<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999
REGISTRATION NO. 333-74777
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ONLINE RESOURCES & COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7389 52 162 3052
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
7600 COLSHIRE DRIVE
MCLEAN, VIRGINIA 22102
(703) 394-5100
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MATTHEW P. LAWLOR
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
7600 COLSHIRE DRIVE
MCLEAN, VIRGINIA 22102
(703) 394-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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JOSEPH G. PASSAIC, JR., ESQ. MARK J. WISHNER, ESQ. BART FRIEDMAN, ESQ.
MARY M. SJOQUIST, ESQ. MICHAELS, WISHNER & BONNER, P.C. CAHILL GORDON & REINDEL
PATTON BOGGS LLP 1140 CONNECTICUT AVENUE, N.W., 80 PINE STREET
2550 M STREET, NW SUITE 900 NEW YORK, NEW YORK 10005
WASHINGTON, DC 20037 WASHINGTON, DC 20036 (212) 701-3000
(202) 457-6000 (202) 223-5000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------
If the Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
Subject to Completion
Dated April 26, 1999
Shares
[ONLINE RESOURCES LOGO]
Common Stock
Online Resources is offering shares of its common stock. This is our
initial public offering. We estimate that our initial public offering price will
be between $ and $ per share.
We have applied to have the common stock listed on the Nasdaq National Market
under the symbol "ORCC."
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING ONLINE
PUBLIC DISCOUNT RESOURCES
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<S> <C> <C> <C>
Per Share $ $ $
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Total $ $ $
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</TABLE>
We have granted the underwriters an option to purchase a maximum of
additional shares of common stock to cover over-allotments.
J.P. MORGAN & CO.
U.S. BANCORP PIPER JAFFRAY
KEEFE, BRUYETTE & WOODS, INC.
, 1999
<PAGE> 3
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is an offer to sell, or a
solicitation of offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common stock. In this
prospectus, "the Company," "Online Resources," "we," "us" and "our" refer to
Online Resources & Communications Corporation.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................... 4
Risk Factors................................ 7
Forward-looking Statements.................. 12
Use of Proceeds............................. 13
Dividend Policy............................. 13
Capitalization.............................. 14
Dilution.................................... 15
Selected Financial Information.............. 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 18
Business.................................... 27
Management.................................. 38
</TABLE>
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PAGE
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Principal Stockholders...................... 45
Certain Related Party Transactions.......... 47
Description of Capital Stock................ 48
Restrictions on Acquisition of
Online Resources.......................... 50
Shares Eligible for Future Sale............. 54
Underwriting................................ 56
Legal Matters............................... 57
Experts..................................... 58
Available Information....................... 58
Index to Financial Statements............... F-1
</TABLE>
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UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 4
[GRAPHICS 1-3]
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus and should be read
in conjunction with the more detailed information and financial statements
included elsewhere in this prospectus.
Online Resources is a leading provider of electronic commerce services that
enable our clients to provide Internet and other online banking services to
their retail customers. Our target clients are regional and community financial
institutions who, according to SNL Securities, accounted for approximately 50%
of U.S. deposits in 1998. We offer our clients access to our financial
electronic commerce network which provides online banking, billpaying and access
to complementary financial services. In addition, we provide customer support
through our call center and offer a range of marketing and other services and
products.
The number of users banking online is expected to grow from 8.1 million in 1998
to 39.8 million by 2003, according to International Data Corporation. As a
result, financial institutions can no longer rely exclusively on traditional
retail banking delivery methods. We believe that our clients often lack the
resources and expertise to cost-effectively develop the technology
infrastructure necessary to offer, market and support online financial services.
We believe our single source electronic commerce services enable our financial
institution clients to offer the breadth of online financial services needed to
remain competitive. We bring economies of scale and technical expertise to our
clients and offer them a cost-effective means to retain and expand their
customer base, deliver their services more efficiently and strengthen their
customer relationships.
We connect our clients, their retail customers and financial services providers
through our proprietary system. The key to our system is the middleware
component, which integrates customer and financial data through our access,
electronic funds transfer and services gateways. We further differentiate
ourselves by internally developing, integrating and controlling many critical
services, such as billpaying and call center support, rather than relying
primarily on third-party providers for these services.
