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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported): April 27, 2000
ARI NETWORK SERVICES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 0-19608 39-1388360
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
330 E. Kilbourn Avenue
Milwaukee, Wisconsin 53202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 278-7676
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ITEM 5. OTHER EVENTS
On April 27, 2000, ARI Network Services, Inc., a Wisconsin corporation (the
"Company") issued and sold pursuant to a Securities Purchase Agreement, dated as
of April 25, 2000, by and among the Company and RGC International Investors, LDC
(the "Investor"), (i) a convertible subordinated debenture in the amount of Four
Million Dollars ($4,000,000) due on April 27, 2003, and convertible into shares
of the Company's common stock, $.001 par value per share (the "Common Stock"),
(ii) warrants to purchase Six Hundred Thousand (600,000) shares of Common Stock
(the "Warrants"), and (iii) an investment option to purchase Eight Hundred
Thousand (800,000) shares of Common Stock (the "Investment Option"). The
Investment Option expires on October 27, 2001 and the Warrants expire on April
27, 2005. The Debenture is convertible into Common Stock at $4 per share and the
Warrants and Investment Option are exercisable at $6 per share. At anytime after
April 27, 2001, the Company can require the Investor to exercise the Investment
Option if the closing bid price of the Common Stock is greater than $9.90 for
twenty (20) consecutive trading days and the Company's resale registration
statement (see below) has been effective for at least three (3) months. If
exercised, the Investment Option would contribute an additional Four Million
Eight Hundred Thousand Dollars ($4,800,000) of working capital to the Company.
The securities were sold as a transaction exempted from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act").
Pursuant to the terms of a Registration Rights Agreement, dated as of April 27,
2000, by and among the Company and the Investor, the Company is obligated to
file with the Securities and Exchange Commission, on or prior to May 27, 2000, a
registration statement on Form S-3 under the Securities Act to register for
resale the shares of Common Stock which are issuable upon conversion of the
Debenture and upon exercise of the Warrants and Investment Option.
The Company's press release, dated April 28, 2000, announcing this private
placement is filed as an exhibit hereto along with the Debenture, the Warrants,
the Investment Option, the Securities Purchase Agreement, and the Registration
Rights Agreement. This summary description of the private placement and the
press release are qualified in their entirety by reference to the documents
filed as exhibits hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
Exhibit 99.1 Securities Purchase Agreement, dated as of April 25,
2000, by and among the Company and the Investor.
Exhibit 99.2 Convertible Subordinated Debenture dated as of April 27,
2000.
Exhibit 99.3 Stock Purchase Warrant dated as of April 27, 2000.
Exhibit 99.4 Investment Option dated as of April 27, 2000.
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Exhibit 99.5 Registration Rights Agreement, dated as of April 27,
2000, by and among the Company and the Investor.
Exhibit 99.6 Press Release issued by the Company on April 28, 2000.
================================================================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 2, 2000 ARI NETWORK SERVICES, INC.
By: /s/ Brian E. Dearing
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Brian E. Dearing, Chairman and CEO
================================================================================
EXHIBIT INDEX
Exhibit 99.1 Securities Purchase Agreement, dated as of April 25, 2000, by
and among the Company and the Investor.
Exhibit 99.2 Convertible Subordinated Debenture dated as of April 27, 2000.
Exhibit 99.3 Stock Purchase Warrant dated as of April 27, 2000.
Exhibit 99.4 Investment Option dated as of April 27, 2000.
Exhibit 99.5 Registration Rights Agreement, dated as of April 27, 2000, by and
among the Company and the Investor.
Exhibit 99.6 Press Release issued by the Company on April 28, 2000.
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Exhibit 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 25,
2000, by and among ARI Network Services, Inc., a Wisconsin corporation, with
headquarters located at 330 East Kilbourn Avenue, Milwaukee, Wisconsin
53202-3149 ("COMPANY"), and each of the purchasers set forth on the signature
pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration under
Section 4(2) of the Securities of 1933, as amended (the "1933 ");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement, (i) convertible
subordinated debentures of the Company, in the form attached hereto as EXHIBIT
"A", in the aggregate principal amount of Four Million Dollars ($4,000,000)
(together with any debenture(s) issued in replacement thereof or otherwise with
respect thereto in accordance with the terms thereof, the "DEBENTURES"),
convertible into shares of common stock, $.001 par value per share, of the
Company (the "COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in such Debentures, (ii) warrants, in the form attached
hereto as EXHIBIT "B", to purchase Six Hundred Thousand (600,000) shares of
Common Stock (the "WARRANTS") and (iii) investment options, in the form attached
hereto as EXHIBIT "C", to purchase Eight Hundred Thousand (800,000) shares of
Common Stock (the "INVESTMENT OPTIONS");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of Warrants
and Investment Options as is set forth immediately below its name on the
signature pages hereto;
D. 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 "D " (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES, WARRANTS AND INVESTMENT
OPTIONS.
a. PURCHASE OF DEBENTURES, WARRANTS AND INVESTMENT OPTIONS. On
the Closing Date (as defined below), the Company shall issue and sell to each
Buyer and each Buyer severally agrees to purchase from the Company such
principal amount of Debentures and
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number of Warrants and Investment Options as is set forth immediately below such
Buyer's name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Debentures, the Warrants and
the Investment Options to be issued and sold to it at the Closing (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 Debentures in the principal amount equal to
the Purchase Price and the number of Warrants and Investment Options as is set
forth immediately below such Buyer's name on the signature pages hereto, and
(ii) the Company shall deliver such Debentures, Warrants and Investment Options
duly executed on behalf of the Company, to such Buyer, against delivery of such
Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Debentures, the Warrants and Investment
Options pursuant to this Agreement (the "CLOSING DATE ") shall be no later than
12:00 noon Eastern Standard Time on April 27, 2000 or such other mutually agreed
upon time. The closing of the transactions contemplated by this Agreement (the
"CLOSING") shall occur on the Closing Date at the offices of Godfrey & Kahn,
S.C., 780 N. Water Street, Milwaukee, Wisconsin 53202, or at such other location
as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the (i) Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock as are issuable as a result
of the events described in Articles II.D.3 and II.E. of the Debentures and
Section 2(c) of the Registration Rights Agreement, such shares of Common Stock
being collectively referred to herein as the "CONVERSION SHARES"), (ii) the
Warrants and the shares of Common Stock issuable upon exercise of or otherwise
pursuant to the Warrants (the "WARRANT SHARES") and (iii) the Investment Options
and the shares of Common Stock issuable upon exercise of or otherwise pursuant
to the Investment Options (the "INVESTMENT OPTION SHARES" and, collectively with
the Debentures, Conversion Shares, Warrants, Warrant Shares and Investment
Options, 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; provided, however,
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
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c. RELIANCE ON EXEMPTIONS. The Buyer 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 the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer 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 Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RE-SALE. The Buyer 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) the Buyer 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 the Buyer 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.
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g. LEGENDS. The Buyer understands that the Debentures,
Warrants and Investment Options and, until such time as the Conversion Shares,
Investment Option 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, Investment Option 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 and will be sold pursuant to
Rule 144. The Buyer 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, and if such legend is
removed, pursuant to clause (c) above, in compliance with the requirements of
Rule 144.
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 the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
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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, 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, (iii)
the transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith or (iv) the authority or the ability of the
Company to perform its obligation under this Agreement, the Registration Rights
Agreement, the Debentures, the Investment Options or the Warrants.
"SUBSIDIARIES" means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest and which would be a "Significant Subsidiary" of the
Company as defined under Rule 1-02(w) of Regulation S-X promulgated under the
1933 Act.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures, the Investment
Options 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, the Debentures, the Investment Options 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 Debentures, the
Investment Options and the Warrants and the issuance and reservation for
issuance of the Conversion Shares issuable upon conversion of otherwise pursuant
to the Debentures, the Investment Option Shares issuable upon exercise of or
pursuant to the Investment Option Shares and the Warrant Shares issuable upon
exercise of or otherwise pursuant to the Investment Options 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
shareholders 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, the
Debentures, the Investment Options and the Warrants, 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) 25,000,000 shares of Common Stock
of which 6,168,020 shares are issued and outstanding, 636,741 shares are
reserved for issuance pursuant to the Company's stock option plans, 280,000
shares are reserved for issuance pursuant to securities (other than the
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Debentures, Investment Options and the Warrants) exercisable for, or convertible
into or exchangeable for shares of Common Stock and 4,000,000 shares are
reserved for issuance upon conversion of the Debentures and exercise of the
Investment Options and the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); and (ii) 1,000,000 shares
of preferred stock, 40,000 shares of which are designated as Series A Preferred,
of which 20,350 are issued and outstanding. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued
and, subject to Wisconsin Statute ss.180.0622(2)(b), fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders 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 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 Debentures, the
Investment Options, the Warrants, the Conversion Shares, the Investment Option
Shares or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Articles of Incorporation as in effect on the
date hereof ("ARTICLES 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 the Buyer with
a written update of this representation signed by the Company's Chief Executive
Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Conversion Shares, the Investment
Option Shares and Warrant Shares are duly authorized and reserved for issuance
and, when issued upon conversion of or otherwise pursuant to the Debentures and
upon exercise of or otherwise pursuant to the Investment Options and the
Warrants in accordance with the terms thereof, will be validly issued and,
subject to Wisconsin Statute ss.180.0622(2)(b), fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances and shall not be subject
to preemptive rights or other similar rights of shareholders of the Company and
subject to Wisconsin Statute ss.180.0622(2)(b) 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 (i) the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Debentures, (ii) the issuance of the Investment Option Shares upon exercise
of or otherwise pursuant to the Investment Options and (iii) the issuance of the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants. The
Company's directors and executive officers have studied and fully understand the
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nature of the Securities being sold hereunder. The Company further acknowledges
that its obligation to issue (i) Conversion Shares upon conversion of or
otherwise pursuant to the Debentures, (ii) the Investment Option Shares upon
exercise of or otherwise pursuant to the Investment Options and (iii) the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants, in
accordance with this Agreement, the Debentures, the Investment Options and the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company. Taking the foregoing into account, the Company's Board of Directors has
determined, in its good faith business judgment, that the issuance of the
Securities hereunder and under the Debentures, the Investment Options and the
Warrants and the consummation of the transactions contemplated hereby and
thereby are in the best interest of the Company and its shareholders.
f. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Debentures, the
Investment Options and the Warrants by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion Shares,
the Investment Option Shares and Warrant Shares) will not (i) conflict with or
result in a violation of any provision of the Articles 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 Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both 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, 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, authorization or order of, 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, the Debentures, the Investment Options or the
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Warrants in accordance with the terms hereof or thereof or to issue and sell the
Debentures, the Investment Options and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of or otherwise
pursuant to the Debentures, the Investment Option Shares and the Warrant Shares
upon exercise of or otherwise pursuant to the Warrants. 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 National Market System ("NASDAQ") and does not
reasonably anticipate that the Common Stock will be delisted by 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.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since July 31, 1997,
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 as the "SEC DOCUMENTS"). The Company has delivered or made available
to each Buyer 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. 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
July 31, 1999 and (ii) liabilities and not required under generally accepted
accounting principles to be reflected in such financial statements.
h. ABSENCE OF CERTAIN CHANGES. Since July 31, 1999, there have
been no changes or developments in the Company, its business or any of its
Subsidiaries that may have a
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Material Adverse Effect, except for losses reflected in the SEC Documents, filed
since July 31, 1999.
i. 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
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. SCHEDULE
3(I) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would 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.
j. PATENTS, COPYRIGHTS, ETC.
(I) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(J) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in SCHEDULE 3(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(II) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the Company
to customers (collectively, "INFORMATION TECHNOLOGY"), are, to the Company's
knowledge, Year 2000 Compliant. For purposes of this Agreement, the term "YEAR
2000 COMPLIANT" means, with respect to the Company's Information Technology,
that the Information Technology is designed to be used prior to, during and
after the calendar Year 2000 A.D., and the Information Technology used during
each such time period will accurately receive, provide and process date and time
data (including, but not limited to, calculating, comparing and sequencing)
from, into and between the 20th and 21st centuries, including the years 1999 and
2000, and leap-year calculations, and will not malfunction, cease to function,
or provide invalid or incorrect results as a result of the date or time data, to
the extent that other information technology, used in combination with the
Information Technology, properly exchanges date and
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time data with it. The Company has delivered to the Buyer true and correct
copies of all analyses, reports, studies and similar written information,
whether prepared by the Company or another party, relating to whether the
Information Technology is Year 2000 Compliant.
k. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
l. TAX STATUS. 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 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 except as disclosed on Schedule 3(l) 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.
Except as disclosed on Schedule 3(l) 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. None of
the Company's tax returns is presently being audited by any taxing authority.
m. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(M)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments 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, directors, or employees 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.
n. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers 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. No event or circumstance has occurred or
exists
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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).
o. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is 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 any Buyer or any of their 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 the Buyers' purchase of the Securities and has not been relied upon by the
Company, its officers or directors in any way. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers 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.
q. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Crown Energy Incorporated, whose commissions
and fees will be paid for by the Company.
r. 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 in each case where the failure to possess Company Permits would not
reasonably be expected to 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 July 31, 1999, neither the
Company nor any of its Subsidiaries has received any notification with respect
to possible conflicts, defaults or violations of applicable
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laws, except for notices relating to possible conflicts, defaults or violations,
which conflicts, defaults or violations would not have a Material Adverse
Effect.
s. ENVIRONMENTAL MATTERS.
(I) 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 violations of Environmental Laws (as defined below), releases of
any material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any 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, 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, 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.
(III) There are no underground storage tanks on or under
any real property owned, leased or used by the Company or any of its
Subsidiaries that are not in compliance with applicable law.
t. TITLE TO PROPERTY. Neither the Company nor any of its
Subsidiaries own any real property. The Company and its Subsidiaries have good
and marketable title to 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(T) 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.
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u. 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.
v. 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.
w. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
x. 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. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors likely would issue a qualified opinion in respect of its current fiscal
year.
y. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement 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.
