(e) hereof,
the stock or other securities or property provided for in such
Paragraph.
(ii) "Market Price," as of any date, (i) means the average of the
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last reported sale prices for the shares of Common Stock on the
Nasdaq National Market ("Nasdaq") for the five trading days
immediately preceding such date as reported by Bloomberg
Financial Markets or an equivalent reliable reporting service
mutually acceptable to and hereafter designated by the holder
of this Warrant and the Company ("Bloomberg"), or (ii) if
Nasdaq is not the principal trading market for the shares of
Common Stock, the average of the last reported sale prices on
the principal trading market for the Common Stock during the
same period as reported by Bloomberg, or (iii) if market value
cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of
Directors of the Company or, at the option of a majority-in-
interest of the holders of the outstanding Warrants, by (b) an
independent investment bank of nationally recognized standing
in the valuation of businesses similar to the business of the
Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply
with respect to any other security in respect of which a
determination as to market value must be made hereunder.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise
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of this Warrant shall be made without charge to the holder of this Warrant or
such shares for any stamp issuance tax or other similar costs in
<PAGE>
respect thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the
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holder hereof to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the holder hereof to purchase Warrant Shares, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such holder for the Exercise Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
7. Transfer, Exchange, and Replacement of Warrant.
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(a) Restriction on Transfer. This Warrant and the rights granted to the
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holder hereof are transferable, in whole or in part, upon surrender
of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred
to in Paragraph 7(e) below, provided, however, that any transfer or
assignment shall be subject to the conditions set forth in Paragraph
7(f) hereof and to the applicable provisions of the Securities
Purchase Agreement and to the written acknowledgement (in form and
substance satisfactory to the Company) by the transferee in such
transfer of the limitations of this Warrant relating to the reduction
or elimination of shares of Common Stock issuable under this Warrant
based upon the number of shares of Common Stock into which the Series
A Preferred Stock is convertible. Until due presentment for
registration of transfer on the books of the Company, the Company may
treat the registered holder hereof as the owner and holder hereof for
all purposes, and the Company shall not be affected by any notice to
the contrary. Notwithstanding anything to the contrary contained
herein, the registration rights described in Paragraph 8 are
assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of October , 2000, by and
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among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant is
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exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Paragraph 7(e) below,
for new Warrants of like tenor representing in the aggregate the
right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right
to purchase such number of shares as shall be designated by the
holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
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satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft,
or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company, or, in the case of
any such mutilation, upon surrender and cancellation of this Warrant,
the Company, at its expense, will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
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in connection with any transfer, exchange, or replacement as provided
in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if
any, incurred by the Holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants
pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
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offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this
Warrant, in which the Company shall record the name and address of
the person in whose name this Warrant has been issued, as well as the
name and address of each transferee and each prior owner of this
Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of the
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surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be
registered under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition
of allowing such exercise, transfer, or exchange, (i) that the holder
or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel, which opinion and counsel are
acceptable to the
<PAGE>
Company, to the effect that such exercise, transfer, or exchange
may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and
substance acceptable to the Company and (iii) that the transferee be
an "accredited investor" as defined in Rule 501(a) promulgated under
the Securities Act; provided that no such opinion, letter or status
as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act. The first
holder of this Warrant, by taking and holding the same, represents to
the Company that such holder is acquiring this Warrant for investment
and not with a view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
-------
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 395 Hudson Street, New
York, New York, 10014 Attention: General Counsel, or at such other address as
shall have been furnished to the holder of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10.Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
-------------
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED IN THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION OF THE UNITED STATES
FEDERAL COURTS AND THE STATE COURTS LOCATED IN NEW YORK WITH RESPECT TO ANY SUIT
OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED
INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT OR PROCEEDING MAY
BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A
FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER.
11.Miscellaneous.
-------------
(a) Amendments. This Warrant and any provision hereof may only be amended
----------
by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the
provisions hereof.
<PAGE>
(c) Cashless Exercise. Notwithstanding anything to the contrary contained
-----------------
in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised by
presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the holder's
intention to effect a cashless exercise, including a calculation of
the number of shares of Common Stock to be issued upon such exercise
in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the holder shall surrender this Warrant for that number of
shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction,
the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise
Price, and the denominator of which shall be the then current Market
Price per share of Common Stock.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer.
INTERWORLD CORPORATION
By:
-------------------------------------
Jeremy M. Davis
Chief Executive Officer and President
Dated as of October , 2000
--
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: , 200
-------- -- -
To: INTERWORLD CORPORATION
The undersigned, pursuant to the provisions set forth in the within Warrant,
hereby agrees to purchase shares of Common Stock covered by such
--------
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $ . Please issue a certificate or certificates for
---------
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
--------------------------------------
Signature:
--------------------------------
Address:
-----------------------------------
-----------------------------------
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
---------------- ------- ------------
, and hereby irrevocably constitutes and appoints
-----------------------
as agent and attorney-in-fact to transfer said Warrant
------------------------
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: , 200
---------- -- -
In the presence of:
---------------------------
Name:
--------------------------------------
Signature:
---------------------------------
Title of Signing Officer or Agent (if any):
---------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE>
EXHIBIT 10.1
------------
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of October 12, 2000,
by and among Interworld Corporation, a Delaware corporation, with headquarters
located at 395 Hudson Street, 6th Floor, New York, New York 10014-3669 (the
"Company") and Jackpot Enterprises Inc., a Nevada corporation, with headquarters
located at 498 Seventh Avenue, New York, New York 10021 (the "Investor").
WHEREAS:
A. The Company and Investor are executing and delivering this Agreement in
reliance upon Section 4(2) under the Securities Act of 1933, as amended (the
"1933 Act");
B. The Company has authorized a new series of preferred stock, designated as
Series A Convertible Preferred Stock (the "Series A Preferred Stock"), having
the rights, preferences and privileges set forth in the Certificate of
Designations, Rights and Preferences attached hereto as Exhibit A (the
"Certificate of Designation");
C. The Preferred Shares (as defined below) are convertible into shares of common
stock, $.01 par value per share, of the Company (the "Common Stock"), upon the
terms and subject to the limitations and conditions set forth in the Certificate
of Designation;
D. The Company has authorized the issuance to Investor of that number of
warrants, in the form attached hereto as Exhibit B, to purchase shares of Common
Stock to equal 19.9% of the outstanding shares of Common Stock less the amount
of shares issuable upon the Series A Preferred Stock (the "Warrants").
E. Investor desires to purchase and the Company desires to issue and sell, upon
the terms and conditions set forth in this Agreement, (i) an aggregate of
3,200,000 shares of Series A Preferred Stock (together with any shares of Series
A Preferred Stock issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"Preferred Shares"), and (ii) the Warrants, for an aggregate purchase price of
$20,000,000; and
F. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW, THEREFORE, the Company and Investor hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
--------------------------------------------------
a. Purchase of Preferred Shares and Warrants. On the date of each of
-----------------------------------------
the First Closing and the Second Closing (each as defined below), the
Company shall issue and sell to Investor and Investor agrees to
purchase from the Company the Preferred Shares and Warrants
contemplated herein.
b. Form of Payment. On date of each of the First Closing and the Second
---------------
Closing (each as defined below), (i) Investor shall pay the portion
of the Purchase Price equal to the aggregate face amount of the
Preferred Shares and Warrants to be issued and sold to it at each of
the First Closing and the Second Closing (each as defined below) (the
"Purchase Price") by wire transfer of immediately available funds to
the Company, in accordance with the Company's written wiring
instructions, against delivery of duly executed certificates
representing the number of Preferred Shares and Warrants which
Investor is
<PAGE>
purchasing and (ii) the Company shall deliver such certificates duly
executed on behalf of the Company, to Investor, against delivery of
such Purchase Price.
c. First and Second Closings.
-------------------------
(i) The purchase and sale of the 2,384,000 Preferred Shares, with
an aggregate face amount of $14,900,000, and a proportionate
number of the Warrants shall be at 12:00 noon Eastern Standard
Time on the fifteenth day following the mailing by the Company
of the requisite notice to Nasdaq National Market ("Nasdaq")
regarding the issuance of the Preferred Shares and the Warrants
or, if such day is not a business day, the next succeeding
business day (the "First Closing") at the offices of Greenberg
Traurig, LLP 200 Park Avenue, New York, New York 10166, or at
such other location as may be agreed to by the parties.
(ii) The purchase and sale of the remaining 816,000 Preferred
Shares, with an aggregate face amount of $5,100,000, and a
proportionate number of the Warrants shall be at 12:00 noon
Eastern Standard Time on a date no later than five days
following the date on which the requisite waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
the rules and regulations promulgated thereunder (the "HSR
Act") for the purchase of such Preferred Shares and Warrants
has expired or been terminated (the "Second Closing") at the
offices of Greenberg Traurig, LLP 200 Park Avenue, New York,
New York 10166, or at such other location as may be agreed to
by the parties.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES. Investor represents and warrants
-----------------------------------------
to the Company that:
a. Investment Purpose. As of the date hereof, Investor is purchasing the
------------------
Preferred Shares, the shares of Common Stock issuable upon conversion
of or otherwise pursuant to the Preferred Shares (including, without
limitation, such additional shares of Common Stock as are issuable as
a result of the events described in Articles V, VI.D(b) or VI.E of
the Certificate of Designation and Section 2(c) of the Registration
Rights Agreement (such shares of Common Stock being collectively
referred to herein as the "Conversion Shares")), the Warrants and the
shares of Common Stock issuable upon exercise or otherwise pursuant
to the Warrants (the "Warrant Shares" and, collectively with the
Preferred Shares, the Conversion Shares and the Warrants, the
"Securities") for its own account and not with a present view towards
the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act.
b. Accredited Investor Status. Investor is an "accredited investor" as
--------------------------
that term is defined in Rule 501(a) of Regulation D ("Regulation D")
as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the 1933 Act (an "Accredited Investor").
c. Reliance on Exemptions. Investor understands that the Securities are
----------------------
being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of, and Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of
Investor set forth herein in order to determine the availability of
such exemptions and the eligibility of Investor to acquire the
Securities.
d. Information. Investor and its advisors, if any, have been furnished
-----------
with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the
Securities which have been requested by Investor or its advisors.
Investor and its advisors, if any, have been afforded the opportunity
to ask questions of the Company. Neither such inquiries nor any other
due diligence investigation conducted by Investor or any of its
advisors or representatives shall modify, amend or affect Investor's
right to rely on the Company's representations and warranties
contained in Section 3 below. Investor understands that its
investment in the Securities involves a significant degree of risk.
e. Governmental Review. Other than compliance with the applicable
-------------------
requirements of the HSR Act, Investor understands that no other
United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Securities.
<PAGE>
f. Transfer or Re-sale. Investor understands that (i) except as provided
-------------------
in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933
Act or any applicable state securities laws, and the Securities may
not be transferred unless (a) the Securities are sold pursuant to an
effective registration statement under the 1933 Act, (b) Investor
shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions
of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration, (c) the Securities
are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of
Investor who agrees to sell or otherwise transfer the Securities only
in accordance with this Section 2(f) and who is an Accredited
Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made
only in accordance with the terms of said Rule and further, if said
Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such Securities under the 1933 Act
or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than
pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the
Securities may be pledged as collateral in connection with a bona
fide margin account or other lending arrangement.
g. Legends. Investor understands that the Preferred Shares and Warrants
-------
and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to
Rule 144 without any restriction as to the number of securities as of
a particular date that can then be immediately sold, the Conversion
Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of an
effective registration statement for the securities
under said Act, or an opinion of counsel, in form,
substance and scope customary for opinions of
counsel in comparable transactions, that
registration is not required under said Act or
unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected, or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144.