We provide our clients with a low up-front cost through our patented method of
connecting to retail customers through established ATM networks. Transactions
through ATM networks are immediately processed and generally referred to as
real-time. We believe our link to these ATM networks provides our clients
substantial scale, quality, security and cost benefits. As of March 31, 1999, we
were connected to and certified with 51 ATM networks and processors such as
Star, Honor, NYCE, EDS, Fiserv and Alltel. As each ATM network and processor
integration and certification can take up to a year to complete, we believe that
these certifications and our patent offer us a substantial competitive
advantage.
We derive revenue from long-term service contracts with our clients, who pay us
recurring fees based primarily on the number of enrolled retail customers and
transaction volumes, as well as an upfront implementation fee. At March 31,
1999, we had contracts with 333 clients who had approximately 6.9 million retail
customers. At March 31, 1999, 149 of these clients, including 60 during 1998,
had completed the installation and setup of our systems, which we refer to as
launching a client. These 149 clients had an estimated retail customer base of
approximately 4.1 million, of which 62,948 were using our services. As a
network-based service provider, we have made substantial up-front investments in
infrastructure. We believe our financial performance and operating leverage will
be based primarily on increasing retail customer subscriptions and transaction
volumes over a relatively fixed cost base.
Our goal is to become the leading provider of electronic commerce services to
financial institutions by rapidly expanding and enhancing our network. We have
developed a multiple channel sales network, including a network of 36 marketing
partners that complement our direct sales force. With our ATM network
certifications largely completed, we intend to increase the retail customer base
by accelerating launches of our financial institution clients. We expect to use
a portion of the proceeds of this offering for co-marketing programs with our
clients designed to increase the percentage of our clients' enrolled retail
customers. These programs will include expansion of our BankOnline.com Web site
to direct potential retail customers to our clients.
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THE OFFERING
COMMON STOCK OFFERED................ shares
COMMON STOCK TO BE OUTSTANDING AFTER
THE OFFERING...................... shares
USE OF PROCEEDS.....................We will use the net proceeds from the
offering for repayment of debt, co-marketing
programs directed to retail customers,
general corporate purposes, including
capital expenditures, and working capital.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL.............................."ORCC"
RISK FACTORS........................See "Risk Factors" beginning on page 7 for a
discussion of certain factors that you
should consider before purchasing shares of
common stock.
Unless otherwise indicated, the share information in the table above excludes up
to shares that may be issued to the underwriters to cover
over-allotments. See "Underwriting."
The table includes, as of March 16, 1999, 9,969,266 shares of common stock
issuable upon the consummation of this offering as a result of the conversion of
all outstanding shares of all series of our preferred stock and 5,252,451 shares
of common stock issuable upon the exercise of our outstanding exercisable
warrants. See "Description of Capital Stock."
The table excludes 5,285,214 shares reserved for issuance under our stock option
plans, of which 5,065,543 shares were subject to outstanding options on March
16, 1999 (of which 4,195,300 were exercisable) and 219,671 shares were eligible
for future grant. See "Capitalization" and "Management -- Stock Option Plans."
All references to shares of common stock in this prospectus will reflect a
reverse stock split of the common stock which will become effective
prior to the consummation of this offering.
Our executive offices are located at 7600 Colshire Drive, McLean, Virginia
22102. Our telephone number is 703-394-5100 and our corporate Web site address
is www.orcc.com. Information contained in our Web site is not part of this
prospectus.
5
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SUMMARY FINANCIAL INFORMATION
The following table presents summary financial data for the periods indicated
and should be read in conjunction with the information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and related notes, and other information
included elsewhere in this prospectus.
Pro forma amounts in the tables below give effect to the automatic conversion of
our redeemable convertible preferred stock into common stock. Pro forma as
adjusted amounts reflect the conversion of the redeemable convertible preferred
stock and the sale of shares of common stock in this offering and the
application of the estimated net proceeds therefrom. See "Capitalization" and
"Use of Proceeds."