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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. BLUE SKY LAWS. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Buyers at the 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 each Buyer on or prior to the
Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3; DISCLOSURE
OF TRANSACTIONS. The Company's Common Stock is registered under Section 12(g) of
the 1934 Act. So long as any Buyer beneficially owns any of the Securities, 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. On
or before the first (1st) business day following the Closing Date, the Company
shall issue and publicly disseminate a press release describing the material
terms of the transactions contemplated by this Agreement (the "PRESS RELEASE").
On or before the third (3rd) business day following the Closing Date, the
Company shall file a Current Report on Form 8-K with the SEC describing the
material terms of the transactions contemplated by this Agreement and including
as exhibits to such filing this Agreement, the Registration Rights Agreement,
the form of Debenture, the form of Warrants and form of Investment Options (the
"FORM 8-K"). The Press Release and the Form 8-K shall be subject to the
requirements of Section 8(j).
d. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Debentures in the manner set forth in SCHEDULE 4(D) attached
hereto and made a part hereof and 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; RIGHT OF FIRST REFUSAL. Subject
to the exceptions described below, the Company will not, without the prior
written consent of RGC International Investors, LDC ("ROSE GLEN"), negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) during the period (the "LOCK-UP PERIOD")
beginning on the Closing Date and ending one hundred and eighty (180) days from
the date the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective (subject to extension for any days in which
sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) cannot be made pursuant to the Registration Statement
occurring after the date on which such Registration Statement is first declared
effective by the SEC). In addition, subject to the exceptions described
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<PAGE> 15
below, the Company will not conduct any equity financing (including debt with an
equity component) ("FUTURE OFFERINGS") during the period beginning on the
Closing Date and ending one hundred and eighty (180) days after the end of the
Lock-up Period (subject to extension for any days in which sales of all of the
Registrable Securities cannot be made pursuant to the Registration Statement
occurring after the date on which such Registration Statement is first declared
effective by the SEC) unless it shall have first delivered to Rose Glen, at
least ten (10) business days prior to the closing of such Future Offering,
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 Rose Glen an option during the ten (10) day
period following delivery of such notice to purchase all or any portion of 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 respect after delivery of the notice to Rose
Glen concerning the proposed Future Offering, the Company shall deliver a new
notice to Rose Glen describing the amended terms and conditions of the proposed
Future Offering and Rose Glen 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 alliance, relationship,
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, (iii) issuance up to an aggregate
of 200,000 shares of Common Stock (which may be in the form of warrants to
purchase shares of Common Stock) to vendors to satisfy outstanding financial
obligations; provided that the price at which such Common Stock is issued or the
exercise price of such warrants is not less than the Exercise Price (as defined
in the Warrants), or (iv) issuance of warrants to purchase up to 400,000 shares
of Common Stock in connection with restructuring debt or accounts receivable
sales facility, provided that such restructuring does not involve the issuance
of securities convertible into Common Stock (other than warrants) and provided,
further that the exercise price of such warrants is not less than the Exercise
Price (as defined in the Warrants). 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, stock
purchase or restricted stock plan approved by the shareholders of the Company.
f. EXPENSES. The Company shall reimburse Rose Glen Capital
Management, L.P. ("ROSE GLEN") for all 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, attorneys' and consultants' fees and expenses and
travel expenses. The Company's obligation to reimburse
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Rose Glen's expenses under this Section 4(f) shall be limited to Twenty Thousand
Dollars ($20,000) of which Ten Thousand Dollars ($10,000) was advanced
previously.
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of its Securities: (i) within ten (10) 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 (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the shareholders
of the Company, copies of any notices or other information the Company makes
available or gives to such shareholders.
h. RESERVATION OF SHARES. 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 or exercise of the
outstanding Debentures, Investment Options and Warrants and issuance of the
Conversion Shares issuable upon conversion of or otherwise pursuant to the
Debentures (based on the Conversion Price of the Debentures in effect from time
to time), the issuance of the Investment Option shares upon exercise of or
otherwise pursuant to the Investment Options (based upon the exercise price of
the Investment Options as in effect from time to time) and the issuance of the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants (based
upon 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 Debentures and exercise
of or otherwise pursuant to the Warrants and the Investment Options without the
consent of each Buyer. 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 one and one-half (1 1/2) times the number that is then actually
issuable upon full conversion of the Debentures (based on the Conversion Price
of the Debentures in effect from time to time), full exercise of the Investment
Options and the Warrants and full exercise of the Warrants (based on the
Exercise Price of the Investment Options and the Warrants in effect from time to
time). 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 Debentures (based on
the Conversion Price in effect from time to time) and the number of Warrant
Shares and Investment Option Shares issued or issuable upon exercise of or
otherwise pursuant to the Investment Options and the Warrants (based on the
exercise price of the Warrants and Investment Options 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 shareholders 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. LISTING. The Company shall promptly secure the listing of
the Conversion Shares, Investment Option Shares and Warrant Shares 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)
and, so long as any Buyer owns any of the Securities, shall
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<PAGE> 17
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion of
or otherwise pursuant to the Debentures and all Warrant Shares and Investment
Option Shares from time to time issuable upon exercise of or otherwise pursuant
to the Warrants and Investment Options. The Company will obtain and, so long as
any Buyer owns any of the Securities, maintain the listing and trading of its
Common Stock on Nasdaq, 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 each Buyer 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.
j. CORPORATE EXISTENCE. Subject to Article I.D. of the
Debentures, so long as a Buyer beneficially owns any Debentures, 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 the (i) the successor or acquiring entity and, if an entity
different from the successor or acquiring entity, the entity whose securities
into which the Debentures shall become convertible pursuant to Article II.C.2 of
the Debentures, in such transaction assumes the Company's obligations hereunder
and under the agreements and instruments entered into in connection herewith
(including the Debentures, Investment Options and the Warrants) and (ii) the
entity whose securities into which the Debentures shall become convertible
pursuant to Article II.C.2 of the Debentures is a publicly traded corporation
whose Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or
AMEX.
k. 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 the 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.
l. TRADING LIMITATIONS. So long as the Securities held by a
Buyer are outstanding, such Buyer covenants and agrees that it will conduct all
transactions in the Common Stock in compliance with applicable securities laws
and will not create a daily low trading price for such Common Stock on Nasdaq.
m. NO VIOLATION. The businesses of the Company and its
Subsidiaries, if any, shall not be conducted in violation of any law, ordinance
or regulation of any governmental entity so long as the Buyer owns any of the
Securities, except for any violation that would not have a Material Adverse
Effect.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares, the
Investment Option Shares and Warrant Shares in such
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amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Investment Options and the
Warrants in accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares, the Investment
Option Shares and Warrant Shares under the 1933 Act or the date on which the
Conversion Shares, the Investment Option Shares and 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, the
Investment Option Shares and Warrant Shares, prior to registration of the
Conversion Shares, Investment Option Shares and Warrant Shares under the 1933
Act or the date on which the Conversion Shares, the Investment Option Shares and
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 the Buyer'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 a Buyer 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)
the Buyer provides reasonable assurances that the Securities can be and will be
sold pursuant to Rule 144, the Company shall permit the transfer, and, in the
case of the Conversion Shares, the Investment Option Shares and 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 such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
of the Company hereunder to issue and sell the Debentures, the Investment
Options and Warrants to a Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase
Price in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date 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 Buyer
shall have performed, satisfied and complied in all material respects with the
18
<PAGE> 19
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. 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.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures, the Investment
Options and Warrants at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for such Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly
executed Debentures, Investment Options and Warrants (in such denominations as
the Buyer shall request) in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. 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 the
Closing Date 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 the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Articles of Incorporation, By-laws and Board of Directors' resolutions relating
to the transactions contemplated hereby.
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.
19
<PAGE> 20
f. The Conversion Shares, the Investment Option Shares and
Warrant Shares shall have been authorized for quotation on Nasdaq and trading in
the Common Stock on Nasdaq shall not have been suspended by the SEC or Nasdaq.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "E"
attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin applicable to
agreements made and to be performed in the State of Wisconsin (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
exclusive jurisdiction of the United States federal courts located in Delaware
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 and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters
20
<PAGE> 21
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. 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:
ARI Network Services, Inc.
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202-3149
Attention: Brian Dearing
Facsimile: (414) 283-4375
With copy to:
Larry Lieberman, Esq.
Godfrey & Kahn
780 N. Water Street
Milwaukee, Wisconsin 53202
Facsimile: (414) 273-5198
If to a Buyer:
To the address set forth immediately
below such Buyer's name on the
signature pages hereto.
With copy to:
Bradley D. Houser, Esq.
Akerman, Senterfitt & Eidson, P.A.
One SE Third Avenue, 28th Floor
Miami, FL 33131
Facsimile: (305) 374-5095
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
21
<PAGE> 22
Buyer 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 Buyer may assign its rights hereunder to any person that
purchases Securities in a private transaction from a Buyer or to any of its
"affiliates," as that term is defined under the 1934 Act, without the consent of
the Company; provided, however that any assignee of the Debenture, Investment
Options or Warrants shall be obligated to assume the duties and obligations of
such transferring Buyer pursuant to this Agreement; provided further, however,
that such assignee purchases or otherwise acquires at least $500,000 in
principal amount of the Debentures or at least 10% of either the Warrants or
Investment Options issued pursuant to this Agreement.
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. 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 the Buyers.
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, 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 each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers 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 each Buyer, 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 each Buyer 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
22
<PAGE> 23
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]
23
<PAGE> 24
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
ARI NETWORK SERVICES, INC.
By: /s/ Brian Dearing
Brian Dearing,
Chairman and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Steven B. Katznelson
Steven B. Katznelson
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
<TABLE>
<CAPTION>
AGGREGATE SUBSCRIPTION AMOUNT:
<S> <C>
Principal Amount of Debentures: $4,000,000
------------------
Number of Warrants: 600,000
- --------- ------------------
Number of Investment Options: 800,000
- --------- ------------------
Aggregate Purchase Price: $4,000,000
- --------- ------------------
</TABLE>
24
<PAGE> 1
EXHIBIT 99.2
EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES 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 THE SECURITIES ACT.
CONVERTIBLE SUBORDINATED DEBENTURE
April 27, 2000 $4,000,000.00
FOR VALUE RECEIVED, ARI NETWORK SERVICES, INC., a corporation organized
under the laws of the State of Wisconsin (hereinafter called the "BORROWER "),
hereby promises to pay to the order of RGC INTERNATIONAL INVESTORS, LDC or its
registered assigns (the "HOLDER") the sum of Four Million Dollars
($4,000,000.00) on April 27, 2003 (the "MATURITY DATE") and to pay interest on
the unpaid principal balance hereof at the rate of seven percent (7%) per annum
from the date hereof (the "ISSUE DATE") until the same becomes due and payable
(which interest shall accrue on a daily basis), whether at maturity or upon
conversion, redemption, acceleration or otherwise. Any amount of principal of or
interest on this Debenture which, to the extent not converted in accordance with
the provisions hereof, is not paid when due shall bear interest at the rate of
seventeen percent (17%) per annum ("DEFAULT INTEREST") from the due date thereof
until the same is paid. Interest shall be calculated based on a 360-day year and
shall commence accruing on the Issue Date and, to the extent not converted in
accordance with the provisions hereof, shall be payable in arrears at such time
as the outstanding principal balance hereof with respect to which such interest
has accrued becomes due and payable hereunder. All payments of principal and
interest (to the extent not converted into shares of the Borrower's common
stock, $.001 par value ("COMMON STOCK"), in accordance with the terms hereof)
shall be made in, and all references herein to monetary denominations shall
refer to, lawful money of the United States of America. All payments shall be
made at such address as the Holder shall hereafter give to the Borrower by
written notice made in accordance with the provisions of this Debenture. The
Maturity Date is subject to extension, at the option of the Holder, as provided
in Article V hereof. This Debenture is being issued by the Borrower pursuant to
the Securities Purchase Agreement, dated as of April 25, 2000, between the
Borrower and the Holder (the "PURCHASE AGREEMENT"). Each capitalized term used,
but not
<PAGE> 2
otherwise defined, herein shall have the meaning ascribed thereto in the
Purchase Agreement. For purposes hereof, the term "DEBENTURES" shall be deemed
to refer to this Debenture, all other convertible subordinated debentures issued
pursuant to the Purchase Agreement and all convertible debentures issued in
replacement hereof or thereof or otherwise with respect hereto or thereto.
I. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each, a
"MANDATORY REDEMPTION EVENT") shall occur:
1. The Borrower fails to pay the principal hereof or interest
thereon when due on this Debenture, whether at maturity, upon mandatory
prepayment pursuant to Article I.B, upon acceleration or otherwise.