Investor agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the Registration
--------------------------
Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of Investor,
and this Agreement constitutes, and upon execution and delivery by
Investor of the Registration Rights Agreement, such agreement will
constitute, valid and binding agreements of Investor enforceable in
accordance with their terms.
i. Organization, Good Standing and Qualification. Investor is a
---------------------------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. Investor has all requisite
power and authority to own and operate its properties and assets and
to carry on its business as now conducted and as presently proposed
to be conducted. Investor is duly qualified and authorized to
transact business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of its activities and of
<PAGE>
its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so
would not have Material Adverse Effect (as defined below).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
---------------------------------------------
warrants to Investor that, except as disclosed in the SEC Documents (as defined
below):
a. Organization and Qualification. The Company and each of its
------------------------------
Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, mortgage, pledge or
otherwise encumber, use and operate its properties and to carry on
its business as and where now owned, leased, used, operated and
conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries
of the Company and the jurisdiction in which each is incorporated.
The Company and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature
of the business conducted by it makes such qualification necessary
except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect. "Material Adverse Effect" means
any material adverse effect on (i) the Securities, (ii) the business,
operations, assets, financial condition or prospects of the Company
and its Subsidiaries, if any, taken as a whole, or (iii) the
transactions contemplated hereby or by the agreements or instruments
to be entered into in connection herewith. "Subsidiaries" means any
corporation or other organization, whether incorporated or
unincorporated, that is actively engaged in business and represents
more than 2% of the Company's revenues in which the Company
beneficially owns a majority of the voting securities.
b. Authorization; Enforcement. (i) The Company has all requisite
--------------------------
corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into and perform
this Agreement, the Registration Rights Agreement and the Warrants
and to consummate the transactions contemplated hereby and thereby
and to issue the Securities, in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Preferred
Shares and the Warrants and the issuance and reservation for issuance
of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise of or otherwise pursuant to the Preferred
Shares and the Warrants) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the
Company, its Board of Directors, or its stockholders is required,
(iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes and, upon execution and
delivery by the Company of the Registration Rights Agreement and the
Warrants and upon execution and filing of the Certificate of
Designation, each of such agreements and instruments will constitute,
a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital stock
--------------
of the Company consists of (i) 100,000,000 shares of Common Stock, of
which 29,335,993 shares are issued and outstanding, 6,708,187 shares
are reserved for issuance pursuant to the Company's stock option
plans, 968,850 shares are reserved for issuance pursuant to the
Company's employee stock purchase plan, 150,158 shares are reserved
for issuance pursuant to securities (other than the Preferred Shares)
exercisable for, or convertible into or exchangeable for shares of
Common Stock and 20,000,000, shares are reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants
(subject to adjustment pursuant to the Company's covenant set forth
in Section 4(h) below); and (ii) 15,000,000 shares of preferred
stock, of which no shares are issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be,
duly authorized, validly issued, fully paid and nonassessable. No
shares of capital stock of the Company are subject to preemptive
rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in Schedule 3(c), as of
the effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares
of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated
<PAGE>
to register the sale of any of its or their securities under the 1933
Act (except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights
to security holders) that will be triggered by the issuance of the
Preferred Shares, the Conversion Shares, the Warrants or the Warrant
Shares. The Company has furnished to Investor true and correct copies
of the Company's Certificate of Incorporation as in effect on the
date hereof ("Certificate of Incorporation"), the Company's By-laws,
as in effect on the date hereof (the "By-laws"), and the terms of all
securities convertible into or exercisable for Common Stock of the
Company and the material rights of the holders thereof in respect
thereto. The Company shall provide Investor with a written update of
this representation signed by the Company's Chief Executive or Chief
Financial Officer on behalf of the Company as of each of the First
Closing and the Second Closing.
d. Issuance of Shares. The Preferred Shares and the Warrants are duly
------------------
authorized and, upon issuance in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances with respect to
the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not
impose personal liability upon the holder thereof. The Conversion
Shares and the Warrant Shares are duly authorized and reserved for
issuance and, upon conversion of the Preferred Shares and exercise of
the Warrants in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof.
e. Acknowledgment of Dilution. The Company understands and acknowledges
--------------------------
the potentially dilutive effect to the Common Stock upon the issuance
of the Conversion Shares upon conversion of or otherwise pursuant to
the Preferred Shares and upon issuance of the Warrant Shares upon
exercise of or otherwise pursuant to the Warrants. The Company
further acknowledges that its obligation to issue Conversion Shares
upon conversion of or otherwise pursuant to the Preferred Shares and
Warrant Shares upon exercise of or otherwise pursuant to the Warrants
in accordance with this Agreement, the Certificate of Designation and
the Warrants is absolute, subject only to the terms and conditions
set forth in this Agreement, the Warrant and the Certificate of
Designation, regardless of the dilutive effect that such issuance may
have on the ownership interests of other stockholders of the Company.
f. Series of Preferred Stock. The terms, designations, powers,
-------------------------
preferences and relative, participating and optional or special
rights, and the qualifications, limitations and restrictions of each
series of preferred stock of the Company (other than the Preferred
Shares) are as stated in the Company's Certificate of Incorporation,
filed on or prior to the date hereof, and the Bylaws. The terms,
designations, powers, preferences and relative, participating and
optional or special rights, and the qualifications, limitations and
restrictions of the Preferred Shares are as stated in the Certificate
of Designation.
g. No Conflicts; Governmental Consents. Subject to compliance with the
-----------------------------------
applicable requirements of the HSR Act and any applicable notice or
shareholder approval under the rules and regulations of the National
Association of Securities Dealers, the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and
the Warrants by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the filing of the Certificate of Designation and the
issuance and reservation for issuance, as applicable, of the
Preferred Shares, Conversion Shares, Warrants and Warrant Shares)
will not (i) conflict with or result in a violation of any provision
of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time
or both could become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) result in
a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company
or its securities are subject) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor
any of its Subsidiaries is in violation of its Certificate of
<PAGE>
Incorporation, By-laws or other organizational documents and neither
the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither the
Company nor any of its Subsidiaries has taken any action or failed to
take any action that would give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture
or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any,
are not being conducted, and shall not be conducted so long as
Investor owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the
1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, approval, qualification,
authorization or order of, or registration, designation, declaration
or make any filing or registration with, any court, governmental
agency, regulatory agency, self regulatory organization or stock
market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration
Rights Agreement or the Warrants in accordance with the terms hereof
or thereof or to issue and sell the Preferred Shares and the Warrants
in accordance with the terms hereof and to issue the Conversion
Shares upon conversion of or otherwise pursuant to the Preferred
Shares and the Warrant Shares upon exercise of or otherwise pursuant
to the Warrants. Except as described in the first sentence of this
subsection (g) or as set forth in Schedule 3(g), all consents,
authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is
not in violation of the listing requirements of the Nasdaq and does
not reasonably anticipate that the Common Stock will be delisted by
the Nasdaq in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
h. SEC Documents; Financial Statements. Since September 1, 1999, the
-----------------------------------
Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "1934 Act") (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits
to such documents) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company
has made available to Investor's true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of
their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to
the extent such documents may have been amended by a subsequent SEC
Document. None of the statements made in any such SEC Documents is,
or has been, required to be amended or updated under applicable law
(except for such statements as have been amended or updated in
subsequent filings prior to the date hereof). As of their respective
dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and
fairly present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except
as set forth in the financial statements of the Company included in
the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course
of business subsequent to December 31, 1999 and (ii) obligations
under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting
principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
<PAGE>
i. Absence of Certain Changes. Since December 31, 1999 and except as set
--------------------------
forth in the SEC Documents filed after such date or as set forth on
Schedule 3(i), there has not been:
(i) any material adverse change in the assets, liabilities,
financial condition or operating results of the Company except
changes in the ordinary course of business, that have not been
and are not expected to be, individually or in the aggregate,
materially adverse;
(ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business,
properties, or financial condition of the Company (as such
business is presently conducted and as it is proposed to be
conducted);
(iii) any waiver or compromise by the Company of a valuable right or
of a material debt owed to it;
(iv) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company,
except in the ordinary course of business and that is not
material to the business, properties, or financial condition
of the Company (as such business is presently conducted and as
it is proposed to be conducted);
(v) any material change to a material contract or arrangement by
which the Company or any of its assets is bound or subject;
(vi) any material change in any compensation arrangement or
agreement with any employee, officer, director or holder of
Common Shares, other than pursuant to the Employment
Agreements;
(vii) any sale, assignment or transfer of any material patents,
trademarks, copyrights, trade secrets or other intangible
assets;
(viii)any resignation or termination of employment of any officer or
key employee of the Company; and the Company does not know of
any impending resignation or termination of employment of any
such officer or key employee;
(ix) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(x) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not yet
due or payable;
(xi) any material loans or guarantees made by the Company to or for
the benefit of its employees, holders of Common Shares,
officers, or directors, or any members of their immediate
families, other than travel advances and other advances made
in the ordinary course of its business;
(xii) any declaration, setting aside, or payment of any dividend or
other distribution of the Company's assets in respect of any
of the Company's Preferred Stock or Common Stock, or any
direct or indirect redemption, purchase, or other acquisition
of any of such Preferred Stock or Common Stock by the Company;
(xiii)to the best of the Company's knowledge, any other event or
condition of any character that is reasonably likely to
materially and adversely affect the business, properties,
prospects, or financial condition of the Company (as such
business is presently conducted and as it is proposed to be
conducted), excluding events or conditions having general
effect on businesses in the general economy or the Internet
industry; or
(xiv) any arrangement or commitment by the Company to do any of the
things described in this Section 3(i).
j. Absence of Litigation. There is no action, suit, claim, proceeding,
---------------------
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or,
to the
<PAGE>
knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company or any of its Subsidiaries, or their
officers or directors in their capacity as such, that could have a
Material Adverse Effect. The Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the
foregoing.