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THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
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1996 1997 1998 1998 1999
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenues:
Core services............................ $ 417,590 $ 1,011,161 $ 2,221,230 $ 479,409 $ 795,929
Support services......................... 176,653 207,697 644,818 105,322 349,699
Implementation fees...................... 417,116 1,310,950 1,200,158 159,825 300,809
Related products......................... 119,150 324,736 259,898 75,184 57,259
----------- ------------ ------------ ----------- -----------
Total revenues....................... 1,130,509 2,854,544 4,326,104 819,740 1,503,696
Loss from operations......................... (6,661,377) (10,722,084) (10,490,730) (2,351,315) (2,969,826)
Net loss..................................... (6,976,391) (11,045,811) (11,558,469) (2,423,059) (3,326,069)
Preferred stock accretion.................... -- (1,998,665) (3,779,169) (1,035,585) (1,266,184)
Net loss available for common................ (6,976,391) (13,044,476) (15,337,638) (3,458,644) (4,592,253)
Net loss per share -- basic and diluted...... (0.66) (1.20) (1.36) (0.31) (0.40)
Shares used in calculation of basic and
diluted loss per share..................... 10,500,930 10,825,662 11,250,270 11,183,792 11,521,215
Pro forma net loss per share-basic and
diluted(3)................................. (0.68) (0.16)
Shares used in calculation of pro forma basic
and diluted loss per share(3).............. 17,040,349 20,656,015
</TABLE>
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MARCH 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and equivalents........................................ $ 5,006,189 $ 5,006,189
Working capital............................................. 2,172,443 2,172,443
Total assets................................................ 10,345,891 10,345,891
Notes payable, less current portion......................... 8,136,806 8,136,806
Capital lease obligations, less current portion............. 595,839 595,839
Put option liability........................................ 432,450 --
Other long-term liabilities................................. 193,400 193,400
Total liabilities........................................... 13,922,401 13,489,951
Redeemable convertible preferred stock...................... 32,105,196 --
Series A preferred stock.................................... 7,950 7,950
Stockholders' equity (deficit).............................. (35,681,706) (3,144,060)
</TABLE>
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AS OF DECEMBER 31,
------------------------------------------ AS OF MARCH 31,
1996 1997 1998 1999
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(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING DATA:
Financial institution clients
Cumulative(#).................................... 60 172 315 333
Customer base(#)(1).............................. 1,951,810 4,263,357 6,738,184 6,931,417
Clients launched
Cumulative(#).................................... 8 57 117 149
Customer base(#)(1).............................. 125,131 1,390,956 3,688,134 4,078,000
Usage and transaction volume
Cumulative retail customers(#)................... 5,036 21,103 50,332 62,948
Transactions(#).................................. 419,702 1,223,408 2,648,329 1,117,059
Infrastructure
ATM networks and processors--Cumulative(#)(2).... 14 34 50 51
Marketing Partners--Cumulative(#)................ 14 24 34 36
</TABLE>
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(1) Aggregate for clients and measured in transaction accounts such as demand
deposit accounts. The customer base information is derived from information
published by Thompson Financial Publishing.
(2) The number of ATM networks and processors to which we were certified and
which provide connectivity to our clients and their retail customers.
(3) The pro forma earnings per share reflect the effect of the conversion of the
weighted average number of shares of Series B and Series C preferred stock
as if the shares were converted as of the date of issuance. The pro forma
earnings per share do not give effect to the initial public offering or to
the application of the offering proceeds to repay debt.
6
<PAGE> 8
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before purchasing the common
stock we are offering.
RISKS PARTICULAR TO ONLINE RESOURCES
WE HAVE A HISTORY OF LOSSES AND COULD CONTINUE TO LOSE MONEY
We have not yet had an operating profit for any quarterly or annual period and
are unsure when we will become profitable, if ever. We may not be able to
attract and retain enough financial institutions and retail customers to reach
profitable levels. We were established in 1989 and a significant portion of our
existence has been devoted to developing the proprietary systems and
infrastructure needed to implement our business. Profitability in the future
will depend upon a number of factors, including our ability to continue to
contract with new financial institution clients and to develop and retain a
larger retail customer base that uses our services on a regular basis.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results have varied significantly
in the past and are likely to vary significantly from quarter to quarter in the
future. As a result, our operating results may fall below market analysts'
expectations in some future quarters, which could have a material adverse effect
on the market price of our stock.