2. The Borrower (i) fails to issue shares of Common Stock to
any holder of the Debentures upon exercise by the holder of its conversion
rights in accordance with the terms of the Debentures (for a period of at least
sixty (60) days if such failure is solely as a result of the circumstances
governed by the second paragraph of Article II.E below and the Borrower is using
its best efforts to authorize a sufficient number of shares of Common Stock as
soon as practicable), (ii) 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 any Holder upon conversion of or otherwise pursuant to
the Debentures as and when required by the Debentures or the Registration Rights
Agreement, dated as of April 27, 2000, by and among the Borrower and the other
signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), (iii) 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 the Debentures upon conversion of or otherwise pursuant to the Debentures as
and when required by the Debentures, the Purchase Agreement or the Registration
Rights Agreement, or (iv) fails to fulfill its obligations pursuant to Sections
4(c), 4(d), 4(e), 4(h), 4(i), 4(j), or 5 of the Purchase Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph), and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten (10) days after the Borrower shall
have been notified thereof in writing by any holder of the Debentures;
3. The Borrower fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") prior to January 27, 2001 of the
Registration Statement (as defined in the Registration Rights Agreement, the
"REGISTRATION STATEMENT") required to be filed pursuant to Section 2(a) of the
Registration Rights Agreement, or fails to obtain the effectiveness of any
additional Registration Statement (required to be filed pursuant to Section
3(b)of the Registration Rights Agreement) within sixty (60) days after the
Registration Trigger Date (as defined in the Registration Rights Agreement), or
any such Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the
2
<PAGE> 3
Registration Rights Agreement), lapses in effect or sales of all of the
Registrable Securities (as defined in the Registration Rights Agreement, the
"REGISTRABLE SECURITIES") otherwise cannot be made thereunder (whether by reason
of the Borrower's failure to amend or supplement the prospectus included therein
in accordance with the Registration Rights Agreement, the Borrower's failure to
file and obtain effectiveness with the SEC of an additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than twenty (20) consecutive days or more than sixty (60)
days in any twelve (12) month period after such Registration Statement becomes
effective;
4. The Borrower or any subsidiary of the Borrower 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;
5. 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 Borrower or any
subsidiary of the Borrower;
6. The Borrower shall: fail to maintain the listing of the
Common Stock on the Nasdaq National Market ("NASDAQ"), the Nasdaq Small Cap
Market ("NASDAQ SMALLCAP"), the New York Stock Exchange (the "NYSE") or the
American Stock Exchange ("AMEX");
7. The sale, conveyance or disposition of all or substantially
all of the assets of the Borrower, the effectuation by the Borrower of a
transaction or series of related transactions in which more than 50% of the
voting power of the Borrower is disposed of or the consolidation, merger or
other business combination of the Borrower with or into any other individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization (each, a "PERSON") or Persons when the Borrower is not
the survivor (a "MAJOR TRANSACTION"); or
8. The Borrower breaches any covenant contained in Article IV
hereof and such breach continues uncured for a period of ten (10) days after
written notice thereof to the Borrower from any holder of Debentures,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs 1, 2, 3, 6, 7 or 8 at the option of
the holders of at least 50% of the then outstanding principal amount of the
Debentures exercisable by the delivery of written notice (the "MANDATORY
REDEMPTION NOTICE") to the Borrower of such Mandatory Redemption Event, or upon
the occurrence of any Mandatory Redemption Event specified in subparagraphs 4 or
5, the then outstanding Debentures shall become immediately redeemable and the
Borrower shall purchase each holder's outstanding Debentures for an amount equal
to the greater of (i) 130% multiplied by the sum of (a) the then outstanding
principal amount of the Debentures, plus (b) all accrued and unpaid interest
thereon for the period beginning on the Issue Date and ending on the date of
payment of the Mandatory Redemption Amount (the "MANDATORY REDEMPTION DATE"),
plus (c) Default Interest, if any, on the amounts referred to in clauses (a)
and/or (b), plus (d) all Conversion Default Payments (as defined in Article II.E
below), Delivery Default Payments (as
3
<PAGE> 4
defined in Article II.D.3 below) and any other amounts owed to such holder
pursuant to Section 2(c) of the Registration Rights Agreement, and (ii) the
"PARITY VALUE" of the Debentures to be redeemed, where parity value means the
product of (a) the highest number of shares of Common Stock issuable upon
conversion of or otherwise pursuant to such Debentures in accordance with the
terms hereof (without giving any effect to any limitations on conversions of
Debentures contained herein, multiplied by (b) the highest Closing Price (as
defined below) for the Common Stock during the period beginning on the date of
first occurrence of the Mandatory Redemption Event and ending one day prior to
the Mandatory Redemption Date (the greater of such amounts being referred to as
the "MANDATORY REDEMPTION AMOUNT"). The Mandatory Redemption Amount, together
with all other ancillary amounts payable hereunder, shall immediately become due
and payable, all without demand, presentment or notice (other than the Mandatory
Redemption Notice), all of which hereby are expressly waived, together with all
costs, including, without limitation, reasonable legal fees and expenses of
collection, and Holder shall be entitled to exercise all other rights and
remedies available at law or in equity. "CLOSING PRICE," as of any date, means
the last sale price of the Common Stock on the Nasdaq as reported by Bloomberg
Financial Markets or an equivalent reliable reporting service mutually
acceptable to and hereafter designated by the holders of a majority of the
outstanding principal amount of the Debentures and the Borrower ("BLOOMBERG")
or, if the Nasdaq is not the principal trading market for such security, the
last sale price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or, if
no last sale price of such security is available in any of the foregoing manners
on the electronic bulletin board for such security or in any of the foregoing
manners, the average of the bid prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such date in the
manner provided above, the Closing Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority of the
outstanding principal amount of the Debentures for which the calculation of the
Closing Price is required in order to determine the Conversion Price of such
Debentures.
B. TRADING MARKET REDEMPTION. If any Debentures cease to be
convertible by any holder of the Debentures as a result of the limitations
described in Article II.A.2 below (a "TRADING MARKET REDEMPTION EVENT"), and the
Borrower has not, prior to, the date that such Trading Market Redemption Event
arises, either (i) obtained the Stockholder Approval (as defined in Article
II.A.2) 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 Borrower or any of its
securities on the Borrower's ability to issue shares of Common Stock in excess
of the Maximum Share Amount (as defined in Article II.A.2), then the Borrower
shall be obligated to redeem immediately all of the then outstanding principal
amount of the Debentures, in accordance with this Article I.B. An irrevocable
redemption notice (the "TRADING MARKET REDEMPTION NOTICE") shall be delivered
promptly to the holders of the Debentures in accordance with the terms hereof
and shall state (i) that the Maximum Share Amount (as defined in Article II.A.2)
has been issued upon conversion of the Debentures, (ii) that the Borrower is
obligated to redeem all of the outstanding Debentures and (iii) the Mandatory
Redemption Date, which shall be a date within five (5) business days of the
earlier of (a) the date the Trading Market Redemption Notice is sent to the
Borrower or (b) the
4
<PAGE> 5
date on which the holders of the Debentures notify the Borrower of the
occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Borrower shall make payment of the Mandatory Redemption Amount (as
defined in Article I.A above) in cash.
C. REDEMPTION IN LIEU OF CONVERSION. Notwithstanding anything to the
contrary contained in this Article I and subject to the terms of this Article
I.C, after October 27, 2000, if (i) the Closing Price of the Common Stock is
less than the Conversion Price (as defined in Article II.B) (the "REDEMPTION
THRESHOLD"), (ii) there is no Mandatory Redemption Event or Trading Market
Redemption Event and (iii) (a) any Registration Statement required to be filed
and be effective pursuant to the Registration Rights Agreement is then in effect
and has been in effect and sales of all of the Registrable Securities can be
made thereunder for at least thirty (30) consecutive Trading Days (as defined
below) prior to the date the Notice of Conversion is submitted and (b) the
Borrower has a sufficient number of authorized shares of Common Stock reserved
for issuance upon full conversion of the Debentures and exercise of the Warrants
and Investment Options (each as defined in the Purchase Agreement), on any day a
Notice of Conversion (as defined in Article II.D below) is given, the Borrower
shall have the option, in lieu of issuing shares of Common Stock to the holders
upon conversion in accordance with the terms of Article II below, to redeem all
or any portion of principal amount of the Debentures submitted for conversion
for an amount in cash equal to the principal amount of the Debenture plus (x)
all accrued and unpaid interest and Default Interest of such principal amount of
the Debentures plus (y) all Conversion Default Payments (as defined in Article
II.E. below), Delivery Default Payments (as defined in Article II.D.3. below)
and any other amounts owed to such holder pursuant to Section 2(c) of the
Registration Rights Agreement (the "REDEMPTION IN LIEU OF CONVERSION AMOUNT").
If the Closing Price of the Common Stock is at any time below the Redemption
Threshold (a "REDEMPTION IN LIEU OF CONVERSION NOTICE TRIGGER DATE"), the
Borrower shall promptly notify the holders of the Debentures as to whether the
Borrower will issue shares of Common Stock, deliver cash in redemption or any
combination thereof in respect of the Debentures submitted for conversion
pursuant to Article II. The Borrower will be bound by such notice for a period
of thirty (30) days (the "TERM") from the date of such notice, at the end of
which the Borrower may elect to renew such notice. A failure to issue or renew
within one (1) Trading Day of the Redemption In Lieu of Conversion Notice
Trigger Date or the end of a Term shall be deemed to be an election to issue
Common Stock upon conversion of the Debentures during the subsequent Term. Any
redemption amounts payable hereunder shall be paid to the converting Holder
within two (2) Trading Days of the Conversion Date. "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. MAJOR TRANSACTION REDEMPTION. Notwithstanding anything to the
contrary, so long as for at all times during the period beginning thirty (30)
Trading Days prior to the date of the Major Transaction Redemption Notice (as
defined below) and ending on the Major Transaction Redemption Date (as defined
below) (i) all of the shares of Common Stock issuable upon conversion of the
Debentures are then (x) authorized and reserved for issuance, (y) registered for
resale under the 1933 Act by the holders of the Debentures and sales of such
shares may be made thereunder (or such shares may otherwise be resold publicly
without restriction)
5
<PAGE> 6
and (z) eligible to be traded on the Nasdaq, the Nasdaq SmallCap, the NYSE or
the AMEX and (ii) no Mandatory Redemption Event or Trading Market Redemption
Event shall have occurred and be continuing, then, in the event the Borrower
publicly announces its intention to consummate a Major Transaction, the Borrower
shall have the right to deliver written notice to the holders of the Debentures
of its intention to redeem all of the Debentures in accordance with this Article
I.D. Any notice (the "MAJOR TRANSACTION REDEMPTION NOTICE") of redemption
hereunder (an "MAJOR TRANSACTION REDEMPTION") shall be delivered to the holders
of the Debentures at their registered addresses appearing on the books and
records of the Borrower and shall state (1) that the Borrower is exercising its
right to redeem all of the outstanding Debentures issued and (2) the date of
redemption (the "MAJOR TRANSACTION REDEMPTION DATE"), which date shall be (A) at
least twenty (20) Trading Days after the date of delivery of the Major
Transaction Redemption Notice and (B) the date of consummation of the Major
Transaction. In the event that the Major Transaction Notice is delivered to the
holders of the Debentures but the Major Transaction is not consummated, the
Major Transaction Notice shall be deemed to be withdrawn as to such holder. On
the Major Transaction Redemption Date, the Borrower shall make payment of the
Major Transaction Redemption Amount (as defined below) to or upon the order of
the holders as specified by the holders in writing to the Borrower at least one
(1) business day prior to the Major Transaction Redemption Date. If the Borrower
exercises its right to redeem the Debentures, the Borrower shall make payment to
the holders of an amount in cash (the "MAJOR TRANSACTION REDEMPTION AMOUNT")
equal to the greater of (x) the sum of (a) 200% multiplied by the sum of (i) the
principal amount of the Debentures to be redeemed and (ii) all accrued and
unpaid interest on such principal amount for the period beginning on the Issue
Date and ending on the Major Transaction Redemption Date, for the outstanding
amount of the Debentures then held, plus (b) all Conversion Default Payments,
Delivery Default Payments and any other amounts owed to such holder pursuant to
Section 2(c) of the Registration Rights Agreement and (y) the "EQUIVALENT VALUE"
of the shares to be redeemed, where equivalent value means the product of (a)
the highest number of shares of Common Stock issuable upon conversion of such
shares of the Debentures in accordance with Article II below (without giving any
effect to any limitations on conversions of shares contained herein, and
treating the Trading Day (as defined in Article I.C.) immediately preceding the
Major Transaction Redemption Date as the Conversion Date (as defined in Article
II.D.5.) for purposes of determining the lowest applicable Conversion Price
(including any adjustment pursuant to Article II.C.)), multiplied by (b) the
highest Closing Price (as defined in Article I.A.) for the Common Stock during
the period beginning on the date of delivery of the Major Transaction Redemption
Notice and ending one day prior to the Major Transaction Redemption Date.
Notwithstanding notice of a Major Transaction Redemption, the holders shall at
all times prior to the Major Transaction Redemption Date maintain the right to
convert all or any Debentures at the Conversion Price then in effect (including
any adjustments pursuant to Article II.C.) in accordance with Article II, and
any Debentures so converted after receipt of a Major Transaction Redemption
Notice and prior to the Major Transaction Redemption Date set forth in such
notice and payment of the aggregate Major Transaction Redemption Amount shall be
deducted from the Debentures which are otherwise subject to redemption pursuant
to such notice. If the Borrower delivers a Major Transaction Redemption Notice
and fails to pay the Major Transaction Redemption Amount due to the holders of
the Debentures on the Major Transaction Redemption Date, the Borrower (and any
Successor Entity (as defined in Article II.C.2)) shall forever forfeit its right
to redeem the
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Debentures pursuant to this Article I.D. and such Successor Entity shall assume
the obligations of the Borrower under this Debenture in accordance with Article
II.C.2.
E. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a Mandatory
Redemption Event or the delivery of a Redemption In Lieu of Conversion Notice or
a Major Transaction Redemption Notice, if the Borrower fails to pay the
Mandatory Redemption Amount, Redemption In Lieu of Conversion Amount or Major
Transaction Redemption Amount, as applicable, 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, the
Holder shall have the right at anytime, from time to time, after a Mandatory
Redemption Date, Redemption In Lieu of Conversion Date or Major Transaction
Redemption Date, as applicable, to require the Borrower, upon written notice, to
issue as soon as practicable thereafter (in accordance with and subject to the
terms of Article II below), in lieu of the Mandatory Redemption Amount,
Redemption In Lieu of Conversion Amount or Major Transaction Redemption Amount,
as applicable, the number of shares of Common Stock of the Borrower equal to
such applicable redemption amount divided by the lesser of (i) the Market Price
(as defined below) on the Trading Day prior to the date Holder elects to
exercise its rights pursuant to this Article I.E. and (ii) the Conversion Price
(as defined below) in effect on the date Holder elects to exercise its rights
pursuant to this Article I.E.