k. Intellectual Property. To the best of the Company's knowledge, the
---------------------
Company or its subsidiaries owns or possesses sufficient legal rights
to all patents, patent applications, trademarks, service marks, trade
names, copyrights, trade secrets, inventions and technology (whether
or not patentable), confidential and proprietary information, domain
names, licenses, know-how, concepts, computer programs, software,
databases and other collections and compilations of data, other
technical data, proprietary rights, proprietary processes, and other
information and/or intellectual property necessary for their
businesses as now conducted and as proposed to be conducted (each
such item "Company Intellectual Property") without any conflict with
or infringement of the rights of others, and has the right to bring
actions for the infringement, dilution, misappropriation or other
violation of such Company Intellectual Property, except to the extent
that any such conflict or infringement, or the absence of any such
right, would not individually or in the aggregate, have a Material
Adverse Effect. Schedule 3(k) contains a complete list of patents,
patent applications, trademarks, service marks, trade names,
copyrights and domain names used or held for use by the Company and
its Subsidiaries throughout the world and pending applications
therefor and registrations, renewals, extensions and the like
thereof, specifying as to each such item, as applicable: (i) the
owner of the item, (ii) the jurisdictions in which the item is issued
or registered or in which any application for issuance or
registration has been filed, (iii) the respective issuance,
registration, or application number of the item and (iv) the date of
application and issuance or registration of the item. Except for
agreements with their own employees or consultants regarding
confidentiality and proprietary information, and with the exception
of standard end-user license agreements, there are no outstanding
options, licenses or agreements of any kind relating to the Company
Intellectual Property, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, patent applications, trademarks,
service marks, trade names, copyrights, trade secrets, inventions and
technology (whether or not patentable), confidential and proprietary
information, domain names, licenses, know-how, concepts, computer
programs, software, databases and other collections and compilations
of data, other technical data, proprietary rights, proprietary
processes and other information and/or intellectual property of any
other person or entity. Schedule 3(k) hereto contains a complete and
accurate list of all software owned by the Company and/or any of its
Subsidiaries as of the date hereof or at any time within the 36-month
period prior to the date hereof (the "Owned Software"). The Company
and/or the applicable Subsidiaries own(s) exclusively all right,
title and interest in and to the Owned Software and any and all
enhancements, modifications, and other additions and/or improvements
of or to the Owned Software, free and clear of all liens, including
claims or rights of any joint owners or employees, agents,
consultants or other persons involved in the development, creation,
marketing, maintenance or enhancement of such computer software. All
software used by the Company and/or any of its Subsidiaries is either
Owned Software or licensed software and is not otherwise owned by any
other person (except the ownership by the named licensors of the
licensed software). Neither the Company nor any of its Subsidiaries
has received any communications alleging infringement, dilution,
misappropriation, breach or other violation of, nor does the Company
or any of its Subsidiaries have reason to believe that the Company or
any of its Subsidiaries has infringed, diluted, misappropriated,
breached or otherwise violated or, by conducting their businesses as
proposed, would infringe, dilute, misappropriate, breach or otherwise
violate, any of the patents, patent applications, trademarks, service
marks, trade names, copyrights, trade secrets, inventions and
technology (whether or not patentable), confidential and proprietary
information, domain names, licenses, know-how, concepts, computer
programs, software, databases and other collections and compilations
of data, technical data, proprietary rights, proprietary processes
and other information and/or intellectual property ("Intellectual
Property") of any other person or entity; neither the Company nor any
of its Subsidiaries is aware, based on reasonable investigation, of
any reasonable basis therefor or threat thereof. To the extent that
any works of authorship, materials, products, technology or software
have been developed or created independently or jointly by any person
other than the Company or any of its Subsidiaries for which the
Company or any of its Subsidiaries has, directly or indirectly, paid,
the Company or the applicable subsidiary has a written agreement with
such person with respect thereto, and the Company or the applicable
subsidiary thereby has obtained ownership of, and is the exclusive
owner of, all Intellectual Property therein or thereto by operation
of law or by valid assignment. In each case in which either the
Company or any of its Subsidiaries has acquired any Intellectual
Property from any person, the Company or the applicable
<PAGE>
subsidiary has obtained a valid and enforceable assignment sufficient
to irrevocably transfer all rights in such Intellectual Property
(including the right to seek past and future damages with respect
thereto) to the Company or the applicable subsidiary and, to the
maximum extent provided for by, and in accordance with, any
applicable laws and regulations, the Company has recorded each such
assignment with the relevant governmental authorities, including the
U.S. Patent and Trademark Office, the U.S. Copyright Office or their
respective equivalents in any relevant foreign jurisdiction. Neither
the Company nor any of its Subsidiaries is aware that any of its
respective employees, agents, consultants or contractors is obligated
under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would interfere
with the use of such person's or entity's best efforts to promote the
interests of the Company and its Subsidiaries, or that would conflict
with the Company's or any of its Subsidiaries' business as proposed
to be conducted. Neither the Company nor any of its Subsidiaries is
aware of any current or past infringement, dilution,
misappropriation, breach or other violation by a third party of any
of the Company Intellectual Property. Neither the Company nor any of
its Subsidiaries has a plan to utilize, and does not believe it is or
will be necessary to utilize, any inventions of any of its employees
(or people it currently intends to hire) made prior to their
employment or engagement by the Company or any of its Subsidiaries.
Except as set forth in Schedule 3(k), the source code for the Owned
Software has not been disclosed to any third party and none of the
source code for the Owned Software has been placed in escrow or is
otherwise not in the full and exclusive control of the Company and/or
the applicable Subsidiaries of the Company. No Intellectual Property
owned or used by the Company or any of its Subsidiaries is subject to
any outstanding decree, order, judgment, settlement agreement or
stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or any of its Subsidiaries. All of
the patents, trademark and service mark registrations, copyright
registrations and domain name registrations indicated in Schedule
3(k) are valid and in full force, are held of record in the name of
the Company or the applicable subsidiary free and clear of all liens,
encumbrances and other claims, are not the subject of any
cancellation or reexamination proceeding or any other proceeding
challenging their extent or validity, and all necessary registration,
maintenance and renewal fees in connection with such patents and
registrations have been paid and all necessary documents and
certificates in connection with such patents and registrations have
been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the
case may be, for the purposes of maintaining such patents and
registrations. The Company and/or the applicable subsidiary is the
applicant of record in all patent applications, and applications for
trademark, service mark, and copyright registration indicated in
Schedule 3(k), and no opposition, extension of time to oppose,
interference, final rejection, or final refusal to register has been
received in connection with any such application. The Company and
each of its Subsidiaries has taken all reasonable steps that are
required to protect the Company's rights in material trade secrets,
know-how or other confidential or proprietary information (including,
without limitation, source code) of the Company and any of its
Subsidiaries or provided by any other person to the Company or any
applicable Subsidiary.
l. No Materially Adverse Contracts, Etc. Except for agreements
------------------------------------
explicitly contemplated by this Agreement or purchase, sale or
license agreements entered into in the ordinary course of business,
there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries
is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of or payments to the Company or any of its
subsidiaries in excess of $250,000, (ii) the transfer or license of
any patent, copyright, trade secret or other proprietary right to or
from the Company or any of its subsidiaries, (iii) the grant of
rights to manufacture, produce, assemble, license, market or sell its
products or services to any other person or affect the Company's or
any of its subsidiaries' exclusive right to develop, manufacture,
assemble, distribute, market or sell its products or services, or
(iv) indemnification by the Company with respect to infringements of
proprietary rights.
Neither the Company nor any of its Subsidiaries has incurred any indebtedness
for money borrowed or incurred any other liabilities in excess of $250,000 or
sold, exchanged or otherwise disposed of any of its assets or rights, other than
the nonexclusive license of software to end-users in the ordinary course of
business.
For the purposes of Section 3(l)(i) and (ii) above, the indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person shall be aggregated for the purpose of
meeting the individual minimum dollar amounts within such subsections.
<PAGE>
All the material contracts, agreements and instruments to which the Company or
any of its subsidiaries is a party are listed on Schedule 3(l) and such
contracts, agreements and instruments are valid, binding and in full force and
effect in all material respects, and are enforceable by the Company or any of
its subsidiaries in accordance with their respective terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies. Neither the Company nor any of its subsidiaries is in
default under any material contract and, to the knowledge of the Company, no
other party to any such contract is in default.
m. Tax Status. Except as set forth on Schedule 3(m), the Company and
----------
each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations
required by any jurisdiction to have been filed to which it is
subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in
good faith, and has set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax.
Except as set forth on Schedule 3(m), none of the Company's tax
returns is presently being audited by any taxing authority.
n. Certain Transactions. Except as set forth on Schedule 3(n) and except
--------------------
for arm's length transactions in the ordinary course of business upon
terms no less favorable than the Company or any of its Subsidiaries
could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers or directors
of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement
or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner.
o. Disclosure. To the best knowledge of the Company, all information
----------
taken together relating to or concerning the Company or any of its
Subsidiaries set forth in this Agreement, the schedules hereto and
provided to Investors pursuant to Section 2(d) hereof and otherwise
in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which
they were made, not misleading. To the best knowledge of the Company,
no event or circumstance has occurred or exists with respect to the
Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which has
not been publicly announced or disclosed but, under applicable law,
rule or regulation, requires public disclosure or announcement by the
Company (assuming for this purpose that the Company's reports filed
under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Investor's Purchase of Securities. The
----------------------------------------------------------
Company acknowledges and agrees that Investor is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement
and the transactions contemplated hereby. The Company further
acknowledges that Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and that any
statement made by Investor or any of its respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely
incidental to Investor's purchase of the Securities and has not been
publicly relied upon by the Company, its officers or its directors in
any way.
<PAGE>
q. No Integrated Offering. Except for securities offered or sold
----------------------
pursuant to a Registration Statement on Form S-8 and a Registration
Statement filed on February 7, 2000 that was subsequently withdrawn,
neither the Company, nor any of its affiliates, nor any person acting
on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933
Act of the issuance of the Securities to Investor. The issuance of
the Securities to Investor will not be integrated with any other
issuance of the Company's securities (past, current or future) for
purposes of any stockholder approval provisions applicable to the
Company or its securities.
r. No Brokers. Except as set forth in Schedule 3(r), the Company has
----------
taken no action which would give rise to any claim by any person for
brokerage commissions, finder's fees or similar payments relating to
this Agreement or the transactions contemplated hereby. Copies of any
such agreements or arrangements set forth on Schedule 3(r) shall be
provided to Investor.
s. Permits; Compliance. The Company and each of its Subsidiaries is in
-------------------
possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action pending
or, to the knowledge of the Company, threatened regarding suspension
or cancellation of any of the Company Permits, except to the extent
that any such suspension or cancellation, or the absence of any
Company Permits, would not individually or in the aggregate have a
Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any
of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since June
30, 1998, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts,
defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse
Effect.
t. Environmental Matters.
---------------------
(i) Except as set forth in Schedule 3(t), there are, to the
Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or
present material violations of Environmental Laws (as defined
below), releases of any Hazardous Materials (as defined below)
into the environment or actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which
may give rise to any material common law environmental
liability or any material liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
or similar federal, state, local or foreign laws and neither
the Company nor any of its Subsidiaries has received any notice
with respect to any of the foregoing, nor is any action pending
or, to the Company's knowledge, threatened in connection with
any of the foregoing. The term "Environmental Laws" means all
federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or
toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments,
licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved
thereunder.
(ii) Other than those that are or were stored, used or disposed of
in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, or to
the best of the Company's knowledge leased or used, by the
Company or any of its Subsidiaries, and no Hazardous Materials
were released on or about any real property previously owned,
or to the Company's knowledge leased or used, by the Company
or any of its Subsidiaries during the period the property was
owned, leased or used by the Company or any of its
Subsidiaries, except in the normal course of the Company's or
any of its Subsidiaries' business.