WE MAY NEED TO RAISE CAPITAL TO STAY IN BUSINESS
We may not achieve cash flow break-even and may require additional infusions of
capital to sustain operations. This capital may not be available. We may need to
raise additional funds sooner than we expect if we incur unforeseen required
capital expenditures or substantial operating losses. If adequate funds are not
available or are not available on acceptable terms, we may not be able to
develop or enhance our services, take advantage of future opportunities or
respond to competitive pressures, which could have a material adverse effect on
our business.
WE SIGNIFICANTLY RELY ON THIRD PARTIES FOR THE SUCCESS OF OUR MARKETING EFFORTS
We depend upon the assistance of marketing partners who include some or all of
our services and related products as a part of their offerings to financial
institutions. To date, approximately 59% of our financial institution clients
were signed as a result of leads from these marketing partners. Failure by these
marketing partners to continue to offer our services and related products could
have a material adverse effect on our business.
WE DEPEND UPON OUR FINANCIAL INSTITUTION CLIENTS TO MARKET OUR SERVICES
To market our services to retail customers, we depend primarily upon our
financial institution clients. We charge our clients fees based on the number of
their retail customers who have enrolled with our clients for online banking
services. Therefore, retail customer enrollment affects our revenue and is
important to us. Because our clients offer our services under their name, we
must depend on those clients to get their customers to use our services. Our
financial institution clients may not effectively market our services to their
retail customers. Any failure of our clients to effectively market our services
could have a material adverse effect on our business.
OUR CO-MARKETING EFFORTS FOLLOWING THIS OFFERING MAY NOT BE SUCCESSFUL
We plan to use a portion of the net proceeds from this offering to co-market our
services and related products with our financial institution clients to their
retail customers. These marketing efforts may not result in the desired increase
in acceptance by retail customers.
WE MAY NOT BE ABLE TO EXPAND TO MEET INCREASED DEMAND
We may not be able to expand or adapt our services and related products to meet
the demands of our financial institution clients and their retail customers
quickly or at a reasonable cost. The type and volume of transactions processed
through our system and the number of financial institution clients connected to
it have been relatively limited to date. We will need to continue to expand and
adapt our infrastructure, services and related products to accommodate
additional financial institution clients and their retail customers, increased
transaction volumes and changing customer requirements. This will require
7
<PAGE> 9
substantial financial, operational and management resources. In the past as we
have developed our infrastructure, clients have experienced periods when they
were unable to utilize our services. If we are unable to scale our system and
processes to support the variety and number of transactions and retail customers
who ultimately use our services, our business may be materially adversely
affected.
IF WE LOSE A MATERIAL CLIENT, OUR BUSINESS MAY BE ADVERSELY IMPACTED
One of our financial institution clients, Riggs National Bank, accounted for
10.8% of revenue for the year ended December 31, 1998 and less than 10% for the
three months ended March 31, 1999. In addition, another client, California
Federal Bank, accounted for 14.7% of revenue for the three months ended March
31, 1999. The loss of these contracts in the near term, or the loss of any other
material contracts in the future, either directly to a competitor, or indirectly
in the event that a financial institution client is acquired by an institution
not utilizing our services, or decides to provide these services in-house, could
have a material adverse effect on revenues. Loss of any material financial
institution contract in the future could also negatively impact our ability to
attract and retain other financial institution clients.
WE MAY NOT BE ABLE TO COMPETE WITH LARGER, MORE ESTABLISHED BUSINESSES OFFERING
SIMILAR PRODUCTS OR SERVICES
We may not be able to compete with current and potential competitors, many of
whom have longer operating histories, greater name recognition, larger, more
established customer bases and significantly greater financial, technical and
marketing resources. Further, some of our competitors provide or have the
ability to provide the same range of services we offer. They could market to our
targeted regional and community financial institution client base. Other
competitors, such as core banking processors, have broad distribution channels
that bundle competing products directly to financial institutions. Also,
competitors may compete directly with us by adopting a similar business model.