II. CONVERSION AT THE OPTION OF HOLDER
A. OPTIONAL CONVERSION
1. CONVERSION AMOUNT. The Holder may, at its option at any time
and from time to time, upon surrender of this Debenture, convert all or any
portion of this Debenture into Common Stock as set forth below (an "OPTIONAL
CONVERSION"). This Debenture 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
Borrower into which such Common Stock is thereafter changed or reclassified, as
is determined by dividing (a) the Conversion Amount (as defined below) by (b)
the Conversion Price (as defined in Article II.B below); provided, however, that
in no event shall Holder be entitled to convert this Debenture to the extent
that the sum of (x) the number of shares of Common Stock beneficially owned by
Holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of this
Debenture or the unexercised or unconverted portion of any other securities of
the Borrower (including, without limitation, the Warrants and Investment Options
issued by the Borrower pursuant to the Purchase Agreement) 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 portion of this Debenture (and upon the exercise, if any, of
the Warrants and Investment Options in connection therewith) with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by Holder and Holder's affiliates of more than 4.9% of the
outstanding shares of Common Stock; provided, however, in the event of a
Borrower Conversion (as defined below) pursuant to Article III, such
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<PAGE> 8
beneficial ownership by the Holder and its affiliates may exceed 4.9%, but in no
event shall such beneficial ownership exceed 9.9%, of the outstanding shares of
Common Stock. For purposes of the proviso to the immediately preceding sentence,
(i) 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 and (ii)
such proviso may not be amended without (a) the written consent of the Holder
and the Borrower and (b) the approval of the holders of a majority of Borrower's
Common Stock present, or represented by proxy, and voting at any meeting called
to vote on such proviso. "CONVERSION AMOUNT" means (i) the portion of the
principal amount of this Debenture being converted, plus (ii) all accrued and
unpaid interest thereon for the period beginning on the Issue Date and ending on
the Conversion Date (as defined in Article II.B), plus (iii) Default Interest,
if any, on the amounts referred to in the immediately preceding clauses (i)
and/or (ii), plus (iv) any Conversion Default Payments (as defined in Article
II.E) and Delivery Default Payments (as defined in Article II.D.3) payable with
respect thereto, together with any other amounts owed to Holder pursuant to
Section 2(c) of the Registration Rights Agreement.
2. TRADING MARKET LIMITATION. Unless the Borrower either (i)
is permitted (or not prohibited) by the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded to
issue shares of Common Stock upon conversion of or otherwise pursuant to the
Debentures in excess of the Maximum Share Amount (as defined below) or (ii) has
obtained stockholder approval of the issuance of shares of Common Stock upon
conversion of or otherwise pursuant to the Debentures in excess of the Maximum
Share Amount 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 Borrower 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 Debentures
(including any shares of capital stock or rights to acquire shares of capital
stock issued by the Borrower which are aggregated or integrated with the Common
Stock issued or issuable upon conversion of or otherwise pursuant to the
Debentures for purposes of any such rule or regulation) exceed 1,232,987 (19.99%
of the total shares of Common Stock outstanding on the Issue Date) (the "MAXIMUM
SHARE AMOUNT"), 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 Debentures, the Maximum Share Amount shall refer to such
Holder's pro rata share thereof determined in accordance with Article VI.1
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 Debentures
plus (y) the aggregate number of shares of Common Stock that remain issuable
upon conversion of or otherwise pursuant to the then outstanding Debentures at
the then effective Conversion Price, represents at least one hundred percent
(100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower 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.
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<PAGE> 9
B. CONVERSION PRICE. Subject to subparagraph 2 below, the "CONVERSION
PRICE" shall mean $4.00. The Conversion Price shall be subject to adjustments
pursuant to the provisions of Article II.C below.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as follows:
1. ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If at any time when this Debenture is outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification or other similar event, which
event shall have taken place during the reference period for determination of
the Conversion Price for any Optional Conversion or Maturity, then the
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event. In
such event, the Borrower shall notify the Transfer Agent of such change on or
before the effective date thereof.
2. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any
time when this Debenture is outstanding and prior to the conversion of all
Debentures, 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 Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, (each, a "CHANGE OF CONTROL TRANSACTION"), then
Holder shall thereafter have the right to receive upon conversion of this
Debenture, 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 Holder would have been
entitled to receive in such transaction had this Debenture 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 Holder 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 this Debenture) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities or assets thereafter deliverable
upon the conversion of this Debenture. The Borrower shall not effect any
transaction described in this subparagraph 2 unless (i) 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 shareholders to approve, or if there is no such record date,
the consummation of, such Change of Control Transaction (during which time
Holder shall be entitled to convert this Debenture), which notice shall be given
concurrently with the first public announcement of such transaction, and (ii)
the resulting successor or acquiring entity (if not the Borrower) 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 (each, a "SUCCESSOR ENTITY"),
assumes by written instrument all of the obligations of the Borrower under this
Debenture (including under this subparagraph 2). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.
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<PAGE> 10
3. ADJUSTMENT DUE TO DISTRIBUTION. Subject to Article IV.A, if
the Borrower 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 Borrower'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
Holder shall be entitled, upon any conversion of this Debenture 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 Holder with respect
to the shares of Common Stock issuable upon such conversion had Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
4. PURCHASE RIGHTS. Subject to Article IV.A, if at any time
when this Debenture is outstanding the Borrower 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 Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which Holder could have
acquired if Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Debenture (without regard to any limitations on
conversion contained herein and based upon the Conversion Price as would then be
in effect) 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.
5. ANTIDILUTION PROVISIONS. The Conversion Price shall be
subject to adjustment from time to time as provided below:
(A) ADJUSTMENT OF CONVERSION PRICE.
(I) FULL RATCHET ANTIDILUTION. If, during the period
commencing on the Issue Date and ending on the date which is
twelve (12) months from the Issue Date (subject to extension by
one (1) Trading Day for each Trading Day 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 (whether by reason
of the Borrower's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of the
Registration Rights Agreement or otherwise), (ii) any Mandatory
Redemption Event or Trading Market Redemption Event exists,
without regard to whether any periods shall have run or (iii) the
Borrower is in breach of any of its obligations pursuant to
Section 4(h) of the Purchase Agreement (such date is hereinafter
referred to as the "FULL RATCHET EXPIRATION DATE ")), the
Borrower 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
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<PAGE> 11
underwriting discounts or allowances in connection therewith)
less than the Conversion Price in effect on the date of such
deemed issuance or sale (a "DILUTIVE ISSUANCE"), then immediately
upon the Dilutive Issuance, the Conversion Price will be reduced
to the amount of the consideration per share received by the
Borrower in such Dilutive Issuance.
(II) WEIGHTED AVERAGE ANTIDILUTION. If, on or after the Full
Ratchet Expiration Date, the Borrower issues or sells, or in
accordance with Article II.C.5(b) hereof, is deemed to have
issued or sold, any shares of Common Stock in 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 Paragraph 4(b) hereof,
received by the Borrower upon such Dilutive Issuance divided by
the Conversion 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 CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price, the following will be
applicable:
(I) ISSUANCE OF RIGHTS OR OPTIONS. If the Borrower 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 Conversion Price, then
the Conversion Price shall be adjusted pursuant to Article
II.C.5(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 Borrower as consideration for
the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Borrower 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 maximum total number of shares of Common Stock
issuable upon the
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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. Notwithstanding the foregoing, if the
Board of Directors and the shareholders of the Borrower approve
an anti-takeover plan involving the distribution of rights to all
of the shareholders of the Borrower, no adjustment to the
Conversion Price will be made pursuant to Article II.C.5.
(II) ISSUANCE OF CONVERTIBLE SECURITIES. If the Borrower 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 Conversion Price, then the Conversion
Price shall be adjusted pursuant to Article II.C.5(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 Borrower 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 Borrower upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total 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.
(III) 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 Borrower upon the exercise of any
Options; (ii) the amount of additional consideration, if any,
payable to the Borrower 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), 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.
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(IV) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of
shares of Common Stock issuable upon exercise of any 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.
(V) 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 Borrower therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or
other reasonable expenses paid or incurred by the Borrower 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
Borrower 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 Borrower 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 Borrower 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 Borrower.
(VI) 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; (ii) upon the
grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee benefit plan of the
Borrower now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a
majority of the independent members of the Board of Directors of
the Borrower or a majority of the members of a committee of
independent directors established for such purpose; (iii) upon
issuances of securities in a firm commitment underwritten public
offering (excluding a continuous
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offering pursuant to Rule 415 under the 1933 Act) and (iv) upon
issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any
strategic alliance, relationship, 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 Borrower.
(C) CERTAIN DEFINITIONS.
(I) As used in this Article II.C, "COMMON STOCK" includes
the Common Stock, par value $.001 per share, and any additional
class of stock of the Borrower having no preference as to
dividends or distributions on liquidation, provided that the
shares issuable pursuant to the Debentures shall include only
shares of Common Stock, par value $.001 per share, in respect of
which the Debentures are 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.
(II) "MARKET PRICE," as of any date, (i) means the average
of the last reported sale prices for the shares of Common Stock
on Nasdaq for the five (5) 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 and the Borrower
("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 Borrower or, at the option of the holders of a
majority of the Debentures, by (b) an independent investment bank
of nationally recognized standing in the valuation of businesses
similar to the business of the Borrower. 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. MECHANICS OF CONVERSION. In order to convert this Debenture into
shares of Common Stock, Holder shall: (1) submit a copy of the fully executed
notice of conversion in the form attached hereto as Exhibit A ("NOTICE OF
CONVERSION") to the Borrower 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 II.D.5) (or by other means resulting
in, or reasonably expected to result in, written notice to the Borrower on the
date
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<PAGE> 15
specified therein as the Conversion Date) to the office of the Borrower or
its designated Transfer Agent for the Debentures, which notice shall specify the
principal amount of this Debenture to be converted, the applicable Conversion
Price and a calculation of the number of shares of Common Stock issuable upon
such conversion (including the number of shares issuable upon exercise of the
Investment Options, if any); and (2) subject to Article II.D.1 below, surrender
this Debenture along with a copy of the Notice of Conversion to the office of
the Borrower as soon as practicable thereafter. In the case of a dispute as to
the calculation of the Conversion Price, the Borrower shall promptly issue that
number of shares of Common Stock as is not disputed in accordance with
subparagraph (3) below. The Borrower 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 Borrower and 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.
1. SURRENDER OF DEBENTURE UPON CONVERSION. Notwithstanding
anything to the contrary set forth herein, upon conversion of this Debenture in
accordance with the terms hereof, Holder shall not be required to physically
surrender this Debenture to the Borrower unless the entire unpaid principal
amount of this Debenture is so converted. Holder and the Borrower shall maintain
records showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to Holder
and the Borrower, so as not to require physical surrender of this Debenture upon
each such conversion. In the event of any dispute or discrepancy, such records
of the Borrower shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any portion of this Debenture
is converted as aforesaid, Holder may not transfer this Debenture unless Holder
first physically surrenders this Debenture to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of Holder a new
Debenture of like tenor, registered as Holder may request, representing in the
aggregate the remaining unpaid principal amount of this Debenture. Holder and
any assignee, by acceptance of this Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a portion of
this Debenture, the unpaid and unconverted principal amount of this Debenture
may be less than the amount stated on the face hereof.
2. LOST OR STOLEN DEBENTURES. Upon receipt by the Borrower of
evidence of the loss, theft, destruction or mutilation of this Debenture, and
(in the case of loss, theft or destruction) of indemnity reasonably satisfactory
to the Borrower, and upon surrender and cancellation of this Debenture, if
mutilated, the Borrower shall execute and deliver a new Debenture of like tenor
and date.
3. DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
submission of a Notice of Conversion, the Borrower shall, within two (2)
business days after the Conversion Date (the "DELIVERY PERIOD"), issue and
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 Holder that number of shares of Common Stock for the
portion of this Debenture converted (and, if applicable, the number of shares of
Common Stock issuable upon
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<PAGE> 16
exercise of Investment Options in connection therewith) as shall be determined
in accordance herewith. In addition to any other remedies available to Holder,
including actual damages and/or equitable relief, the Borrower shall pay to
Holder $2,000 per day in cash for each day beyond a two (2) day grace period
following the Delivery Period that the Borrower fails to deliver Common Stock (a
"DELIVERY DEFAULT") issuable upon conversion of this Debenture pursuant to the
Notice of Conversion until such time as the Borrower has delivered all such
Common Stock (the "DELIVERY DEFAULT PAYMENTS"). Such Delivery Default Payments
shall be paid to Holder by the fifth (5th) day of the month following the month
in which they have accrued or, at the option of Holder (by written notice to the
Borrower by the first day of the month following the month in which they have
accrued), shall be convertible into Common Stock in accordance with the terms of
this Article II.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Borrower's Transfer Agent is
participating in the Depository Trust Borrower ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of Holder and its compliance
with the provisions contained in Article II.A and in this Article II.D, the
Borrower shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to 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.
4. NO FRACTIONAL SHARES. If any conversion of this Debenture
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 this Debenture
shall be the next higher number of shares.
5. 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, written notice) to the Borrower or its Transfer Agent before
Midnight, 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 Borrower or its Transfer Agent.
The person or persons entitled to receive the shares of Common Stock issuable
upon conversion of this Debenture 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 this Debenture (or portion thereof) 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 this Debenture shall survive to the
extent the Borrower 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 in full of the
Debentures outstanding (based on the Conversion Price in effect from time to
time), the exercise in full of the Investment Options and the exercise in full
of the Warrants shall at all times be reserved by the Borrower,
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free from preemptive rights, for such conversion. As of the Issue Date,
4,000,000 authorized and unissued shares of Common Stock have been duly reserved
for issuance upon conversion of the Debentures and upon exercise of the
Investment Options and the Warrants (the "RESERVED AMOUNT"). The Reserved Amount
shall be increased from time to time in accordance with the Borrower's
obligations pursuant to Section 4(h) of the Purchase Agreement. In addition, if
the Borrower shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which the
Debentures shall be convertible and for which the Investment Options shall be
exercisable, the Borrower 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
Debentures and exercise of the Investment Options and the Warrants.