<PAGE>
(iii) Except as set forth in Schedule 3(t), there are no underground
storage tanks on or under any real property owned, or to the
Company's knowledge leased or used, by the Company or any of
its Subsidiaries that are not in compliance with applicable
law.
u. Title to Property. The Company and its Subsidiaries have good and
-----------------
marketable title in all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances and defects except
such as are described in Schedule 3(u) or such as would not have a
Material Adverse Effect. Any real property and facilities held under
lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as
would not have a Material Adverse Effect.
v. Insurance. The Company and each of its Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes
to be prudent and customary in the businesses in which the Company
and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
Material Adverse Effect.
w. Internal Accounting Controls. The Company and each of its
----------------------------
Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor, to the best
-------------------------
knowledge of the Company, any of its Subsidiaries, nor any director,
officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of his actions for, or
on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the
U.S. Foreign Corrupt Practices Act of 1977 as amended; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
y. Solvency. The Company (both before and after giving effect to the
--------
transactions contemplated by this Agreement) is solvent (i.e., its
----
assets have a fair market value in excess of the amount required to
pay its probable liabilities on its existing debts as they become
absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not
have the ability to, nor does it intend to take any action that would
impair its ability to, pay its debts from time to time incurred in
connection therewith as such debts mature.
z. No Investment Company. The Company is not, and upon the issuance and
---------------------
sale of the Securities as contemplated by this Agreement and the
Certificate of Designation will not be an "investment company"
required to be registered under the Investment Company Act of 1940
(an "Investment Company"). The Company is not controlled by an
Investment Company.
aa. Form S-3 Eligibility. The Company is currently eligible to register
--------------------
the resale of its Common Stock on a registration statement on Form
S-3 under the 1933 Act. There exist no facts or circumstances that
would prohibit or delay the preparation and filing of a registration
statement on Form S-3 with respect to the Registrable Securities (as
defined in the Registration Right Agreement) within the time periods
referred to therein.
bb. Employees. Neither the Company nor any of its subsidiaries is bound
---------
by or subject to (and none of their assets or properties are bound by
or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union
has requested or, to the knowledge
<PAGE>
of the Company, has sought to represent any of the employees,
representatives or agents of the Company or any of its subsidiaries.
There is no strike, labor dispute or union organization activity
pending or threatened between the Company and its employees. Neither
the Company nor any of its subsidiaries is a party to or bound by any
labor agreement or collective bargaining agreement respecting its
employees. The Company and its subsidiaries have complied in all
material respects with all applicable federal and state equal
opportunity and other laws related to employment. No employee of the
Company or any of its subsidiaries is currently in violation of any
judgment, decree, order or agreement known to the Company relating to
the relationship of any such employee with the Company or any of its
subsidiaries, or any other party, due to either (i) the nature of the
business of the Company or any of its subsidiaries as conducted
presently or proposed to be conducted or (ii) the use by the employee
of his or her best efforts with respect to the conduct of such
business. Neither the Company nor any of its subsidiaries is a party
to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing
plan, retirement agreement or other employee compensation agreement.
Subject to general principles related to wrongful termination of
employees and the terms of the employment contracts set forth in
Schedule 3(bb), the employment of each officer and employee of the
Company or any of its subsidiaries is terminable at the will of the
Company or any of its subsidiaries, with or without cause.
cc. Employee Compensation Plans. Neither the Company nor any of its
---------------------------
subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement.
dd. Significant Customers and Suppliers. To the knowledge of the Company,
-----------------------------------
no major customer or supplier has materially reduced or threatened to
terminate or materially reduce its purchases from or provision of
products or services to the Company or any of its subsidiaries.
4. COVENANTS.
---------
a. Best Efforts. The parties shall use their best efforts to satisfy
------------
timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company, if requested by Investor, agrees
---------------------
to file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to Investor promptly after
such filing. The Company shall, on or before the First Closing, take
such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to Investor at the First Closing and
the Second Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to Investor on or prior to the
First Closing.
c. Reporting Status; Eligibility to Use Form S-3. The Company's Common
---------------------------------------------
Stock is registered under Section 12(g) of the 1934 Act. So long as
any Investor beneficially owns the Series A Preferred Stock, the
Company shall timely file all reports required to be filed with the
SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even
if the 1934 Act or the rules and regulations thereunder would permit
such termination. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Preferred Shares in the manner set forth in Schedule 4(d)
attached hereto and made a part hereof and, except as set forth in
Schedule 4(d), shall not, directly or indirectly, use such proceeds
for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently
existing direct or indirect Subsidiaries).
e. Additional Equity Capital. Subject to the exceptions described below,
-------------------------
for a six-month period commencing from the date hereof, the Company
will not enter into definitive agreements with any party to obtain
equity or equity-equivalent financing (including debt financing with
an equity component) before April 12, 2001 ("Future Offerings")
unless it shall have first delivered to Investor, at least ten (10)
business days prior to entering into definitive agreements for such
Future Offering with any other
<PAGE>
Person (as defined in Article IV.B of the Certificate of
Designation), written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith, and
providing Investor's an option during the ten (10) day period
following delivery of such notice to purchase the securities being
offered in the Future Offering on the same terms as contemplated by
such Future Offering (the limitations referred to in this sentence
and the preceding sentence are collectively referred to as the
"Capital Raising Limitations"). In the event the terms and
conditions of a proposed Future Offering are amended in any material
respect after delivery of the notice to Investor concerning the
proposed Future Offering, the Company shall deliver a new notice to
Investor's describing the amended terms and conditions of the
proposed Future Offering and Investor's thereafter shall have an
option during the ten (10) day period following delivery of such new
notice to purchase the securities being offered on the same terms as
contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the terms
and conditions of any proposed Future Offering. The Capital Raising
Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under
the 1933 Act), (ii) issuances of securities as consideration for a
merger, consolidation or purchase of assets, or in connection with
any strategic partnership or joint venture (the primary purpose of
which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the
Company or (iii) a private placement, the proceeds of which would be
used to redeem the Series A Preferred Stock. The Capital Raising
Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the
grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted
stock plans approved by the stockholders of the Company.
f. Expenses. The Company shall reimburse Investor for all reasonable
--------
out-of-pocket expenses incurred by it in connection with the
negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection
herewith, including, without limitation, legal and due diligence
costs; provided that the fees and expenses of counsel to Investor
shall not exceed $100,000 without the consent of the Company.
g. Financial Information. So long as the Investor owns any shares of
---------------------
Series A Preferred Stock, the Company agrees to send the following
reports to Investor until Investor transfers, assigns, or sells all
of the Securities: (i) within ten business days after the filing with
the SEC, a copy of its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within
one business day after release, copies of all press releases issued
by the Company or any of its Subsidiaries; (iii) contemporaneously
with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes
available or gives to such stockholders; and (iv) any other financial
information as may be reasonably requested by Investor subject to
appropriate confidentiality protections.
h. Reservation of Shares. As long as the Series A Preferred Stock is
---------------------
outstanding the following shall apply: the Company shall at all times
have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full
conversion of the outstanding Preferred Shares (based on the
Conversion Price (as defined in the Certificate of Designation) in
effect from time to time) and the issuance of the Conversion Shares
in connection therewith and as otherwise required by the Certificate
of Designation and the full exercise of the Warrants and the issuance
of the Warrant Shares (based on the exercise price of the Warrants in
effect from time to time). The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of or
otherwise pursuant to the Preferred Shares and the exercise of or
otherwise pursuant to the Warrants without the consent of Investor's.
Subject to the proviso contained in the first sentence of this
Section 4(h), the Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so reserved for
issuance at no less than the number that is then actually issuable
upon full conversion of the Preferred Shares (based on the Conversion
Price (as defined in the Certificate of Designation) in effect from
time to time) and full exercise of the Warrants (based on the
exercise price of the Warrants in effect from time). Subject to the
proviso contained in the first sentence of this Section 4(h), if at
any time the number of shares of Common Stock authorized and reserved
for issuance is below the number of Conversion Shares issued and
issuable upon conversion of or otherwise pursuant to the Preferred
Shares (based on the Conversion Price (as defined in the Certificate
of Designation) in effect from time to time) and Warrant
<PAGE>
Shares issued and issuable upon exercise of or otherwise pursuant to
Warrants (based on the exercise price of the Warrants in effect from
time to time), the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of
stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain
stockholder approval of an increase in such authorized number of
shares.
i. Registration of Shares. Within 45 days of the First Closing the
----------------------
Company will file a Registration Statement on Form S-3 (the
"Registration Statement") covering a sufficient number of shares of
Common Stock to register all shares issuable in connection with this
Agreement. As set forth in the Registration Rights Agreement, if such
Registration Statement is not declared effective before the later of
(x) 135 days from the First Closing and (y) 90 days of the filing
date, or if there are any prolonged suspensions in such
effectiveness, the Company will pay Investor 1.5% of the purchase
price of the Preferred Shares for each 30 day period thereafter
(prorated for partial periods) until such Registration Statement is
declared effective.
j. Listing. The Company shall undertake to ensure that the Conversion
-------
Shares and the Warrant Shares shall have been authorized for
quotation on Nasdaq and trading in the Common Stock on Nasdaq shall
not have been suspended for any prolonged period of time by the SEC
or Nasdaq. The Company shall maintain the listing and trading of its
Common Stock on Nasdaq, the Nasdaq SmallCap Market ("Nasdaq
SmallCap"), the New York Stock Exchange ("NYSE"), or the American
Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to
Investor's copies of any notices it receives from Nasdaq and any
other exchanges or quotation systems on which the Common Stock is
then listed regarding the continued eligibility of the Common Stock
for listing on such exchanges and quotation systems.
k. Corporate Existence. So long as Investor beneficially owns any
-------------------
Preferred Shares, the Company shall maintain its corporate existence
and shall not merge, consolidate or sell all or substantially all of
the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's
assets, where either (i) the consideration to the Investor is all in
cash or (ii)(A) the surviving or successor entity (and, if an entity
different from the surviving or successor entity, the entity whose
securities into which the Preferred Shares shall become convertible
pursuant to Article VI.C(b) of the Certificate of Designation) in
such transaction assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection
herewith and (B) the entity whose securities into which the Preferred
Shares shall become convertible pursuant to Article VI.C(b) of the
Certificate of Designation is a publicly traded corporation whose
Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE
or AMEX.
l. No Integration. The Company shall not make any offers or sales of any
--------------
security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold
hereunder under the 1933 Act or cause the offering of Securities to
be integrated with any other offering of securities by the Company
for the purpose of any stockholder approval provision applicable to
the Company or its securities.
m. Board Representation. So long as the Investor owns any Series A
--------------------
Preferred Stock, the Investor shall have the right to propose
nomination for two persons to the Board of Directors of the Company
and the Company shall use all reasonable efforts to have such
nominees elected; provided that such persons shall be reasonably
acceptable to the Board of Directors of the Company. If, however, the
Second Closing shall not have occurred, one of such two Investor
designees shall promptly resign from the Board of Directors of the
Company.
n. Standstill. For the period of six months from the date hereof,
----------
without the prior consent of the Board of Directors of the Company
(excluding any member appointed by the holders of the Series A
Preferred Stock), the Investor shall not, alone or through or with
any other person or entity, in any manner: (i) acquire any additional
direct or indirect interest in any securities of the Company; (ii)
solicit, make, or in any way participate in, directly or indirectly,
any "solicitation" of "proxies" (as such terms are used in the
<PAGE>
proxy rules of the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act")) from the Company's stockholders, become a
"participant" in any "election contest" (as such terms are defined or
used in Rule 14A-11 under the Exchange Act) with respect to the
Company's Board of Directors, solicit or execute any written consent
in lieu of a meeting of holders of voting securities except to
support the nominees for directors of the Company's Board of
Directors or call or seek to have called any meeting of the Company's
stockholders of the other party or seek to advise or influence in any
manner whatever any person or entity with respect to the Company;
(iii) make any short sales, enter into any hedging, derivative or
similar transactions regarding the Company's securities; or (iv)
publicly announce an intention to do any of the actions restricted or
prohibited under clauses (i) through (iii) of this Section 4(n).