A significant number of companies offer portions of the services we provide and
compete directly with us. For example, the Web servers of some companies compete
with our front-end Internet access capabilities. Other software providers have
created units to provide on an outsource basis a portion of services like ours.
These companies may use billpayers who team with access providers. Also, certain
services may be available to retail customers independent of financial
institutions such as Intuit's Quicken.com and Yahoo! Finance. Finally, there are
some ATM and other networks who provide similar services in addition to
connecting to financial institutions.
Many of our competitors may be able to afford more extensive marketing campaigns
and more aggressive pricing policies in order to attract financial institutions.
Our failure to compete effectively in our markets would have a material adverse
effect on our business.
FAILURE TO SUCCESSFULLY IMPLEMENT A SYSTEMS UPGRADE OR CONVERSION MAY ADVERSELY
AFFECT OUR REPUTATION AND OUR BUSINESS
A failure to implement a systems upgrade or conversion would delay
implementation of some of our financial institution clients, could cause us to
divert significant resources and could negatively impact our reputation in the
banking industry. We are currently upgrading our system from software version
2.0 to version 3.0. We may be unable to successfully complete this conversion
and any future systems upgrades or conversions.
WE DEPEND ON OUR OFFICERS AND SKILLED EMPLOYEES DUE TO OUR COMPLEX BUSINESS
If we fail to attract, assimilate or retain highly qualified managerial and
technical personnel and, in particular, software developers for whom demand is
high in all industry markets, our business could be materially adversely
affected. Our performance is substantially dependent on the performance of our
executive officers and key employees who must be knowledgeable and experienced
in both banking and technology. We are also dependent on our ability to retain
and motivate high quality personnel, especially management and highly skilled
technical teams. The loss of the services of any executive officers or key
employees could have a material adverse effect on our business. Our future
success also depends on the continuing ability to identify, hire, train and
retain other highly qualified managerial and technical personnel. Competition
for such personnel is intense.
SYSTEM FAILURES COULD HURT OUR BUSINESS--WE COULD BE LIABLE FOR SOME TYPES OF
FAILURES
Like other system operators, our operations are dependent on our ability to
protect our system from interruption caused by damage from fire, earthquake,
power loss, telecommunications failure, unauthorized entry or other events
beyond our control. Our back-up site is located approximately one mile from our
headquarters, where most of our computer systems, including processing
equipment, is currently operated and maintained. In the event of major
disasters, both locations could be equally
8
<PAGE> 10
impacted. Loss of all or part of our systems for a period of time could have a
material adverse effect on our business. We may be liable to our clients for
breach of contract for interruptions in service. Due to the numerous variables
surrounding system disruptions, we cannot predict the extent or amount of any
potential liability.
SECURITY BREACHES COULD DISRUPT OUR BUSINESS
Like other system operators, our computer systems may also be vulnerable to
computer viruses, hackers, and other disruptive problems caused by unauthorized
parties entering our system. Computer attacks or disruptions may jeopardize the
security of information stored in and transmitted through the computer systems
of our financial institution clients and their retail customers using our
services, which may result in significant losses or liability. This, or the
perception that our systems may be vulnerable to such attacks or disruptions,
also may deter retail customers from using our services.
Data networks are also vulnerable to attacks and disruptions. For example, in a
number of public networks, hackers have bypassed firewalls and misappropriated
confidential information. It is possible, that despite existing safeguards, an
employee could divert retail customer funds while these funds are in our
control, exposing us to a risk of loss or litigation and possible liability. In
dealing with numerous consumers, it is possible that some level of fraud or
error will occur, which may result in erroneous external payments. Losses or
liabilities that we incur as a result of any of the foregoing could have a
material adverse effect on our business.