If at any time Holder submits a Notice of Conversion, and the Borrower
does not have sufficient authorized but unissued shares of Common Stock duly
reserved and available for issuance to effect such conversion in accordance with
the provisions of this Article II (a "CONVERSION DEFAULT"), subject to Article
VI.I, the Borrower shall issue to Holder all of the shares of Common Stock which
are available to effect such conversion. The portion of the principal amount of
this Debenture (or the number of shares of Common 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 Holder's option at any time
after) the date additional shares of Common Stock are authorized and duly
reserved by the Borrower to permit such conversion (or exercise), 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 Holder in respect thereof.
The Borrower shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following the earlier of
(x) such time that Holder notifies the Borrower or that the Borrower otherwise
becomes aware that there are or likely will be insufficient authorized and
unissued shares to allow full conversion hereof and (y) a Conversion Default. In
addition, the Borrower shall pay to Holder payments ("CONVERSION DEFAULT
PAYMENTS") for a Conversion Default in the amount of (a) .24, multiplied by (b)
the Conversion Default Amount (as defined below), multiplied by (c)(N/365),
where N = the number of days from the day Holder submits a Notice of Conversion
giving rise to a Conversion Default (the "CONVERSION DEFAULT Date") to the date
(the "AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of
shares of Common Stock to effect conversion of the Debentures. "CONVERSION
DEFAULT AMOUNT" means the then outstanding principal amount of all Debentures
held by Holder plus the aggregate accrued interest thereon as of the first day
of the Conversion Default. The Borrower shall send notice to 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 Borrower's option, as follows:
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1. In the event Holder elects to take such payment in cash,
cash payment shall be made to Holder by the fifth (5th) day of the month
following the month in which it has accrued.
2. In the event the Holder elects to take such payment in
Common Stock, 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 II (so long as there is then a sufficient number
of authorized shares of Common Stock).
Holder's election shall be made in writing to the Borrower 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, Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and 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 II,
the Borrower, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of Holder, furnish or cause
to be furnished to 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 this Debenture.
III. CONVERSION AT THE OPTION OF THE BORROWER
Subject to the limitations on conversion set forth in Article II.A.2.
and so long as for at all times during the period beginning ninety (90) days
prior to the Forced Conversion Trigger Date (as defined below) and ending on the
Borrower Conversion Date (as defined below) (i) all of the shares of Common
Stock issuable upon conversion of the Debentures are then (x) authorized and
reserved for issuance, (y) registered for resale under the 1933 Act by the
Holders of the Debentures (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, then, at any time after October 27,
2000 (subject to extension by one Trading Day for each Trading Day following
effectiveness that sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) cannot be made pursuant to the Registration
Statement (whether by reason of the Borrower's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of the
Registration Rights Agreement, during an Allowed Delay or
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otherwise)), the Borrower shall have the right on any Trading Day (a "FORCED
CONVERSION TRIGGER DATE") on which, and for a period of twenty (20) consecutive
Trading Days prior thereto, the Closing Price of the Common Stock is greater
than 165% of the Conversion Price (subject to adjustment for stock splits, stock
dividends and similar transactions), to deliver written notice (the "BORROWER
CONVERSION NOTICE") to all of the Holders of the Debentures (which notice may
not be sent to the Holders of the Debentures (a) until the Borrower is permitted
to convert the Debentures pursuant to this Article III and (b) during any period
of time in which the Borrower is in possession of any information, the
disclosure of which could cause a material increase in the Trade Price of the
Borrower's Common Stock, unless such information is publicly disclosed at least
five (5) Trading Days prior to the Borrower Conversion Date (as defined below))
of its intention to convert all of the outstanding Debentures into shares of
Common Stock in accordance with this Article III and Article II; provided,
however, that a Borrower Conversion shall not be permitted if during the period
beginning on the date the Borrower Conversion Notice is delivered to the holders
of the Debentures and ending on the Trading Day prior to the Borrower Conversion
Date the average Closing Price of the Common Stock during such period is not
greater than 150% of the Conversion Price (subject to adjustment for stock
splits, stock dividends and similar transactions). Any conversion hereunder (a
"BORROWER CONVERSION") shall be as of the date (the "BORROWER CONVERSION DATE")
specified in the Borrower Conversion Notice (but in no event prior to the tenth
(10th) Trading Day following the date of such notice). The Borrower Conversion
Notice shall be delivered to the holders of the Debentures at their registered
addresses appearing on the books and records of the Borrower, which notice shall
contain substantially the same information as the Notice of Conversion described
in Article II.D. The Borrower Conversion Date shall be the "Conversion Date" for
purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holder upon
a Borrower Conversion. Notwithstanding notice of a Borrower Conversion, the
Holder shall at all times prior to the Borrower Conversion Date maintain the
right to convert all or any portion of this Debenture in accordance with Article
II. "TRADE PRICE" means, for any security as of any date, the sale price of the
Common Stock on the Nasdaq as reported by Bloomberg or, if Nasdaq is not the
principal trading market for such security, the sale price of such security on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or, if no sale price of such security
is available in any of the foregoing manners, the bid price of any market maker
for such security that is listed in the "pink sheet" by the National Quotation
Bureau, Inc. If the Trade Price cannot be calculated for such security on such
date in the manner provided above, the Trade Price shall be the fair market
value as mutually determined by the Borrower and the holders of a majority of
the outstanding principal amount of the Debentures. All conversions pursuant to
this Article III will be subject to the limitations set forth in Article II.A.1.
If, due to the limitations set forth in Article II.A.1, Holder is unable to
convert any portion of the Debentures pursuant to this Article III, Holder shall
not convert any such portion of the Debentures not converted as a result of such
limitation until the Holder's beneficial ownership (as calculated in accordance
with Article II.A.1) of Borrower is below 9.9% of the outstanding shares of
Common Stock. If (i) a Borrower's Conversion Notice has been delivered, (ii)
Holder's beneficial ownership (as calculated in accordance with Article II.A.1)
of Borrower decreases below 9.9% of the outstanding shares of Common Stock, and
(iii) amounts (either principal or interest) remain outstanding under the
Debentures, at any time the Holder's
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beneficial ownership of Borrower decreases below 9.9% of the outstanding shares
of Common Stock, without any further notice to the Borrower, the Holder shall
resume conversion of the Debentures pursuant to this Article III until (i)
Holder's beneficial ownership (as calculated in accordance with Article II.A.1)
of Borrower increases to 9.9% of the outstanding shares of Common Stock or (ii)
all amounts outstanding under the Debentures have been converted.
IV. CERTAIN COVENANTS
The covenants in this Article IV shall be terminated when the principal
amount of the Debentures outstanding is equal to or less than $500,000.
A. DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not, without the
Holder's written consent, (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities)
on shares of capital stock or (b) directly or indirectly through any subsidiary
make any other payment or distribution in respect of its capital stock, except
in each case (1) dividends payable in or distributions of Common Stock or
preferred stock of the Borrower and (2) rights permitting shareholders to
purchase securities of the Borrower.
B. RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not, without the
Holder's written consent, redeem, repurchase or otherwise acquire (whether for
cash or in exchange for property or other securities or otherwise) in any one
transaction or series of related transactions any shares of capital stock of the
Borrower or any warrants, rights or options to purchase or acquire any such
shares, except in each case in exchange for Common Stock or preferred stock of
the Borrower.
C. BORROWINGS. So long as the Borrower shall have any obligation under
this Debenture, the Borrower shall not, without the written consent of the
holders of a majority of the then outstanding principal amount of the
Debentures, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed Holder in writing prior to the date hereof, (b)
borrowings from a bona fide financial lending institution, (c) indebtedness to
trade creditors incurred in the ordinary course of business,(d) borrowings, the
proceeds of which shall be used to repay this Debenture, (e) indebtedness
assumed or incurred in connection with an acquisition of a business, product,
license or other asset, (f) refinancing or restructuring of any of the foregoing
or (g) indebtedness that is subordinate to the Debentures.
D. SALE OF ASSETS. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not, without the written consent of the
holders of a majority of the then outstanding principal amount of the
Debentures, sell, lease or otherwise dispose of any of its assets outside the
ordinary course of business, except (a) sales which qualify as a Major
Transaction (as defined in Article I.A.), (b) sales of a business, product,
license or other asset that the Board of Directors determine is in the best
interests of the Borrower and its shareholders, and (c) in each twelve (12)
month period beginning on the Issue Date, any sale of assets with an
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aggregate fair market value of less than $500,000. Any consent to the
disposition of any assets may be conditioned on a specified use of the proceeds
of disposition.
E. ADVANCES AND LOANS. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, directly or indirectly,
without the written consent of the holders of a majority of the then outstanding
principal amount of the Debentures, lend money, give credit or make advances to
any person, firm, partnership, joint venture or corporation, including, without
limitation, officers, directors, employees, subsidiaries and affiliates of the
Borrower, except loans, credits or advances (a) in existence or committed on the
date hereof and which the Borrower has informed Holder in writing prior to the
date hereof, (b) made in the ordinary course of business and (c) loans to
subsidiaries or joint ventures, if such loans have been approved by a majority
of the independent directors of the Borrower.
F. CONTINGENT LIABILITIES. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Debentures, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to the date hereof,
(b) guarantees of obligations of a subsidiary of Borrower in the ordinary course
of business, (c) guarantees of indebtedness made in connection with the
acquisition of a business, product, license or other asset, and (d) similar
transactions in the ordinary course of business.
V. MATURITY
The entire principal amount of the Debentures then outstanding
(together with any accrued and unpaid interest thereon, Default Interest,
Conversion Default Payments, Delivery Default Payments and all other amounts due
and payable by the Borrower pursuant to Section 2(c) of the Registration Rights
Agreement) on the Maturity Date, shall be paid by the Borrower to the Holder in
cash. At the option of the Holder, 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 Debentures 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 (whether by reason of the Borrower's
failure to properly supplement or amend the prospectus included therein in
accordance with the terms of the Registration Rights Agreement or otherwise),
(ii) any Mandatory Redemption Event or Trading Market Redemption Event exists,
without regard to whether any cure periods shall have run or (iii) the Borrower
is in breach of any of its obligations pursuant to Section 4(h) of the Purchase
Agreement.
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VI. SUBORDINATION
A. AGREEMENT TO SUBORDINATE. Notwithstanding anything in this Debenture
to the contrary, the Borrower agrees, and by accepting this Debenture the Holder
agrees, that the indebtedness evidenced by this Debenture is subordinate to the
extent and in the manner expressly provided in this Article VI and that the
subordination is for the benefit of and enforceable by the holders of Senior
Debt (as defined herein). This Debenture shall in all respects rank at lease
pari passu with all other present and future obligations of the Borrower, and
only Senior Debt shall rank senior to this Debenture upon any Insolvency Event
(as defined below).
B. INSOLVENCY, BANKRUPTCY, DISSOLUTION OF BORROWER. Upon any payment or
distribution (whether in cash, securities or other property) to creditors of the
Borrower upon any Insolvency Event (as hereinafter defined): (i) all Senior Debt
shall first be paid in full before the Holder shall be entitled to receive any
payment or other distribution on or in respect of this Debenture; and (ii) until
all Senior Debt is paid in full, any payment or distribution to which the Holder
of this Debenture would be entitled but for this Article VI shall be made to
holders of Senior Debt as their interests may appear, except that the Holder may
receive shares of the Borrower as reorganized or readjusted or securities of the
Borrower or any other corporation if the payment of such securities is
subordinate to Senior Debt to at least the same extent as this Debenture is
subordinate to Senior Debt.
C. SUBORDINATED ACCELERATION; STANDSTILL. So long as any Senior Debt is
outstanding, the Holder will not for an aggregate of thirty (30) days following
delivery of a Mandatory Redemption Notice, solely in respect of an event
described in Articles I.A.3 or I.A.6 (the "STANDSTILL PERIOD"), pursue or
exercise any right, power or remedy or institute any proceeding to receive the
Mandatory Redemption Amount. The Holder shall only be required to standstill for
one Standstill Period pursuant to this Article VI.C. during the term of this
Debenture.
D. PERMITTED PAYMENTS. So as to eliminate any doubt, except in the
event of an Insolvency Event, or as provided in Article VI.C. during the
Standstill Period, all payments under this Debenture, and payments under Section
2(c) of the Registration Rights Agreement (whether in cash or Common Stock (as
applicable)) (collectively, "PERMITTED PAYMENTS") shall be credited or made by
the Borrower on the terms of this Debenture.
E. TURNOVER. If the Holder receives any payment or other distribution
on this Debenture (whether in cash, property, securities or whatever) at a time
when such payment or distribution should not have been made to the Holder by
reason of this Article VI, such payment or distribution shall be deemed to have
been received and held in trust for the benefit of the holders of the Senior
Debt, and shall be segregated from other property of the Holder and be paid and
delivered as promptly as practicable to the holders of the Senior Debt, as their
interests may appear, for application to, or collateral for, the payment or
prepayment of the Senior Debt.
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F. RELATIVE RIGHTS. This Article VI defines the relative rights of the
Holder and the holders of Senior Debt. Nothing herein shall: (i) impair, as
between the Borrower and the Holder, the obligation of the Borrower, which is
absolute and unconditional, to pay principal of, premium, if any, and interest
on this Debenture in accordance with its terms and to fulfill its other
obligations hereunder; or (ii) except as otherwise expressly provided herein,
prevent the Holder from exercising its available remedies upon a default,
subject to the rights of holders of Senior Debt to receive distributions
otherwise payable to the Holder.
G. CONVERSION. Notwithstanding anything to the contrary contained in
this Article VI, nothing in this Article VI shall restrict (i) the rights of the
Holder to convert this Debenture in accordance with Article II, including,
without limitation, after an Insolvency Event or (ii) to receive Common Stock in
lieu of the Mandatory Redemption Amount in accordance with Article I.E.
H. DEFINITIONS.
1. "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978,
11 U.S.C.ss. 101 et seq., or any successor statute thereto.
2. "INSOLVENCY EVENT" means (i) any winding-up, insolvency,
bankruptcy, liquidation or reorganization of the Borrower, whether voluntary or
involuntary, (ii) any proceeding or case for reorganization, liquidation,
bankruptcy, dissolution or other winding-up of the Borrower or its assets,
whether or not involving insolvency or bankruptcy, (iii) any assignment by the
Borrower for the benefit of creditors or (iv) any receivership or other similar
proceeding or any marshaling of assets of the Borrower.