o. HSR Approval. As promptly as practicable after the execution of this
------------
Agreement, each party shall, in cooperation with the other, file or
cause to be filed any reports, notifications or other information
that may be required to comply with the applicable requirements of
the HSR Act, shall in connection with any such filings, if
applicable, request early termination of the relevant waiting period
and shall furnish or cause to be furnished to the other all such
information in its possession as may be reasonably necessary for the
completion of the reports, notifications or submissions to be filed
by the other.
p. Supplemental Schedules. With respect to facts and circumstances that
----------------------
arise after the date of this Agreement, the Company shall supplement
the schedules to this Agreement to the extent that such facts and
circumstances would have been required to be set forth on such
schedules had they existed on the date of this Agreement, and such
supplements shall be deemed to be part of the schedules for all
purposes hereunder; provided that the Company may not supplement the
schedules to reflect facts and circumstances of which it was aware as
of the date of this Agreement. Notwithstanding the foregoing
sentence, the Company shall be under no obligation to supplement the
schedules after the Second Closing.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions
---------------------------
to its transfer agent to issue certificates, registered in the name of Investor
or its nominee, for the Conversion Shares and the Warrant Shares in such amounts
as specified from time to time by Investor to the Company upon conversion of the
Preferred Shares or exercise of the Warrants in accordance with the terms
thereof (the "Irrevocable Transfer Agent Instructions"). Prior to registration
of the Conversion Shares and the Warrant Shares under the 1933 Act or the date
on which the Conversion Shares and the Warrant Shares may be sold pursuant to
Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and the
Warrant Shares, prior to registration of the Conversion Shares and the Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and the
Warrant Shares may be sold pursuant to Rule 144 without any restriction as to
the number of securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way Investor's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale of the
Securities. If Investor provides the Company with (i) an opinion of counsel, in
form, substance and scope customary for opinions in comparable transactions, to
the effect that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
Investor provides reasonable assurances that the Securities can be sold pursuant
to Rule 144, the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from any restrictive legend, in such
name and in such denominations as specified by Investor.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company
----------------------------------------------
hereunder to issue and sell the Preferred Shares and Warrants to Investor at
each of the First Closing and the Second Closing is subject to the satisfaction,
at or before each of the First Closing and the Second Closing, of each of the
following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
<PAGE>
a. Investor shall have executed this Agreement and the Registration
Rights Agreement and delivered the same to the Company.
b. Investor shall have delivered the applicable Purchase Price in
accordance with Section 1 above.
c. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware.
d. The representations and warranties of Investor shall be true and
correct in all material respects as of the date when made and as of
each of the First Closing and Second Closing as though made at that
time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and
correct as of such date), and the applicable Investor shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by Investor at or prior to each
of the First Closing and Second Closing.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.
f. With respect to the Second Closing, the waiting period under the HSR
Act shall have expired or early termination shall have been granted.
7. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE. The obligation of Investor's
-----------------------------------------------
hereunder to purchase the Preferred Shares and the Warrants at each of the First
Closing and Second Closing is subject to the satisfaction, at or before each of
the First Closing and Second Closing, of each of the following conditions,
provided that these conditions are for Investor's sole benefit and may be waived
by Investor at any time in its sole discretion:
a. The Company shall have executed the Warrant and the Registration
Rights Agreement and delivered the same to Investor.
b. The Company shall have delivered to Investor duly executed
certificates (in such denominations as Investor shall request)
representing the Preferred Shares and duly executed Warrants
purchased at each of the First Closing and Second Closing in
accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware, and a copy
thereof certified by such Secretary of State shall have been
delivered to Investor.
d. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Investor, shall have been delivered to and
acknowledged in writing by the Company's Transfer Agent.
e. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of
each of the First Closing and Second Closing as though made at such
time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and
correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to each of the
First Closing and Second Closing. Investor shall have received a
certificate or certificates, executed by the chief executive officer
or chief financial officer of the Company, dated as of each of the
First Closing and Second Closing, to the foregoing effect and as to
such other matters as may be reasonably requested by Investor
including, but not limited to certificates with respect to the
Company's Certificate of Incorporation, By-laws and Board of
Directors' resolutions relating to the transactions contemplated
hereby.
f. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
<PAGE>
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.
g. Investor shall have received an opinion of the Company's counsel,
dated as of each of the First Closing and Second Closing, in form,
scope and substance reasonably satisfactory to Investor.
h. Investor shall have received an officer's certificate described in
Section 3(c) above, dated as of each of the First Closing and Second
Closing.
i. With respect to the Second Closing, the waiting period under the HSR
Act shall have expired or early termination shall have been granted.
8. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a . Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York applicable to
agreements made and to be performed in the State of New York (without
regard to principles of conflict of laws). Both parties irrevocably
consent to the jurisdiction of the United States federal courts and
the state courts located in New York with respect to any suit or
proceeding based on or arising under this Agreement, the agreements
entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of
such suit or proceeding may be determined in such courts. Both
parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree
that service of process upon a party mailed by first class mail shall
be deemed in every respect effective service of process upon the
party in any such suit or proceeding. Nothing herein shall affect
either party's right to serve process in any other manner permitted
by law. Both parties agree that a final non-appealable judgment in
any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed
-------------------------------------
in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party. This
Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation
of, this Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement or the validity or enforceability of
this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement, the schedules and
----------------------------
exhibits hereto and the instruments referenced herein contain the
entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor Investor makes any
representation, warranty, covenant or undertaking with respect to
such matters. This Agreement supercedes Article 8 of the
Confidentiality Agreement dated October 6, 2000 between the Company
and the Investor. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the party to
be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile
and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
<PAGE>
Interworld Corporation
395 Hudson Street, 6th Floor
New York, New York 10014-3669
Attention: Chairman of the Board
Facsimile: (212) 301-2424
With copy to:
Covington & Burling
1330 Avenue of the Americas
New York, New York 10019
Attention: Stephen A. Infante
Facsimile: (212) 841-1010
If to Investor: To the address set forth immediately below Investor's name on
the signature pages hereto.
Jackpot Enterprises Inc.
c/o J Net Venture Partners LLC
498 Seventh Avenue
New York, New York 10021
Attention: Keith Meister
Facsimile: (212) 502-6396
With copy to:
Greenberg Traurig, LLP
200 Park Avenue
New York, New York 10166
Attention: Alan I. Annex, Esq.
Facsimile: (212) 801-6400
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Investor shall assign this Agreement or
any rights or obligations hereunder without the prior written consent
of the other. Notwithstanding the foregoing, subject to Section 2(f),
any Investor may assign its rights hereunder to (i) any of its
"affiliates," as that term is defined under the 1934 Act and (ii)
after the Maximum Share Amount (as defined in the Certificate of
Designation) has been issued, any person that purchases Securities in
a private transaction from Investor, without the consent of the
Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
-------------------------
of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
i. Survival; Indemnification. The representations and warranties of the
-------------------------
Company and the agreements and covenants set forth in Sections 3, 4,
5 and 8 shall survive the closing hereunder notwithstanding any due
diligence investigation conducted by or on behalf of Investor. The
Company agrees to indemnify and hold harmless Investors and all their
officers, directors, employees and agents for loss or damage arising
as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set
forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights
Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company and Investor shall have the right to review a
---------
reasonable period of time before issuance of any press releases,
filings with the SEC, the NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company
-------- -------
shall be entitled, without the prior approval of Investor, to make
<PAGE>
any press release or public filings with respect to such transactions
as is required by applicable law and regulations (although Investor
shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy
thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
l. No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied
against any party.
m. Remedies. The Company acknowledges that a breach by it of its
--------
obligations hereunder will cause irreparable harm to Investor by
vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Agreement, that Investor
shall be entitled, in addition to all other available remedies in law
or in equity, to an injunction or injunctions to prevent or cure any
breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions of this Agreement, without the
necessity of showing economic loss and without any bond or other
security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor and the Company have caused this
Agreement to be duly executed as of the date first above written.
INTERWORLD CORPORATION
By: /s/ Jeremy M. Davis
------------------------------------------------
Jeremy M. Davis
Chief Executive Officer and President
JACKPOT ENTERPRISES, INC
By: /s/ Mark W. Hobbs
-------------------------------------------------
Mark W. Hobbs
President
<PAGE>
SCHEDULE 3(a)
-------------
1) InterWorld Technology Ventures Pty, Ltd., an Australian corporation
incorporated in November 1996.
2) InterWorld U.K. Ltd., a United Kingdom corporation incorporated in May 1998.
3) InterWorld Corporation Japan K.K., a Japanese corporation incorporated in
July 1998.
<PAGE>
SCHEDULE 3(c)
-------------
As of the date hereof, there were outstanding warrants to purchase an aggregate
of 150,158 shares of common stock with an exercise price of $9.775 per share.
The holders of such warrants are entitled to registration rights pursuant to the
terms of the warrant agreements.
The total aggregate number of shares of common stock for which options are
outstanding or with respect to which shares of common stock have been or will be
granted to employees under the Company's stock option plans is 6,255,262.
The total aggregate number of shares of common stock for which options are
outstanding under the Company's employee stock purchase plan is 968,850.
<PAGE>
SCHEDULE 3(g)
-------------
None
<PAGE>
SCHEDULE 3(i)
-------------
(i)
---
On September 22, 2000, the Company reported it anticipates lower than expected
financial results for the third quarter 2000.
The Company expects that its revenues for the third quarter ending September 30,
2000 will be in the range of $14.0 million to $18.0 million. The loss per share,
excluding amortization of stock-based compensation, is expected to be in the
range of $0.43 to $0.35.
"After eight consecutive quarters of sequential revenue growth, we are now
experiencing the effects of longer sales cycles in our deals concurrent with
softness in the B2C sector. However, we remain optimistic about the strong
demand for sell-side B2B e-commerce software solutions, which we expect to meet
with our new B2B e-commerce solution, Commerce Exchange Business Suite 4.0,"
said Jeremy Davis, President and Chief Executive Officer of the Company.
The Company plans to announce third quarter results in the week of October 23rd,
2000.
(ii) - (vii)
------------
None
(viii)
------
The employment of Alan J. Andreini, former Vice Chairman of the Company, has
terminated.
The employment of Peter Schwartz, former Chief Financial Officer of the Company,
has terminated.
The employment of Amy Aguilar-Brown, former Vice President, Legal Affairs and
Corporate Secretary of the Company, has terminated.
The employment of Mark Berlingeri, former Senior Vice President, Worldwide
Professional Services of the Company, has terminated.
The employment of Kevin Kohn, Senior Vice President, Alliances will terminate
effective April 1, 2001
(ix) - (xiv)
------------
None
<PAGE>
SCHEDULE 3(j)
-------------
On or about June 6, 2000, the Company was informed by the attorney for one of
its stockholders that the stockholder is considering bringing a claim against
the Company for failing to promptly issue share certificates free of restrictive
legends. The stockholder has not indicated the value of any such claim. The
Company has responded to the stockholder's attorney and stated that the Company
acted promptly after receipt of complete information from the stockholder and
that there is no basis for a claim against the Company.