WE FACE RISKS RELATING TO THE YEAR 2000 ISSUE
If our systems, the systems of our vendors, the systems of our financial
institution clients or their vendors, telecommunications networks, or the
systems of the ATM networks or core banking processors are not Year 2000
compliant or are unable to recover from system interruptions which may result
from the Year 2000 date change, our business could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of Year 2000 Issue on the Operations and Financial
Condition of Online Resources."
WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY INFORMATION
We rely on patent trade secret laws to protect our intellectual property, such
as the software and processes which we have developed in connection with our
business. If we fail to adequately protect our intellectual property rights and
proprietary information or if we become involved in litigation relating to our
intellectual property rights, our business could be harmed. Any actions we take
may not be adequate to protect our intellectual property rights and other
companies may develop technologies that are similar or superior to our
intellectual property. Although we believe that our services do not infringe on
the intellectual property rights of others and that we have all rights needed to
use the intellectual property employed in our business, it is possible that we
could become subject to claims alleging infringement of third-party intellectual
property rights. Any claims could subject us to litigation, and could require us
to pay damages or develop non-infringing intellectual property, any of which
could be expensive, or require us to acquire licenses to the intellectual
property that is the subject of the alleged infringement.
OUR CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS MAY PREVENT OR DELAY THIRD
PARTIES FROM BUYING YOUR STOCK
Our Restated Certificate of Incorporation will authorize the Board of Directors
to issue up to 3,000,000 shares of preferred stock and to determine the price,
rights, preferences and privileges, including voting rights, of those shares
without any further vote or action by the stockholders. The rights of the
holders of common stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The Certificate of Incorporation will provide for staggered terms for
the members of the Board of Directors. In addition, the Certificate of
Incorporation will provide that directors can be removed only for cause and only
by a majority of the other directors or by vote of stockholders owning 80% or
more of the voting power. Some provisions of our proposed Certificate of
Incorporation and Bylaws could have a depressive effect on our stock price or
make it more difficult for a third party to acquire a majority of our
outstanding voting stock or delay, prevent or deter a merger, acquisition,
tender offer or proxy contest. See "Description of Capital Stock--Preferred
Stock" and "Restrictions on Acquisition of Online Resources -- Anti-Takeover
Effects of the Certificate of Incorporation and Bylaws."
9
<PAGE> 11
INDUSTRY RISKS
OUR SERVICES MAY NOT BE BROADLY USED AND ACCEPTED BY CONSUMERS
There is no established history of broad acceptance by retail customers of
services like ours and those services may not be accepted in the future. Because
our fee structure is designed to establish recurring revenues through monthly
usage by retail customers of our financial institution clients, our recurring
revenues are dependent on the acceptance of our services by retail customers and
their continued use of online banking, billpaying and other financial services.
CONSOLIDATION OF THE BANKING AND FINANCIAL SERVICES INDUSTRY COULD NEGATIVELY
IMPACT OUR BUSINESS
The continuing consolidation of the banking and financial services industry
could result in a smaller market for our services. Consolidation frequently
results in a complete change in the electronic infrastructure of the combined
entity. This could result in the termination of our services and related
products if the acquiring institution has its own in-house system or outsources
to competitive vendors. This would also result in the loss of revenue from
actual or potential retail customers of the acquired financial institution.
GOVERNMENT REGULATION COULD INTERFERE WITH OUR BUSINESS
Federal or state agencies may attempt to regulate our activities. In addition,
Congress could enact legislation that would require us to comply with data,
record keeping, processing and other requirements. We may be subject to
additional regulation as the market for our business continues to evolve. The
Federal Reserve Board or other Federal or state agencies may adopt new rules and
regulations for electronic funds transfers that could lead to increased
operating costs and could also reduce the convenience and functionality of our
services, possibly resulting in reduced market acceptance.
Because of the growth in the electronic commerce market, Congress has held
hearings on whether to regulate providers of services and transactions in the
electronic commerce market, and Federal or state authorities could enact laws,
rules or regulations affecting our business or operations. If enacted and
applied to our business, these laws, rules or regulations could render our
business or operations more costly, burdensome, less efficient or impracticable,
any of which could have a material adverse effect on our business.