3. "SENIOR DEBT" means all obligations and liabilities of the
Borrower or any of its subsidiaries, whether for or on account of principal,
reimbursement obligations, accrued and unpaid interest (including without
limitation all interest accruing on and after an Insolvency Event), fees,
expenses, indemnities and other amounts payable under or in connection with any
and all bank, institutional or other financial transaction indebtedness
hereafter created, assumed or incurred, which by their terms are senior to this
Debenture in an Insolvency Event and which were not issued in breach of the
covenants contained in Article IV of this Debenture and Section 4(e) of the
Purchase Agreement.
VII. MISCELLANEOUS
A. FAILURE OF INDULGENCE NOT WAIVER. No failure or delay on the part of
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
B. NOTICES. Any notices required or permitted to be given under the
terms of this Debenture 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,
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and shall be effective five days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or by
facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Borrower:
ARI Network Services, Inc.
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202-3149
Attention: Brian Dearing
Facsimile: (414) 283-4375
With copy to:
Godfrey & Kahn SC
780 N. Water Street
Milwaukee, Wisconsin 53202
Attention: Larry D. Lieberman, Esq.
Facsimile: (414) 273-5198
If to Holder, to the address set forth immediately below Holder's name
on the signature pages to the Purchase Agreement or such other address as is
communicated to the Borrower by notice by Holder in accordance with the terms
hereof.
With copy to:
Bradley D. Houser
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131
Facsimile: (305) 374-5095
C. AMENDMENT PROVISION. The Debentures may be amended only by an
instrument in writing signed by the Borrower and the holders of a majority of
the then outstanding principal amount of the Debentures.
D. ASSIGNABILITY. This Debenture shall be binding upon the Borrower and
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. In the event Holder shall sell or otherwise transfer any
portion of this Debenture, 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 Debentures shall be allocated to the
remaining holders of Debentures, pro rata based on the total principal amount of
Debentures then held by such holders.
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E. COST OF COLLECTION. If default is made in the payment of this
Debenture, the Borrower shall pay Holder costs of collection, including
reasonable attorneys' fees.
F. GOVERNING LAW. This Debenture shall be governed by and construed in
accordance with the laws of the State of Wisconsin applicable to contracts made
and to be performed in the State of Wisconsin (without regard to principles of
conflict of laws). The Borrower and Holder irrevocably consent to the exclusive
jurisdiction of the United States federal courts located in Delaware in any suit
or proceeding based on or arising under this Debenture, 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. The Borrower and Holder irrevocably waive the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Borrower and Holder 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 Holder's right to serve process in any other manner permitted by law. The
Borrower and Holder 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.
G. DENOMINATIONS. At the request of Holder, upon surrender of this
Debenture, the Borrower shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $250,000 as Holder shall request.
H. PAYMENT OF CASH; DEFAULTS. Whenever the Borrower is required to make
any cash payment to Holder under this Debenture (as a Conversion Default Payment
or otherwise but not including payments of principal and interest hereunder),
such cash payment shall be made to Holder within five Trading Days after
delivery by Holder of a notice specifying that Holder elects to receive such
payment in cash and the method (e.g., by check, wire transfer) in which such
payment should be made and appropriate delivery instructions, including any
necessary wire transfer instructions. If such payment is not delivered within
such five-Trading Day period, Holder shall thereafter be entitled to interest on
the unpaid amount at a per annum rate equal to the lower of 17% and the highest
interest rate permitted by applicable law until such amount is paid in full to
Holder.
I. PRO RATA ALLOCATIONS. The Maximum Share Amount and the Reserved
Amount (including any increases thereto) shall be allocated by the Borrower pro
rata among the holders of the Debentures based on the total principal amount of
Debentures originally issued to each holder of the Debentures. Each increase to
the Maximum Share Amount and the Reserved Amount shall be allocated pro rata
among the holders of the Debentures based on the total principal amount of
Debentures 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 the Debentures, 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
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<PAGE> 26
not hold any the Debentures shall be allocated to the remaining holders of
shares of the Debentures, pro rata based on the total principal amount of
Debentures held by such holders.
J. REMEDIES CUMULATIVE. The remedies provided in this Debenture shall
be cumulative and in addition to all other remedies available under this
Debenture, at law or in equity (including a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance giving rise to such remedy and nothing herein shall limit
Holder's right to pursue actual damages for any failure by the Borrower to
comply with the terms of this Debenture. The Borrower acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to Holder and
that the remedy at law for any such breach may be inadequate. The Borrower
therefore agrees, in the event of any such breach or threatened breach, Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
K. USURY. Nothing herein contained, nor any transaction related hereto,
shall be construed or so operate as to require the Borrower to pay interest at a
greater rate than is now lawful in such case to contract for, or to make any
payment, or to do any act contrary to law. Should any interest or other charges
paid by the Borrower, or parties liable for the payment of this Debenture, in
connection with the loan evidenced by this Debenture, or any document delivered
in connection with said loan, result in the computation or earning of interest
in excess of the maximum rate of interest which is legally permitted by law,
then any and all such interest in excess of the maximum legal rate of interest
shall be and the same is hereby waived by the Holder hereof, and any and all
such interest in excess of the maximum legal rate which has been paid shall be
automatically credited against and in reduction of the balance due under this
Debenture, and the portion of said excess which exceeds the balance due under
this Debenture shall be paid by the Holder to the Borrower.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE> 27
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer as of the date first above written.
ARI NETWORK SERVICES, INC.
By: /s/ Brian Dearing
------------------------------------
Brian Dearing,
Chairman and Chief Executive Officer
27
<PAGE> 28
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects to convert $ principal
amount of the Debenture (defined below) into shares of common stock, par value
$ per share ("COMMON STOCK"), of ARI Network Services, Inc., a Wisconsin
corporation (the "BORROWER") according to the conditions of the convertible
debentures of the Borrower dated as of , 200 (the "DEBENTURES"), as
of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any.
The Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").
Name of DTC Prime Broker:
--------------------------------
Account Number:
---------------------------------
@ In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the
number of shares of Common Stock set forth below (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:
------------------------------------
Address:
---------------------------------
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Debentures shall be made pursuant to registration of the securities under
the Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption
from registration under the Act.
Date of Conversion:
---------------------------------
Applicable Conversion Price:
--------------------------
Number of Shares of Common Stock to be Issued
Pursuant to (i) Conversion of the Debentures:
-----------------
(ii) Conversion of Conversion Default Payments, Delivery Default
Payments and/or payments pursuant to Section 2(c) of the Registration Rights
Agreement:
--------------------------
Signature:
-------------------------------------
Name:
------------------------------------------
Address:
---------------------------------------
------------------------------------
*Subject to Article II.D of the Debenture(s), the Borrower is not required to
issue shares of Common Stock until the original Debenture(s) (or evidence of
loss, theft or destruction thereof) to be converted are received by the Borrower
or its Transfer Agent. The Borrower shall issue and deliver shares of Common
Stock to an overnight courier not later than two business days following receipt
of the original Debenture(s) to be converted, and shall make payments pursuant
to the Debentures for the number of business days such issuance and delivery is
late.
28
<PAGE> 1
Exhibit 99.3
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 THAT SECURITIES PURCHASE AGREEMENT DATED
AS OF APRIL 25, 2000 BY AND AMONG THE PARTIES REFERENCED BELOW, 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
600,000
Shares of
Common
Stock,
$.001 par
value
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors,
LDC, or its registered assigns, is entitled to purchase from ARI Network
Services, Inc., a Wisconsin corporation (the "Company"), at any time or from
time to time during the period specified in Paragraph 2 hereof, Six Hundred
Thousand (600,000) fully paid and nonassessable shares of the Company's Common
Stock, $.001 par value per share (the "Common Stock"), at an exercise price of
$6.00 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. The term Warrants means this Warrant and any other warrants issued
pursuant to that certain Securities Purchase Agreement, dated April 25, 2000, by
and among the Company and the Buyers listed on the execution page thereof (the
"Securities Purchase Agreement").
<PAGE> 2
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to 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 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") in accordance with the terms and within the time periods
required under the Registration Rights Agreement, 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, subject
to paragraph 7(f), such other name as shall be designated by such holder. If
this Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the holder a new Warrant representing the number of
shares with respect to which this Warrant shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in
no event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Debentures and the Investment Options
(as defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of this Section 1, 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
(i) hereof. Notwithstanding anything in this Warrant to the contrary, the
2
<PAGE> 3
restriction on the Holder set forth in this paragraph shall not be amended
without (i) without the written consent of the Holder and the Company and (ii)
the approval of the holders of a majority of Borrower's Common Stock present, or
represented by proxy, and voting at any meeting called to vote on the amendment
of such restriction.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement (the "Issue Date")
and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the
Issue Date (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(A) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid,
and, subject to Wisconsin Statute ss.180.0622(2)(b), 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
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(C) LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of 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 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, subject to Wisconsin
Statute ss.180.0622(2)(b), nonassessable shares of Common Stock upon the
exercise of this Warrant.
3
<PAGE> 4
(E) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity 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 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 COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and 4(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 in effect on the date of issuance (or deemed issuance) of such
Common Stock (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 forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Exercise 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
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
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 on the date of issuance or grant of such Options, then
the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or
grant of such Options, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes
of the preceding sentence, the "price per share for which Common Stock
is issuable upon the exercise of such Options" is determined by
4
<PAGE> 5
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 maximum total 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
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 on the date of issuance of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be deemed
to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon such
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 maximum total number of shares of Common Stock issuable
upon the conversion or exchange of all such 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 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), 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.
5
<PAGE> 6
(IV) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any 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,
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
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; (ii) 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 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; (iii)
upon the exercise of the Warrants; (iv) upon issuances of securities
in a firm commitment underwritten public offering (excluding a
continuous offering pursuant to Rule 415 under the 133 Act); and (v)
upon issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any
strategic alliance, relationship, 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.
6
<PAGE> 7
(C) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any 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.
(D) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise 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 Company with, or merger of the Company into, any other corporation, then as
a condition of such consolidation or merger, 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 or merger 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 or merger 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 or merger 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 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.
7
<PAGE> 8
(G) NOTICE OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder 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 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 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:
(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;
(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
8
<PAGE> 9
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 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.
(I) "COMMON STOCK DEEMED OUTSTANDING" shall mean the
number of shares of Common Stock actually outstanding (not including
shares of Common Stock held in the treasury of the Company), plus (x)
pursuant to Paragraph 4(b)(i) hereof, the maximum total number of
shares of Common Stock issuable upon the exercise of Options, as of
the date of such issuance or grant of such Options, if any, and (y)
pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of
shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(II) "MARKET PRICE," as of any date, (i) means the average
of the last reported sale prices for the shares of Common Stock on the
Nasdaq National Market ("Nasdaq") for the five (5) 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.
9
<PAGE> 10
(III) "COMMON STOCK," for purposes of this Paragraph 4,
includes the Common Stock, $.001 par value 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, $.001 par value 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 or merger of the
character referred to in Paragraph 4(e) hereof, the stock or other
securities or property provided for in such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the 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.
(A) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
the 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. 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 April 27, 2000, by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").
(B) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is 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.
10
<PAGE> 11
(C) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, 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 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
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 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 for resale 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 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
11
<PAGE> 12
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 330 East Kilbourn Avenue,
Milwaukee, Wisconsin 53202-3149, Attention: Chief Executive Officer, 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 WISCONSIN APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF WISCONSIN (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN DELAWARE 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.
12
<PAGE> 13
(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.
(D) REMEDIES CUMULATIVE. The remedies provided in this Warrant
shall be cumulative and in addition to all other remedies available under this
Warrant, at law or in equity (including a decree of specific performance and/or
other injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance giving rise to such remedy and nothing herein shall limit Holder's
right to pursue actual damages for any failure by the Company to comply with the
terms of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to Holder and that the remedy
at law for any such breach may be inadequate. The Company therefore agrees, in
the event of any such breach or threatened breach, Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ARI NETWORK SERVICES, INC.
a Wisconsin corporation
By: /s/ Brian Dearing
-------------------------------------
Brian Dearing,
Chairman and Chief Executive Officer
Dated as of April 27, 2000
14
<PAGE> 15
FORM OF EXERCISE AGREEMENT
Dated: , 200
----- -
To: ARI Network Services, Inc.
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.
15
<PAGE> 16
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.
16
<PAGE> 1
Exhibit 99.4
EXHIBIT C
TO
SECURITIES
PURCHASE
AGREEMENT
THIS INVESTMENT OPTION AND THE SHARES ISSUABLE UPON THE EXERCISE OF
THIS INVESTMENT OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN
THAT SECURITIES PURCHASE AGREEMENT DATED AS OF APRIL 25, 2000 BY AND
AMONG THE PARTIES REFERENCED BELOW, NEITHER THIS INVESTMENT OPTION 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
800,000 Shares
of Common Stock,
$.001 par value
INVESTMENT OPTION
THIS CERTIFIES THAT, for value received, RGC International Investors,
LDC, or its registered assigns, is entitled to purchase from ARI Network
Services, Inc., a Wisconsin corporation (the "Company"), at any time or from
time to time during the period specified in Paragraph 2 hereof, Eight Hundred
Thousand (800,000) fully paid and nonassessable shares of the Company's Common
Stock, $.001 par value per share (the "Common Stock"), at an exercise price of
$6.00 per share (the "Exercise Price"). The term "Investment Option Shares," as
used herein, refers to the shares of Common Stock purchasable hereunder. The
Investment Option Shares and the Exercise Price are subject to adjustment as
provided in Paragraph 4 hereof. The term Investment Option means this Investment
Option and any other investment options issued pursuant to that certain
Securities Purchase Agreement, dated April 25, 2000, by and among the Company
and the Buyers listed on the execution page thereof (the "Securities Purchase
<PAGE> 2
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
This Investment Option is subject to the following terms, provisions,
and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Investment Option may be exercised by the
holder hereof, in whole or in part, by the surrender of this Investment Option,
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 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
Investment Option Shares specified in the Exercise Agreement or (ii) if the
resale of the Investment Option 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") in accordance with the terms and within
the time periods required under the Registration Rights Agreement, 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 Investment Option Shares specified
in the Exercise Agreement. The Investment Option 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 Investment Option 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 Investment Option 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 Investment Option 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, subject to
paragraph 7(f), or such other name as shall be designated by such holder. If
this Investment Option shall have been exercised only in part, then, unless this
Investment Option has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Investment Option
representing the number of shares with respect to which this Investment Option
shall not then have been exercised.