The matter discussed in the attached letter from LandTel dated October 11, 2000.
<PAGE>
SCHEDULE 3(k)
-------------
1. Patents
U.S. Patent Number 5,987,480
Date of Patent: November 16, 1999
2. Trademarks
<TABLE>
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
Trademark Owner Jurisdiction Status Number Date
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
ARMADA InterWorld Unites States of Pending Serial No. 04/07/00
Corporation America 76020984
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
MISSION READY InterWorld United States of Pending Serial No. 04/07/00
Corporation America 76020983
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Australia Registered Registration No. 06/13/97
Corporation 705709
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Canada
Corporation
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld European Union
Corporation
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Japan Pending Application No. 08/29/00
Corporation 2000-094935
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
COMMERCE INTELLIGENCE InterWorld United States of Pending Serial No. 03/31/00
Corporation America 76015006
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
ENTERPRISE BROKER InterWorld United States of Supplemental Serial No. 07/13/00
Corporation America Register 75776940
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
WEB ARENA InterWorld United States of Pending Serial No. 03/04/98
Corporation America 75444386
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld United States of Pending Serial No. 03/04/98
Corporation America 75444387
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld United States of Pending Serial No. 03/04/98
Corporation America 75444388
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld United States of Pending Serial No. 03/04/98
Corporation America 75444389
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
RETAIL ESSENTIALS InterWorld United States of Pending Serial No. 02/03/00
Corporation America 75908295
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
INTERWORLD InterWorld United States of Principal Registration No. 01/12/99
Corporation America Register 2217559
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
</TABLE>
<PAGE>
<TABLE>
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
Trademark Owner Jurisdiction Status Number Date
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
INTERWORLD InterWorld United States of Principal Registration No. 05/20/97
Corporation America Register 2062548
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Australia Registered Registration No. 06/13/97
Corporation 705709
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Canada Pending Application No. 06/18/96
Corporation 815568
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld European Union Registered Registration No. 04/01/96
Corporation 37655
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Japan Pending Application No. 05/14/96
Corporation 8-51866
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Japan Pending Application No. 05/14/96
Corporation 8-51867
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld Japan Pending Application No. 05/14/96
Corporation 8-51868
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
Process-Centric InterWorld Japan Registered Registration No. 04/07/00
Corporation 4373824
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
InterWorld European Union Registered Registration No. 02/17/00
Corporation 935163
------------------------ ------------------- ------------------ ---------------- ------------------- ------------
</TABLE>
3. Owned Software
--------------
Commerce Exchange 4.0 NT SQL
Commerce Exchange 4.0 Solaris Ultra Sparc Oracle
Commerce Exchange C++ SDKs
Commerce Exchange Collaboration Server and Staging Server
Business Station
CSR Station
Dev Station 4.0 NT for Commerce Exchange 4.0 NT SQL and Solaris Ultra Sparc
Control Station 4.0 NT for Commerce Exchange 4.0 NT and Solaris Ultra Sparc
Web Broker 4.0 NT for Commerce Exchange 4.0 NT
Web Broker 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0 Solaris Ultra Sparc
Web Broker Staging Server
Enterprise Broker 4.0 NT for Commerce Exchange 4.0 NT
Enterprise Broker 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0 Solaris
Ultra Sparc
Cybercash Payment Adapter 4.0 NT for Commerce Exchange 4.0 NT
Cybercash Payment Adapter 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0
Solaris Ultra Sparc
CyberSource Universal Adapter 4.0 NT for Commerce Exchange 4.0 NT
CyberSource Universal Adapter 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0
Solaris Ultra Sparc
<PAGE>
Net Perceptions Adapter 4.0 NT for Commerce Exchange 4.0 NT
Net Perceptions Adapter 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0
Solaris Ultra Sparc
Paymentech Adapter 4.0 NT for Enterprise Broker 4.0 NT for Commerce Exchange 4.0
NT
Paymentech Adapter 4.0 Solaris Ultra Sparc for Enterprise Broker 4.0 Solaris
Ultra Sparc for Commerce Exchange 4.0 Solaris Ultra Sparc
TAXWARE Tax Adapter 4.0 NT for Commerce Exchange 4.0 NT
TAXWARE Tax Adapter 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0 Solaris
Ultra Sparc
TAXWARE AVS Adapter 4.0 NT for Commerce Exchange 4.0 NT
TAXWARE AVS Adapter 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0 Solaris
Ultra Sparc
Vertex Tax Adapter 4.0 NT for Commerce Exchange 4.0 NT
Vertex Tax Adapter 4.0 Solaris Ultra Sparc for Commerce Exchange 4.0 Solaris
Ultra Sparc
SupplyLink 4.0 for Ariba for Commerce Exchange 4.0 NT
SupplyLink 4.0 for Ariba for Commerce Exchange 4.0 Solaris Ultra Sparc
4. Domain Names
------------
INTERWORLD.COM
MISSIONREADYCOMMERCE.COM
INTW.COM
MISSION-READY.COM
INTV.COM
IWTV.COM
CONSUMERDEMAND.COM
TALKWORLD.COM
ITVI.COM
5. Source Code in Escrow
---------------------
The source code for the Company's Owned Software is held in escrow with DSI
Technology Escrow Services pursuant to an agreement between the parties dated
March 24, 1997. The escrow account is maintained for the benefit of certain
named preferred beneficiaries of the Company and may only be released in
accordance with the specified release conditions.
<PAGE>
SCHEDULE 3(l)
-------------
Lease between Perpetual Trustee Co Ltd and InterWorld Pty, Ltd. for Suite 903,
Level 19, 56 Pitt Street, Sydney, Australia.
<PAGE>
SCHEDULE 3(m)
-------------
None
<PAGE>
SCHEDULE 3(n)
-------------
None
<PAGE>
SCHEDULE 3(r)
-------------
Agreement dated October 4, 2000 between the Company and Bear, Stearns & Co. Inc.
<PAGE>
SCHEDULE 3(t)
-------------
None
<PAGE>
SCHEDULE 3(u)
-------------
None
<PAGE>
SCHEDULE 3(bb)
--------------
1) Agreement between the Company and Jeremy Davis dated as of November 19, 1999
2) Agreement between the Company and Douglas Maio dated as of June 1, 2000
<PAGE>
SCHEDULE 4(d)
-------------
The Company intends to use the proceeds for general corporate purposes.
<PAGE>
EXHIBIT 10.2
------------
EXHIBIT C
TO
SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October , 2000,
--
by and among INTERWORLD CORPORATION, a Delaware corporation, with its
headquarters located at 395 Hudson Street, Sixth Floor, New York, New York 10014
(the "Company"), and the undersigned (the "Initial Investor").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to
the conditions contained therein, to issue and sell to the Initial
Investor: (i) shares of its Series A Convertible Preferred Stock (the
"Preferred Stock") that are convertible into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), upon the
terms and subject to the limitations and conditions set forth in the
Certificate of Designations, Rights, Preferences, Privileges and
Restrictions with respect to the Preferred Stock (the "Certificate of
Designation"); and (ii) stock purchase warrants (the "Warrants") that
are exercisable into shares of Common Stock upon the terms and
conditions subject to the terms and conditions set forth in the
Warrants; and
B. To induce the Initial Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 Act"), and applicable state
securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. DEFINITIONS.
-----------
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(iii) "Registrable Securities" means: (A) the Conversion Shares
issued or issuable upon conversion of or otherwise pursuant to
the Preferred Shares (including, without limitation, any shares
issued or issuable pursuant to Articles V and VI of the
Certificate of Designation and Section 2(c) herein); (B) the
Warrant Shares issued or issuable upon exercise of or otherwise
pursuant to the Warrants; and (C) any shares of capital stock
issued or issuable as a dividend on or in exchange for or
otherwise with respect to any of the foregoing.
(iv) "Registration Statement(s)" means a registration statement(s)
of the Company under the 1933 Act.
<PAGE>
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities
Purchase Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare and, on or prior to
----------------------
the date (the "Filing Date") which is 45 days after the date of the
First Closing under the Securities Purchase Agreement (the "Closing
Date") file with the SEC a Registration Statement on Form S-3
covering the resale of the Registrable Securities, which Registration
Statement, to the extent allowable under the 1933 Act (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of or otherwise pursuant to the
Preferred Shares to prevent dilution resulting from stock splits,
stock dividends or similar transactions. The number of shares of
Common Stock initially included in such Registration Statement shall
be no less than the sum of (i) the aggregate number of Conversion
Shares that are then issuable upon conversion of or otherwise
pursuant to the Preferred Shares (based on the Conversion Price (as
defined in the Certificate of Designation) then in effect) and (ii)
the number of Warrant Shares issuable upon exercise of or otherwise
pursuant to the Warrants (based on the Exercise Price (as defined in
the Warrants) then in effect), in each case without regard to any
limitation on the Investor's ability to convert the Preferred Shares
or exercise the Warrants. The Company acknowledges that the number of
shares initially included in the Registration Statement represents a
good faith estimate of the maximum number of shares issuable upon
conversion of or otherwise pursuant to the Preferred Shares and upon
exercise of or otherwise pursuant to the Warrants. The Registration
Statement (and each amendment or supplement thereto, and each request
for acceleration of effectiveness thereof) shall be provided to (and
subject to the approval of) the Initial Investor and its counsel
prior to its filing or other submission; provided that such approval
shall not be unreasonably withheld or delayed.
b. Underwritten Offering. If any offering pursuant to a Registration
---------------------
Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investor who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with
the consent of the Initial Investor, shall have the right to select
one legal counsel and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to
the Company. In the event that any Investor elects not to participate
in such underwritten offering, the Registration Statement covering
all of the Registrable Securities shall contain appropriate plans of
distribution reasonably satisfactory to the Investor participating in
such underwritten offering and the Investor electing not to
participate in such underwritten offering (including, without
limitation, the ability of non-participating Investor to sell from
time to time at any time during the effectiveness of such
Registration Statement).
c. Payments by the Company. The Company shall use its best efforts to
-----------------------
obtain effectiveness of the Registration Statement as soon as
practicable, but in any event not later than the later of the 90th
day after its filing and 135 days after the Closing Date (as defined
in the Securities Purchase Agreement) (the "Registration Deadline").