Notwithstanding anything in this Investment Option to the
contrary, in no event shall the Holder of this Investment Option be entitled to
exercise a number of Investment Options (or portions thereof) in excess of the
number of Investment Options (or portions thereof) upon exercise of which the
sum of (i) the number of shares of Common Stock beneficially owned by the Holder
and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised Investment Options
and the unexercised or unconverted portion of any other securities of the
Company (including the Debentures and the Warrants (as defined in the Securities
Purchase Agreement)) subject to a limitation on conversion or exercise analogous
to the limitation contained herein) and (ii) the number of shares of Common
Stock issuable upon exercise of the Investment Options (or portions thereof)
with respect to which the determination described herein is being made, would
2
<PAGE> 3
result in beneficial ownership by the Holder and its affiliates of more than
4.9% of the outstanding shares of Common Stock; provided, however, in the event
of a Company Exercise (as defined below) pursuant to section 2(b), such
beneficial ownership by the holder and its affiliates may exceed 4.9%, but shall
in no event shall such beneficial ownership exceed 9.9%, of the outstanding
shares of Common Stock. For purposes of this Section 1, 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 (i) hereof. Notwithstanding anything in this Investment
Option to the contrary, the restriction on the Holder set forth in this
paragraph shall not be amended without (i) without the written consent of the
Holder and the Company and (ii) the approval of the holders of a majority of the
Company's Common Stock present, or represented by proxy, and voting at any
meeting called to vote on the amendment of such restriction.
2. PERIOD OF EXERCISE.
(A) EXERCISE PERIOD. This Investment Option is exercisable at
any time or from time to time on or after the date on which this Investment
Option is issued and delivered pursuant to the terms of the Securities Purchase
Agreement (the "Issue Date") and before 5:00 p.m., New York City time on October
27, 2001 (the "Exercise Period").
(B) MANDATORY EXERCISE RIGHT. Subject to the limitations on
exercise set forth in Section 1 hereof and so long as for at all times during
the period beginning ninety (90) days prior to the Forced Exercise Trigger Date
(as defined below) and ending on the Company Exercise Date (as defined below)
(i) all of the shares of Common Stock issuable upon exercise of the Investment
Option are then (x) authorized and reserved for issuance, (y) registered for
resale under the 1933 Act by the holder of the Investment Option (or may
otherwise be resold publicly without restriction) and (z) eligible to be traded
on the Nasdaq National Market ("Nasdaq"), the New York Stock Exchange ("NYSE"),
the American Stock Exchange ("AMEX") or the Nasdaq Small Cap Market ("Nasdaq
SmallCap") and (ii) there is not then a continuing Mandatory Redemption Event
(as defined in the Debenture) or Trading Market Redemption Event (as defined in
the Debenture), then, at any time after April 27, 2001 (subject to extension for
each Trading Day following effectiveness that sales of all of the Registrable
Securities (as defined in the Registration Rights Agreement) cannot be made
pursuant to the Registration Statement (whether by reason of the Company's
failure to properly supplement or amend the prospectus included therein in
accordance with the terms of the Registration Rights Agreement, during an
Allowed Delay or otherwise)) and prior to the expiration of the Exercise Period,
the Company shall have the right on any Trading Day (a "Forced Exercise Trigger
Date") on which, and for a period of twenty (20) consecutive Trading Days prior
thereto, the Closing Bid Price of the Common Stock is greater than 165% of the
Exercise Price (subject to adjustment for stock splits, stock dividends and
similar transactions), to deliver written notice (the "Company Exercise Notice")
to the holder of this Investment Option (which notice may not be sent to the
holder of this Investment Option (a) until the Company is permitted to exercise
this Investment Option pursuant to this Section 2(b) and (b) during any period
of time in which the Company is in possession of any information, the disclosure
of which could cause a material increase in the Trade Price of the Company's
Common Stock, unless such information is publicly disclosed at
3
<PAGE> 4
least five (5) Trading Days prior to the Company Exercise Date (as defined
below)) requiring the holder to exercise the Investment Option in accordance
with Section 1 hereof; provided, however, that a Company Exercise (as defined
herein) shall not be permitted if during the period beginning on the date the
Company Exercise Notice is delivered to the holder of the Investment Option and
ending on the Trading Day prior to the Company Exercise Date the average Closing
Bid Price of the Common Stock during such period is not greater than 150% of the
Exercise Price (subject to adjustment for stock splits, stock dividends and
similar transactions). Any requirement to exercise the Investment Option
hereunder (a "Company Exercise") shall be as of the date (the "Company Exercise
Date") specified in the Company Exercise Notice (but in no event prior to the
tenth (10th) Trading Day following the date of such notice). The Company
Exercise Notice shall be delivered to the holder of the Investment Option at its
registered address appearing on the books and records of the Company. The
Company Exercise Date shall be the "Exercise Date" for purposes of determining
the Exercise Price and the time within which certificates representing the
Common Stock must be delivered to the holder upon a Company Exercise.
Notwithstanding notice of a Company Exercise, the holder shall at all times
prior to the Company Exercise Date maintain the right to exercise all or any
portion of this Investment Option in accordance with Section 1 hereof. "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. "Trade Price" means, for any
security as of any date, the trade price of the Common Stock on Nasdaq as
reported by Bloomberg Financial Markets or an equivalent reliable reporting
service mutually acceptable to and hereafter designated by the holders of a
majority of the outstanding principal amount of the Debentures and the Company
("Bloomberg") or, if Nasdaq is not the principal trading market for such
security, the trade price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or, if no trade price of such security is available in any of the
foregoing manners, the bid price of any market maker for such security that is
listed in the "pink sheet" by the National Quotation Bureau, Inc. If the Trade
Price cannot be calculated for such security on such date in the manner provided
above, the Trade Price shall be the fair market value as mutually determined by
the Company and the holder of the Investment Option. Any exercise of the
Investment Options pursuant to this Section 2(b) will be subject to the
limitations set forth in Section 1. If, due to the limitations set forth in
Section 1, the holder is unable to exercise any portion of the Investment
Options pursuant to this Section 2(b), holder shall not exercise any portion of
the Investment Options not exercised as a result of such limitation until the
holder's beneficial ownership (as calculated in accordance with Section 1) of
the Company is below 9.9% of the outstanding shares of Common Stock. If (i) a
the Company Exercise Notice has been delivered, (ii) holder's beneficial
ownership (as calculated in accordance with Section 1) of the Company decreases
below 9.9% of the outstanding shares of Common Stock, and (iii) any Investment
Options remain unexercised, at any time the holder's beneficial ownership of the
Company decreases below 9.9% of the outstanding shares of Common Stock, without
any further notice to the Company, the holder shall resume exercise of the
Investment Options pursuant to this Section 2(b) until (i) Holder's beneficial
ownership (as calculated in accordance with Section 1) of the Company increases
to 9.9% of the outstanding shares of Common Stock or (ii) all the Investment
Options have been exercised.
4
<PAGE> 5
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(A) SHARES TO BE FULLY PAID. All Investment Option Shares
will, upon issuance in accordance with the terms of this Investment Option, be
validly issued, fully paid, and, subject to Wisconsin Statute ss.180.0622(2)(b),
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 shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Investment Option, a suf-ficient number of shares
of Common Stock to provide for the exercise of this Investment Option.
(C) LISTING. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Investment Option 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 Investment Option) 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 Investment
Option; 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 Investment Option 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 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 Investment
Option and in the taking of all such action as may reasonably be requested by
the holder of this Investment Option in order to protect the exercise privilege
of the holder of this Investment Option against dilution or other impairment,
consistent with the tenor and purpose of this Investment Option. 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
Investment Option 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, subject to Wisconsin Statute
ss.180.0622(2)(b), nonassessable shares of Common Stock upon the exercise of
this Investment Option.
(E) SUCCESSORS AND ASSIGNS. This Investment Option will be
binding upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
5
<PAGE> 6
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Investment Option 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 COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and
4(e) hereof, if and whenever on or after the Issue Date of this Investment
Option, 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 in effect on the date of issuance (or
deemed issuance) of such Common Stock (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 forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Exercise
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 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 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 on the date of issuance or grant of such Options, then
the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or
grant of such Options, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes
of the preceding sentence, the "price per share for which Common Stock
is issuable upon the exercise of such 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
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<PAGE> 7
payable upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable, by
(ii) the maximum total 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 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 on the date of issuance of such Convertible
Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the
preceding sentence, the "price per share for which Common Stock is
issuable upon such 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 maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such
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 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), the Exercise Price in
effect at the time of such change will be readjusted to the Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
additional consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold.
(IV) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of
Common Stock issuable upon exercise of any 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
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<PAGE> 8
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, Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for purposes of this
Investment Option 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 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 Investment Option; (ii)
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 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; (iii) upon the exercise of the Investment
Options; (iv) upon issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant
to Rule 415 under the 1933 Act); and (v) upon issuances of securities
as consideration for a merger, consolidation or purchase of assets, or
in connection with any strategic alliance, relationship, 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.
(C) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company
at any 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
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<PAGE> 9
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.
(D) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Investment Option 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 Investment Option 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 Company with, or merger of the Company into, any other
corporation, then as a condition of such consolidation or merger, adequate
provision will be made whereby the holder of this Investment Option will have
the right to acquire and receive upon exercise of this Investment Option in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Investment Option, 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 Investment Option had such consolidation or merger 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 Investment Option. The Company will not
effect any consolidation or merger 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 or merger assumes by written instrument the
obligations under this Paragraph 4 and the obligations to deliver to the holder
of this Investment Option 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 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
Investment Option shall be entitled upon exercise of this Investment Option 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 any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice
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<PAGE> 10
thereof to the holder of this Investment Option, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Investment Option 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 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 issued upon the exercise of this Investment Option, 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:
(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;
(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 Investment
Option (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
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<PAGE> 11
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 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 Investment Option so that the
rights of the Holder shall be neither enhanced nor diminished by such event.
(L) CERTAIN DEFINITIONS.
(I) "COMMON STOCK DEEMED OUTSTANDING" shall mean
the number of shares of Common Stock actually outstanding (not
including shares of Common Stock held in the treasury of the Company),
plus (x) pursuant to Paragraph 4(b)(i) hereof, the maximum total number
of shares of Common Stock issuable upon the exercise of Options, as of
the date of such issuance or grant of such Options, if any, and (y)
pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of
shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(II) "MARKET PRICE," as of any date, (i) means
the average of the last reported sale prices for the shares of Common
Stock on the Nasdaq for the five (5) 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 Investment Option 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 Investment
Options 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.
(III) "COMMON STOCK," for purposes of this
Paragraph 4, includes the Common Stock, $.001 par value 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 Investment Option shall include only
shares
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<PAGE> 12
of Common Stock, $.001 par value per share, in respect of which this
Investment Option is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation or merger of the
character referred to in Paragraph 4(e) hereof, the stock or other
securities or property provided for in such Paragraph.
5. ISSUE TAX. The issuance of certificates for Investment Option Shares
upon the exercise of this Investment Option shall be made without charge to the
holder of this Investment Option or such shares for any issuance tax or other
costs in respect thereof, provided that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than the holder of this
Investment Option.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Investment Option
shall not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Investment Option, in the
absence of affirmative action by the holder hereof to purchase Investment Option
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 INVESTMENT OPTION.
(A) RESTRICTION ON TRANSFER. This Investment Option and the
rights granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Investment Option, 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. 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
April 27, 2000, by and among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(B) INVESTMENT OPTION EXCHANGEABLE FOR DIFFERENT
DENOMINATIONS. This Investment Option is 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 Investment Options 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 Investment Options to represent the
right to purchase such number of shares as shall be designated by the holder
hereof at the time of such surrender.
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<PAGE> 13
(C) REPLACEMENT OF INVESTMENT OPTION. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Investment Option 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 Investment Option, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Investment Option of
like tenor.
(D) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Investment Option in connection with any transfer, exchange, or replacement
as provided in this Paragraph 7, this Investment Option 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 Investment Options pursuant to this
Paragraph 7.
(E) REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Investment
Option, in which the Company shall record the name and address of the person in
whose name this Investment Option has been issued, as well as the name and
address of each transferee and each prior owner of this Investment Option.
(F) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time
of the surrender of this Investment Option in connection with any exercise,
transfer, or exchange of this Investment Option, this Investment Option (or, in
the case of any exercise, the Investment Option Shares issuable hereunder),
shall not be registered for resale 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 Investment Option, as the case may be, furnish to the Company a written
opinion of counsel, which opinion and counsel are acceptable to the 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 Investment
Option, by taking and holding the same, represents to the Company that such
holder is acquiring this Investment Option for investment and not with a view to
the distribution thereof.
8. REGISTRATION RIGHTS. The initial holder of this Investment Option
(and certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Investment Option 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 Investment
Option 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
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<PAGE> 14
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 330 East
Kilbourn Avenue, Milwaukee, Wisconsin 53202-3149, Attention: Chief Executive
Officer, or at such other address as shall have been furnished to the holder of
this Investment Option 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 INVESTMENT OPTION SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WISCONSIN APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF WISCONSIN (WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN DELAWARE
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 Investment Option and any provision
hereof may only be amended by an instrument in writing signed by the Company and
the holder hereof.
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<PAGE> 15
(B) DESCRIPTIVE HEADINGS. The descriptive headings of the
several paragraphs of this Investment Option are inserted for purposes of
reference only, and shall not affect the meaning or construction of any of the
provisions hereof.