If (i) the Registration Statement covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof
is not declared effective by the SEC by the Registration Deadline, or
(ii) after the Registration Statement has been declared effective by
the SEC, sales of all of the Registrable Securities cannot be made
pursuant to the Registration Statement, or (iii) the Common Stock is
not listed or included for quotation on the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the
"AMEX") after being so listed or included for quotation, then the
Company will make payments to the Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(c) as
partial relief for the damages to the Investor by reason of any such
delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies
available at law or in equity). The Company shall pay to each holder
of the Preferred Shares or Registrable Securities an amount equal to
the stated value of the Preferred Shares then outstanding (and, in
the case of holders of Registrable Securities, the stated value of
Preferred Shares from which such Registrable Securities were
converted) ("Aggregate Share Price") multiplied by the Applicable
Percentage (as defined below) times the sum of: (i) the number of
months (prorated for partial months) after the end of the
Registration Deadline and prior to the date the Registration
Statement is declared effective by the SEC; provided, however, that
-------- -------
there shall be excluded from such period any delays which are solely
attributable to
<PAGE>
changes required by the Investor in the Registration Statement with
respect to information relating to the Investor, including, without
limitation, changes to the plan of distribution, or to the failure of
the Investor to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii)
the number of months (prorated for partial months) during the
Registration Period (as defined below) that sales of all of the
Registrable Securities cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made
by reason of the Company's failure to properly supplement or amend
the prospectus included therein in accordance with the terms of this
Agreement (including Section 3(b) hereof or otherwise), but excluding
any days during an Allowed Delay (as defined in Section 3(f)); and
(iii) the number of months (prorated for partial months) that the
Common Stock is not listed or included for quotation on the Nasdaq,
Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after
the Registration Statement has been declared effective. The term
"Applicable Percentage" means 1.5 hundredths (.015). (For example, if
the Registration Statement becomes effective one month after the
Registration Deadline, the Company would pay $15,000 for each
$1,000,000 of Aggregate Share Price. If thereafter, sales could not
be made pursuant to the Registration Statement for an additional
period of one (1) month, the Company would pay an additional $15,000
for each $1,000,000 of Aggregate Share Price.) Such amounts shall be
paid in cash or, at each Investor's option, may be treated as an
Optional Conversion (as defined in the Certificate of Designation) of
the Preferred Shares pursuant to Article VI.A(a) of the Certificate
of Designation and thereafter be convertible into Common Stock at the
"Conversion Price" (as defined in the Certificate of Designation) in
accordance with the terms of the Preferred Shares. Any shares of
Common Stock issued upon conversion of such amounts shall be
Registrable Securities. If the Investor desires to convert the
amounts due hereunder into Registrable Securities, it shall so notify
the Company in writing within two business days of the date on which
such amounts are first payable in cash and such amounts shall be so
convertible (pursuant to the mechanics set forth in the Certificate
of Designation), beginning on the last day upon which the cash amount
would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five days after
the end of each period that gives rise to such obligation, provided
that, if any such period extends for more than 30 days, interim
payments shall be made for each such 30 day period.
d. Piggy-Back Registrations. Subject to the last sentence of this
------------------------
Section 2(d), if at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall
determine to file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the
1933 Act of any of its equity securities (other than on Form S-4 or
Form S-8 or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock
option or other employee benefit plans), the Company shall send to
each Investor who is entitled to registration rights under this
Section 2(d) written notice of such determination and, if within
fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in
such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account
of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such
underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement
only such limited portion of the Registrable Securities with respect
to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities
shall be made pro rata among the Investor seeking to include
Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investor; provided, however,
-------- -------
that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the
holders of which are not entitled by contract to inclusion of such
securities in such Registration Statement; and provided, further,
-------- -------
however, that, after giving effect to the immediately preceding
-------
proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the contractual right to
include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in
such Registration Statement by reason of demand registration rights,
or otherwise consistent with the terms of such other registration
rights. No right to registration of Registrable Securities under this
Section 2(d) shall be construed to limit any registration required
under Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable
Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer
<PAGE>
and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as
other shares of Common Stock included in such underwritten offering.
Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investor pursuant to this Section 2(d)
shall only be available in the event the Company fails to timely
file, obtain effectiveness or maintain effectiveness of any
Registration Statement to be filed pursuant to Section 2(a) in
accordance with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and warrants that it
------------------------
meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investor
and any other Investor of the Registrable Securities and the Company
shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for the use
of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
--------------------------
In connection with the registration of the Registrable Securities, the Company
shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC as soon as
practicable after the Closing Date (but in no event later than the
Filing Date), a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter use
its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective as soon as possible after
such filing (but in no event later than the Registration Deadline),
and keep the Registration Statement (and, following the effectiveness
of the Registration Statement on Form S-3 referred to in Section
2(e), such later Registration Statement) effective pursuant to Rule
415 at all times until such date as is the earlier of (i) the date on
which all of the Registrable Securities have been sold and (ii) the
date on which the Registrable Securities (in the opinion of counsel
to the Initial Investor) may be immediately sold to the public
without registration or restriction (including without limitation as
to volume by each holder thereof) under the 1933 Act (the
"Registration Period"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein)
shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to
make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with
the Registration Statements as may be necessary to keep the
Registration Statements effective at all times during the
Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration
Statements until such time as all of such Registrable Securities have
been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the
Registration Statements. In the event that on any Trading
Day (as defined in the Certificate of Designation) (the "Registration
Trigger Date") the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover
all of the Registrable Securities issued or issuable upon conversion
of or otherwise pursuant to the Preferred Shares (based on the
Conversion Price (as defined in the Certificate of Designation) then
in effect) and upon exercise of or otherwise pursuant to the
Warrants, in each case without giving effect to any limitations on
the Investor's ability to convert the Preferred Shares or exercise
the Warrants, the Company shall amend the Registration Statement, or
file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover all of the
Registrable Securities so issued or issuable (without giving effect
to any limitations on conversion or exercise contained in the
Certificate of Designation or the Warrants) as of the Registration
Trigger Date, in each case, as soon as practicable, but in any event
within 20 business days after the necessity therefor arises (based on
the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use
its best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the
filing thereof, but in any event within 60 days of the Registration
Trigger Date. The provisions of Section 2(c) above shall be
applicable with respect to the Company's obligations under this
Section 3(b).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy
of each Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or
supplement thereto, and, in the case of
<PAGE>
the Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of the
SEC, and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than
any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor. The
Company will immediately notify each Investor by facsimile of the
effectiveness of each Registration Statement or any post-effective
amendment. The Company will promptly respond to any and all comments
received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the
SEC as soon as practicable and shall file an acceleration request as
soon as practicable following the resolution or clearance of all SEC
comments or, if applicable, following notification by the SEC that
any such Registration Statement or any amendment thereto will not be
subject to review.
d. The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by the Registration Statements
under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investor who hold a majority in interest
of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be reasonably necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period,
and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in
-------- -------
connection therewith or as a condition thereto 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, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any
undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the
Board of Directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the
approval of the Initial Investor and the Company) select underwriters
for the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
f. (i) The Company shall notify each Investor of the happening of any
event, as promptly as practicable after the Company becomes
aware of such event, as a result of which the prospectus
included in any Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
use its best efforts promptly to prepare a supplement or
amendment to any Registration Statement to correct such untrue
statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor
may reasonably request.
(ii) Notwithstanding anything to the contrary set forth herein,
at any time after the Registration Statement has been declared
effective by the SEC, for not more than 30 consecutive calendar
days (or a total of not more than 45 calendar days in any 12
month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as any
required prospectus or Registration Statement updating) the
disclosure of which at the time is not, in the good faith
opinion of the Company, in the best interests of the Company
(an "Allowed Delay"); provided, further, that the Company shall
-------- -------
promptly (i) notify the Investor in writing of the existence of
(but in no event, without the prior written consent of an
Investor, shall the Company disclose to such Investor any of
the facts or circumstances regarding) material non-public
information giving rise to an Allowed Delay and (ii) advise the
Investor in writing to cease all sales under such Registration
Statement until the end of the Allowed Delay. Upon expiration
of the Allowed Delay, the Company shall again be bound by
Section 3(f)(i) above with respect to the information giving
rise thereto.
<PAGE>
g. Subject to Section 3(f), the Company shall use its best efforts to
prevent the issuance of any stop order or other suspension of
effectiveness of any Registration Statement, and, if such an order is
issued, to obtain the withdrawal of such order at the earliest
possible moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the
resolution thereof.
h. The Company shall permit a single firm of counsel designated by the
Initial Investor to review such Registration Statement and all
amendments and supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable period of time
prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects and will not request
acceleration of such Registration Statement without prior notice to
such counsel. The sections of such Registration Statement covering
information with respect to the Investor, the Investor's beneficial
ownership of securities of the Company or the Investor's intended
method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Investor.
i. The Company shall make generally available to its security holders
as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 1933 Act)
covering a twelve-month period beginning not later than the first day
of the Company's fiscal quarter next following the effective date of
the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if
any, for sale in connection with any Registration Statement or, if
such securities are not being sold by an underwriter, on the date of
effectiveness thereof (i) an opinion, dated as of such date, from
counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the underwriters, if any,
and the Investor and (ii) a letter, dated such date, from the
Company's independent certified public accountants in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and the Investor.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one firm of attorneys and
one firm of accountants or other agents retained by the Initial
Investor, (iv) one firm of attorneys and one firm of accountants or
other agents retained by all other Investor, and (v) one firm of
attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its
due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; provided,
--------
however, that each Inspector shall hold in confidence and shall not
-------
make any disclosure (except to an Investor) of any Record or other
information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a
subpoena or other order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to
any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, consistent with the
provisions of this Section 3(k). Each Investor agrees that it shall,
upon learning that disclosure of such Records is sought in or by a
court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality
agreement between the Company and any Investor) shall be deemed to
limit the Investor's ability to sell Registrable Securities in a
manner which is otherwise consistent with applicable laws and
regulations.
<PAGE>
l. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or
state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction, or (iv) such information
has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor prior to making such disclosure,
and allow the Investor, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for,
such information.
m. The Company shall (i) cause all the Registrable Securities covered
by the Registration Statement to be listed on each national
securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such
exchange, or (ii) to the extent the securities of the same class or
series are not then listed on a national securities exchange, secure
the designation and quotation of all the Registrable Securities
covered by the Registration Statement on Nasdaq or, if not eligible
for Nasdaq on the Nasdaq SmallCap and, without limiting the
generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investor who hold Registrable
Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be offered pursuant to such
Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or the Investor may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investor may request, and, within three
(3) business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities
(with copies to the Investor whose Registrable Securities are
included in such Registration Statement) an instruction in the form
attached hereto as Exhibit 1 and an opinion of such counsel in the
form attached hereto as Exhibit 2.
p. At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in
connection with the Registration Statement as may be necessary in
order to change the plan of distribution set forth in such
Registration Statement.
q. The Company shall not, and shall not agree to, allow the holders of
any securities of the Company to include any of their securities in
any Registration Statement under Section 2(a) hereof or any amendment
or supplement thereto under Section 3(b) hereof without the consent
of the holders of a majority-in-interest of the Registrable
Securities. In addition, the Company shall not offer any securities
for its own account or the account of others in any Registration
Statement under Section 2(a) hereof or any amendment or supplement
thereto under Section 3(b) hereof without the consent of the holders
of a majority-in- interest of the Registrable Securities.
r. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in
connection therewith (including without limitation the 1933 Act and
the 1934 Act and the rules and regulations promulgated by the SEC).
<PAGE>
4. OBLIGATIONS OF THE INVESTOR.
---------------------------
In connection with the registration of the Registrable Securities, the Investor
shall have the following obligations:
a. It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least three
(3) business 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.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and
filing of the Registration Statements hereunder, unless such Investor
has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the
Registration Statements.
c. In the event Investor holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the
Initial Investor) determine to engage the services of an underwriter,
each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such
offering and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable
Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in
Section 3(f) or 3(g), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Investor's
receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense
of the Company) or destroy (and deliver to the Company a certificate
of destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time
of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting
arrangements in usual and customary form entered into by the Company,
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and (iii)
agrees to pay its pro rata share of all underwriting discounts and
commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investor pursuant to Sections 2(b) and 3(h)
hereof, shall be borne by the Company.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration Statement
under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents
and each person who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of
<PAGE>
1934, as amended (the "1934 Act"), if any, (iii) any underwriter (as
defined in the 1933 Act) for the Investor, and (iv) the directors,
officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if
any (each, an "Indemnified Person"), against any joint or several
losses, claims, damages, liabilities or expenses (collectively,
together with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened, in
respect thereof, "Claims") to which any of them may become subject
insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make
the statements therein not misleading; (ii) any untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof
or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which
the statements therein were made, not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the
offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(c)
with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything
to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim
arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified
Person expressly for use in connection with the preparation of such
Registration Statement or any such amendment thereof or supplement
thereto; (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably
withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the
untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected
prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised
in writing not to use the incorrect prospectus prior to the use
giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investor pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement
or any of its directors or officers or any person who controls such
stockholder or underwriter within the meaning of the 1933 Act or the
1934 Act (each an "Indemnified Party"), against any Claim to which
any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim arises out of or is based upon any
Violation by such Investor, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse
any legal or other expenses (promptly as such expenses are incurred
and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however,
-------- -------
that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further,
-------- -------
however, that the Investor shall be liable under this Agreement
-------
(including this Section 6(b) and Section 7) for only that amount as
does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investor pursuant to Section 9. Notwithstanding
anything to
<PAGE>
the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with
any other indemnifying party similarly noticed, to assume control of
the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified
Party, as the case may be; provided, however, that an Indemnified
-------- -------
Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other
party represented by such counsel in such proceeding. The
indemnifying party shall pay for only one separate legal counsel for
the Indemnified Persons or the Indemnified Parties, as applicable,
and such legal counsel shall be selected by Investor holding a
majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval
of the Initial Investor), if the Investor are entitled to
indemnification hereunder, or the Company, if the Company is entitled
to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is materially prejudiced in its ability to defend
such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
-------- -------
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under Section 6, (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (iii) contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investor the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investor to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the
filing of such reports and other documents is required for the
applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule
144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and
<PAGE>
such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the
Investor to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically assignable by the
Investor to any transferee of all or any portion of Registrable Securities if:
(i) 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, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10.AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company, the Initial Investor
(to the extent such Initial Investor still owns Registrable Securities) and
Investor who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11.MISCELLANEOUS.
-------------
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the Company
shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by
regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
InterWorld Corporation
395 Hudson Street, Sixth Floor
New York, New York 10014
Attention: Chairman of the Board
Facsimile: 212-301-2424
With copy to:
Covington and Burling
1330 Avenue of the Americas
New York, New York 10019
Attention: Stephen A. Infante
Facsimile: 212-841-1010
<PAGE>
If to Investor:
Jackpot Enterprises Inc.
c/o J Net Venture Partners LLC
498 Seventh Avenue
New York, New York 10021
Attention: Keith Meister
Facsimile: (212) 502-6396
With copy to:
Greenberg Traurig, LLP
200 Park Avenue
New York, NY 10166
Attention: Alan I. Annex, Esq.
Facsimile: 212-801-6400
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements made
and to be performed in the State of New York (without regard to
principles of conflict of laws). Both parties irrevocably consent to
the jurisdiction of the United States federal courts and the state
courts located in New York with respect to any suit or proceeding
based on or arising under this Agreement, the agreements entered into
in connection herewith or the transactions contemplated hereby or
thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. Both parties
irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree
that service of process upon a party mailed by first class mail shall
be deemed in every respect effective service of process upon the
party in any such suit or proceeding. Nothing herein shall affect
either party's right to serve process in any other manner permitted
by law. Both parties agree that a final non-appealable judgment in
any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other
lawful manner.
e. This Agreement, the Securities Purchase Agreement and the Warrants
(including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Securities Purchase Agreement and the
Warrants supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute
one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
i. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
<PAGE>
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investor pursuant to this Agreement
shall be made by Investor holding a majority of the Registrable
Securities, determined as if the all of the shares of Preferred Stock
and Warrants then outstanding have been converted into or exercised
for Registrable Securities, as the case may be.
<PAGE>
k. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for
breach of its obligations hereunder will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of any of
the provisions hereunder, that each Investor shall be entitled, in
addition to all other available remedies in law or in equity, to an
injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms
and provisions hereof, without the necessity of showing economic loss
and without any bond or other security being required.
l. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
m. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
n. The initial number of Registrable Securities included in any
Registration Statement and each increase to the number of Registrable
Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each
Investor at the time of such establishment or increase, as the case
may be. In the event an Investor shall sell or otherwise transfer any
of such holder's Registrable Securities, each transferee shall be
allocated a pro rata portion of the number of Registrable Securities
included in a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable
Securities shall be allocated to the remaining Investors, pro rata
based on the number of shares of Registrable Securities then held by
such Investor. For the avoidance of doubt, the number of Registrable
Securities held by an Investor shall be determined, for purposes of
this Section 11(n), as if all Preferred Shares and Warrants then
outstanding and held by an Investor were converted into or exercised
for Registrable Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have caused
this Agreement to be duly executed as of the date first above written.
INTERWORLD CORPORATION
By:
------------------------------------------------
Jeremy M. Davis
Chief Executive Officer and President
JACKPOT ENTERPRISES INC.
By:
------------------------------------------------
Name:
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Title:
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<PAGE>
EXHIBIT 99.1
------------
For Immediate Release
Investor Contact: Press Contact:
Joel Herskovits Chris Faust
InterWorld Corporation InterWorld Corporation
212-301-2528 212-301-2375
InterWorld Raises $20 Million in Financing
From Jackpot (J Net Enterprises)
-- Retains Bear, Stearns & Co. Inc. to Explore Strategic Alternatives --
NEW YORK - October 12, 2000 -- InterWorld(R) Corporation (NASDAQ: INTW),
http://www.interworld.com/, a leading provider of Mission-Ready(TM) software
solutions for sell-side e-commerce for Fortune 2000 corporations, today
announced the signing of a definitive agreement for a $20 million convertible
preferred stock private placement financing with Jackpot Enterprises, Inc.
(NYSE: J), which is being renamed J Net Enterprises, Inc. J Net Enterprises is a
technology holding company, with assets of more than $130 million focused on
making concentrated investments in leading B2B enterprise software and
infrastructure companies. J Net is committed to partnering with InterWorld
further to exploit its market leading software solutions.
J Net Enterprises will provide the financing through the purchase of $20 million
of 8% Convertible Preferred Stock, along with certain warrants. The Preferred
Stock is convertible into InterWorld common stock at a price of $6.25 per share
with dividends being paid quarterly in cash or in kind at InterWorld's option.
The conversion price is subject to downward adjustments based on market prices
of InterWorld common stock and in certain other circumstances. Pursuant to the
terms of the preferred stock, on April 10, 2001, J Net will have the right to
require the company to redeem the preferred stock at 150% of the purchase price,
unless the Company enters into a business combination with J Net. Net proceeds
from the financing will be used for general corporate purposes. As a result of
the transaction, J Net Enterprises will designate two persons to InterWorld's
Board of Directors.
The investor also received warrants to purchase additional shares of InterWorld
at an exercise price of $7.25. The number of warrants issued combined with the
preferred shares on an "as converted" basis will not exceed 19.99% of the
current outstanding shares of InterWorld's common stock based upon the initial
conversion price.
"Raising capital from such seasoned investors validates InterWorld's business
model and vision, particularly at a time when the capital markets are
tightening," said Jeremy Davis, President and Chief Executive Officer of
InterWorld Corporation. "With their portfolio of companies and their extensive
global business relationships, J Net Enterprises will provide valuable insight
and business experience to assist InterWorld in executing our business plan."
InterWorld also announced today that its Board of Directors has retained Bear
Stearns & Co. Inc. to explore strategic alternatives available to the company to
expand growth opportunities and enhance shareholder value.
Pursuant to a separate agreement, J Net has acquired a $12.4 million loan from a
brokerage firm that made the loan to Michael Donahue, InterWorld's Chairman,
which is secured by Mr. Donahue's shares in InterWorld. Pursuant to the
agreement, J Net affected a secured loan transaction that provides for an equity
participation in the shares that secure the loan.
"We are very excited about our partnership with InterWorld," said Allan R.
Tessler, Chairman and CEO of J Net Enterprises, Inc. "Our investment
demonstrates our confidence in InterWorld's value proposition and strategic
direction. InterWorld exhibits the technological leadership and strong growth
that we look for as a strategic investor."
<PAGE>
Mr. Tessler continued, "We expect to further cement our business relationship
with InterWorld in the near future by proposing some form of business
combination between the companies. We also see synergies existing between
InterWorld and several of our portfolio companies."
Neither the preferred stock nor the warrants have been or will be registered for
sale under the Securities Act of 1933, as amended, and may not be offered or
sold in the United States absent registration under such act or applicable
exemption from the registration requirements of such act.
Chapter 2 About InterWorld Corporation
InterWorld(R) Corporation (NASDAQ:INTW) a leading provider of mission-ready(TM)
software solutions for sell-side B2B and B2C e-commerce. The company's
process-oriented and standards-based solution is focused exclusively on the
selling chain and physical goods market, enabling manufacturers, distributors
and retailers to compete more successfully in today's global digital economy.
InterWorld's comprehensive, pre-packaged solution allows businesses to maximize
profitability, lower operating costs and enhance overall corporate or consumer
loyalty. Founded in 1995, InterWorld is headquartered in New York, NY with
offices throughout North America, Europe, and Asia-Pacific. InterWorld can be
reached at 1-877-326-6637 or http://www.interworld.com
-------------------------
About J Net Enterprises, Inc.
Jackpot Enterprises, Inc. (NYSE: J), which is being renamed J Net Enterprises,
Inc. pending shareholder approval, is a technology holding company with
concentrated investments in leading enterprise software and Internet
infrastructure companies. Through J Net Ventures I, the Company manages its own
and third party capital in excess of $100 million. Investors in J Net Ventures I
include Gilbert Global Equity, a leading private equity partnership with in
excess of $1.5 billion under management and Alpha Investment Management, a group
of hedge funds and private equity partnerships with in excess of $1.5 billion
under management. www.jnettech.com
----------------
This press release contains or may contain forward-looking statements such as
statements regarding the InterWorld's future growth and profitability, growth
strategy and trends in the industry in which it operates. These forward-looking
statements are based on InterWorld's current expectations and are subject to a
number of risks, uncertainties and assumptions. Among the important factors that
could cause actual results to differ significantly from these expressed or
implied forward-looking statements are the failure of our products to be
accepted in the Internet commerce market, the intense competition in our
industry, technological change, our reliance on systems integration companies to
sell and implement our products, our need to attract significant new clients
each year, our ability to modify our products and market them internationally,
the potential need for additional financing, the risk that our proprietary
rights may not be fully protected, as well as the other risk factors affecting
InterWorld detailed from time to time in the documents it has filed with the
U.S. Securities and Exchange Commission.
InterWorld is a registered trademark of InterWorld Corporation. Mission-Ready is
also a trademark of InterWorld. All other company, product, and brand names are
trademarks of their respective owners.