(C) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Investment Option, if the resale of the Investment
Option Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act, this Investment Option may be
exercised by presentation and surrender of this Investment Option 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
Investment Option for that number of shares of Common Stock determined by
multiplying the number of Investment Option 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.
(D) REMEDIES CUMULATIVE. The remedies provided in this
Investment Option shall be cumulative and in addition to all other remedies
available under this Investment Option, at law or in equity (including a decree
of specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance giving rise to such remedy and
nothing herein shall limit Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Investment Option. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to Holder and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees, in the event of any such breach or
threatened breach, Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Investment Option to be
signed by its duly authorized officer.
ARI NETWORK SERVICES, INC.
a Wisconsin corporation
By: /s/ Brian Dearing
------------------------------------
Brian Dearing,
Chairman and Chief Executive Officer
Dated as of April 27, 2000
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<PAGE> 17
FORM OF EXERCISE AGREEMENT
Dated: , 200
To: ARI Network Services, Inc.
The undersigned, pursuant to the provisions set forth in the within
Investment Option, hereby agrees to purchase shares of Common Stock
covered by such Investment Option, and makes payment herewith in full therefor
at the price per share provided by such Investment Option 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
Investment Option) having a market value (in the case of a portion of this
Investment Option, determined in accordance with Section 11(c) of the Investment
Option) 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 Investment Option.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Investment Option, a new Investment Option 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.
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<PAGE> 18
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Investment Option, 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
Investment Option 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 Investment Option.
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Exhibit 99.5
EXHIBIT D
TO
SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April 27,
2000, by and among ARI Network Services, Inc., a Wisconsin corporation, with its
headquarters located at 330 East Kilbourn Avenue, Milwaukee, Wisconsin
53202-3149 (the "COMPANY"), and each of the undersigned (together with their
respective affiliates and any assignee or transferee of all of their respective
rights hereunder, the "INITIAL INVESTORS").
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 Investors (i) convertible subordinated
debentures (the "DEBENTURES") that are convertible into shares of the Company's
common stock, par value $.001 per share (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in such Debentures, (ii)
investment options (the "INVESTMENT OPTIONS") to acquire 800,000 shares of
Common Stock, upon the terms and conditions and subject to the limitations and
conditions set forth in the Investment Options dated April 27, 2000; and (iii)
warrants (the "WARRANTS") to acquire 600,000 shares of Common Stock, upon the
terms and conditions and subject to the limitations and conditions set forth in
the Warrants dated April 27, 2000; and
B. To induce the Initial Investors 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 each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
A. As used in this Agreement, the following terms shall have
the following meanings:
(I) "INVESTORS" means the Initial Investors and any transferee
or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
<PAGE> 2
(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 and issuable upon conversion of or otherwise pursuant to the
Debentures issued and issuable, (b) Investment Option Shares issued and
issuable upon exercise of or otherwise pursuant to the Investment
Options issued and issuable, (c) Warrant Shares issued and issuable
upon exercise of or otherwise pursuant to the Warrants issued and
issuable and (d) 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.
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 thirty (30) days after the date of the
Closing under the Securities Purchase Agreement (the "CLOSING DATE "), file with
the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations promulgated
thereunder (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 Debentures
and exercise of or otherwise pursuant to the Investment Options and the Warrants
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 one and one-half (1 1/2) times the
sum of (i) the aggregate number of Conversion Shares that are then issuable upon
conversion of or otherwise pursuant to the Debentures, (ii) the aggregate number
of Investment Option Shares that are then issuable upon exercise of or otherwise
pursuant to the Investment Options and (iii) the aggregate number of Warrant
Shares that are then issuable upon exercise of or otherwise pursuant to the
Warrants, without regard to any limitation on the Investor's ability to convert
the Debentures or exercise the Investment Options and 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
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conversion of or otherwise pursuant to the Debentures and exercise of or
otherwise pursuant to the Investment Options and 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 Investors and their counsel prior to its filing or
other submission. The Initial Investors shall not resell the Registrable
Securities pursuant to a public offering underwritten by an investment bank or
similar manager.
B. [Intentionally Omitted]
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 one hundred twentieth (120th) day after the
Closing Date (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 Investors 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 Investors 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 Debentures or Registerable
Securities an amount equal to the then outstanding principal amount of the
Debentures (and, in the case of holders of Registrable Securities, the principal
amount of Debentures from which such Registrable Securities were converted)
("OUTSTANDING PRINCIPAL AMOUNT ") 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 changes required by the Investors in the Registration Statement
with respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the failure of the
Investors to conduct their review of the Registration Statement pursuant to
Section 3(h) below in a reasonably prompt manner; and (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 (i) one hundredth (.01) with respect to the first two (2)
calendar months of any
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calculation hereunder and (ii) two hundredths (.02) for any other purpose. (For
example, if the Registration Statement becomes effective one (1) month after the
Registration Deadline, the Company would pay $10,000 for each $1,000,000 of
Outstanding Principal Amount. If thereafter, sales of all of the Registrable
Securities could not be made pursuant to the Registration Statement for any
additional period of two (2) months, the Company would pay an additional $10,000
for the first month for each $1,000,000 of Outstanding Principal Amount and
$20,000 for the second month for each $1,000,000 of Outstanding Principal
Amount.) Such amounts shall be paid in cash or, at each Investor's option, may
be added to the Conversion Amount (as defined in the Debentures) of the
Debentures pursuant to Section II.A.1 of the Debentures and thereafter be
convertible into Common Stock at the "CONVERSION PRICE" (as defined in the
Debentures) in accordance with the terms of the Debentures. 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 (2) 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 under
Article I of the Debentures), 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 (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (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 Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
by contract to inclusion of such securities in such Registration Statement or
are not entitled to pro rata inclusion with the Registrable Securities; and
provided, further, however, that, after giving effect to the
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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. 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 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 Investors 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 Investors and any other
Investors 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 no 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 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 Investors) 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;
provided, however, that in no event shall the Company be required to keep the
Registration Statement effective past the date which is one (1) year after the
date the last of the Debentures, Warrants or Investment Options have expired or
been converted or exercised (subject to extension by one (1) Trading Day (as
defined in the Debenture) for each Trading Day that (i) any Registration
Statement required to be filed and to be effective pursuant to this
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<PAGE> 6
Agreement is not effective or sales of all of the Registrable Securities
otherwise cannot be made thereunder during the Registration Period (whether by
reason of the Company's failure to properly supplement or amend the prospectus
included therein in accordance with the terms of this Agreement or otherwise,
including during an Allowed Delay (as defined below)), (ii) any Mandatory
Redemption Event or Trading Market Redemption Event (both as defined in the
Debenture) exists, without regard to whether any periods shall have run or (iii)
the Company is in breach of any of its obligations pursuant to Section 4(h) of
the Securities Purchase Agreement).
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 Debentures) (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 Debentures (based on
the Conversion Price of the Debentures) and exercise of or otherwise pursuant to
the Investment Options and the Warrants, in each case without giving effect to
any limitations on the Investors' ability to convert the Debentures or exercise
the Investment Options and the Warrants, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefore, if applicable), or both, so as to cover one hundred and
fifty percent (150%) of all of the Registrable Securities so issued or issuable
(without giving effect to any limitations on conversion contained in the
Debentures or exercise contained in the Investment Options and the Warrants) as
of the Registration Trigger Date, in each case, as soon as practicable, but in
any event within twenty (20) business days after the necessity therefor arises
(based on the Conversion Price of the Debentures and the exercise price of the
Investment Options and the Warrants 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 sixty
(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 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
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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 Investors who hold a majority in interest of the Registrable Securities
being offered reasonably request, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof 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 by-laws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
E. [Intentionally Omitted]
F. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which the
Company has knowledge, 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; provided that, for not more than twenty (20) consecutive
trading days (or a total of not more than forty-five (45) trading days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as 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 Investors in writing of the existence of (but in no event,
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<PAGE> 8
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 Investors 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 the first sentence of this Section 3(f) with respect to the
information giving rise thereto.
G. 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 of the issuance of such order and the
resolution thereof.
H. The Company shall permit a single firm of counsel designated by the
Initial Investors 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 Investors, the Investor's beneficial ownership of securities
of the Company or the Investors intended method of disposition of Registrable
Securities shall conform to the information provided to the Company by each of
the Investors.
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. [INTENTIONALLY OMITTED]
K. The Company shall make available for inspection by (i) any
Investor,(ii) one firm of attorneys and one firm of accountants or other agents
retained by the Initial Investors, and (iii) one firm of attorneys and one firm
of accountants or other agents retained by all other Investors, (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
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information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at 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.
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 Investors who hold Registrable
Securities being offered 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
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the case may be, as the Investors may reasonably request and registered in such
names as the Investors 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 Investors 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, subject to Section 2(a), 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 take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
S. 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 or the Securities Exchange Act of
1934, as amended (the "1934 Act") and the rules and regulations promulgated by
the SEC).
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
A. It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least three (3) business
days prior to the first
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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. [Intentionally Omitted]
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.
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, and
the fees and disbursements of counsel for the Company shall be borne by the
Company. The reasonable fees and disbursements of one counsel selected by the
Initial Investors pursuant to Section 3(h) hereof, which fees and disbursements
of one counsel selected by the Initial Investors shall be counted toward the cap
of $20,000 set forth in Section 4(f) of the Securities Purchase Agreement, 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 1934 Act, if
any, (iii) any underwriter (as defined in the 1933 Act) for the Investors, 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
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<PAGE> 12
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 Investors 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
(collectively and together with an Indemnified Person, 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
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<PAGE> 13
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 Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
C. 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 Investors holding a majority-in-interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates (with the approval of a majority-in-interest of the Initial
Investors), if the Investors 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
actually 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
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<PAGE> 14
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 the fault standards set forth in
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 Investors 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 investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:
A. make and keep current 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 such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors 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
14
<PAGE> 15
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, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors 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:
ARI Network Services, Inc.
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202-3149
Attention: Brian Dearing
Facsimile: (414) 283-4375
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<PAGE> 16
With copy to:
Larry D. Lieberman, Esq.
Godfrey & Kahn
780 N. Water Street
Milwaukee, Wisconsin 53202
Facsimile: (414) 273-5198
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
With copy to:
Bradley D. Houser, Esq.
Akerman, Senterfitt & Eidson, P.A.
One SE Third Avenue, 28th Floor
Miami, FL 33131
Facsimile: (305) 374-5095
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 Wisconsin applicable to agreements made and to be
performed in the State of Wisconsin (without regard to principles of conflict of
laws). Both parties irrevocably consent to the exclusive jurisdiction of the
United States federal courts located in Delaware 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 and the Securities Purchase Agreement (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 and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
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<PAGE> 17
F. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
G. 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.
J. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the Debentures then outstanding have been converted into for
Registrable Securities.
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
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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 Investors. For the avoidance of doubt, the number
of Registrable Securities held by an Investor shall be determined as if all the
Debentures, Investment Options and Warrants then outstanding and held by an
Investor were converted into or exercised for Registrable Securities.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
ARI NETWORK SERVICES, INC.
By: /s Brian Dearing
- -----------------------------------------
Brian Dearing
Chairman and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Steven B. Katznelson
- -----------------------------------------
Steven B. Katznelson
Managing Director
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<PAGE> 1
EXHIBIT 99.6
FOR IMMEDIATE RELEASE
ARI COMPLETES PRIVATE PLACEMENT
Proceeds to be Used for International Growth, U.S. Marketing
and Web Development MILWAUKEE, WIS., APRIL 28, 2000 -- ARI Network Services,
Inc. (NASDAQ/NMS:ARIS), a leading provider of business-to-business (B2B)
Internet e-Commerce solutions for equipment manufacturers with shared service
and distribution networks, announced the completion of a private placement of $4
million in long-term debt via a convertible subordinated debenture. The
debenture was placed with a fund managed by Rose Glen Capital Management, L.P.
The debenture bears interest at the rate of 7% and is due in three
years. The debenture is converted into common stock at a conversion price of
$4.00 per share. The placement also gives the investor the right to purchase up
to 800,000 unissued ARI common shares at $6.00 per share at any time during the
next eighteen months. In addition, the investor has been issued five-year
warrants to purchase 600,000 shares of common stock at a strike price of $6.00.
The investment option and the warrants if exercised together would provide an
additional $8.4 million in capital for the company.
"We're very pleased to have secured this investment in ARI," said Brian
E. Dearing, chairman and chief executive officer of ARI. "This cash infusion
will be used as working capital as we continue to grow, for investments in
international growth and U.S. marketing, and to accelerate development of our
new web products. We're especially pleased to have Rose Glen as an investor."
Rose Glen has investments in other internet companies, including CMGI
(NASDAQ/NMS:CMGI) and Cybercash (NASDAQ/NMS:CYCH).
ARI Network Services, Inc. is a leading provider of business-to-
business
(more)
<PAGE> 2
Ari Completes Private Placement
Internet e-Commerce solutions for equipment manufacturers with shared service
and distribution networks. ARI currently serves over 20,000 dealers and more
than 100 major manufacturers in 12 segments of the worldwide manufactured
equipment market including outdoor power, recreation vehicle, floor maintenance,
marine and construction. The Company's communications systems link the back end
systems of manufacturers to the business systems of their independent dealers,
distributors and service points, thereby providing a global pathway for product
orders, warranty registrations and other transactions. ARI also provides
software to publish and view electronic parts catalogs on the World Wide Web and
CD-ROM. ARI currently operates three offices in the United States and has sales
and service agents in Australia, England, France and Italy providing marketing
and support of its dealer communications and electronic catalog products.
Additional information on ARI is available at the Company's website
www.arinet.com(TM).
CONTACT:
Nancy Krajcir Bob Whitaker
ARI Network Services, Inc. Vollrath Associates, Inc.
Tel: (414) 283-4380 Tel: (262) 240-2400
Fax: (414) 283-4357 Fax: (262) 240-2410
E-mail: [email protected] E-mail: [email protected]
# # #