RISKS RELATING TO THE OFFERING
MANAGEMENT AND DIRECTORS WILL CONTINUE TO CONTROL OUR MANAGEMENT AND AFFAIRS
Upon completion of this offering, management and directors will beneficially own
approximately % of our outstanding common stock, and % if
the underwriters' over-allotment option is exercised in full. Consequently, such
persons, as a group, will be able to control the outcome of all matters
submitted for stockholder action including the election of members to our board
of directors and the approval of significant change-in-control transactions.
Therefore, they will effectively control our management and affairs. This may
have the effect of delaying or preventing a change in control. See "Management"
and "Principal Stockholders."
THESE SHARES MAY NOT HAVE AN ACTIVE MARKET AND THE PRICE MAY BE VOLATILE
Prior to this offering, there has been no public market for our common stock. An
active or liquid trading market in the common stock may not develop upon
completion of this offering, or if it does develop, it may not continue. The
initial public offering price of the common stock will be determined through our
negotiations with the underwriters and may be more than the market price of
common stock after this offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The market price of the common stock could be subject to significant
fluctuations in response to variations in quarterly operating results, our
failure to achieve operating results consistent with securities analysts'
projections of our performance, and other factors. If the public offering price
of our common stock is not at least $ or $ per share, depending on when the
registration statement of which this prospectus is a part is declared effective
by the SEC, during the 20-day trading period following the initial two week
period of trading, investors who purchased Series C preferred stock in our last
private offering will receive the right to exercise warrants to purchase shares
of common stock. See "Description of Capital Stock -- Warrants." If those
securityholders receive the right to exercise their warrants, our stockholders
will have their ownership diluted.
10
<PAGE> 12
The stock market has experienced extreme price and volume fluctuations and
volatility that has particularly affected the market prices of many technology,
emerging growth and developmental stage companies. Such fluctuations and
volatility have often been unrelated or disproportionate to the operating
performance of such companies. Factors such as announcements of the introduction
of new or enhanced services or related products by us or our competition,
announcements of joint development efforts or corporate partnerships in the
financial electronic commerce services market, market conditions in the
technology, banking, telecommunications and other emerging growth sectors, and
rumors relating to us or our competitors may have a significant impact on the
market price of the common stock.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net tangible
book value per share of the outstanding common stock will be immediately after
the offering. Any common stock you purchase in the offering will have a
post-offering net tangible book value per share of $ less than the
price you paid for the share, assuming an initial public offering price of
$ per share, the midpoint of the range set forth on the cover page of
this prospectus. See "Dilution."
THE MARKET PRICE OF OUR COMMON STOCK COULD BE AFFECTED BY THE SUBSTANTIAL NUMBER
OF SHARES THAT ARE AVAILABLE FOR FUTURE SALE
A substantial number of shares of our common stock could be sold into the public
market after this offering. The occurrence of such sales, or the perception that
such sales could occur, could materially and adversely affect our stock price or
could impair our ability to obtain capital through an offering of equity
securities. After this offering, we will have outstanding shares of
common stock, or shares if the underwriters exercise their option to
purchase additional shares of common stock in this offering. At March 16, 1999,
we had also reserved an additional 5,285,214 shares of common stock for issuance
under our stock option plans and 6,973,771 shares of common stock under our
warrants. As of March 16, 1999, options to purchase 5,065,543 of these shares
were outstanding (of which 4,195,300 were exercisable) and exercisable warrants
to purchase 5,252,451 of these shares have been issued.
The shares of common stock being sold in this offering will be freely
transferable under the securities laws immediately after issuance, except for
any shares sold to our "affiliates." Substantially all of our existing
stockholders have agreed pursuant to written "lock-up" agreements that, for a
period of 180 days from the date of this prospectus, they will not sell their
shares. As a result, upon the expiration of the lock-up agreements 180 days
after the date of this prospectus, shares of common stock will be
eligible for sale subject, in most cases, to certain volume and other
restrictions under the Federal securities laws. The remaining shares of common
stock will become eligible for resale after the expiration of the waiting
periods prescribed under the Federal securities laws. See "Shares Eligible for
Future Sale."
11
<PAGE> 13
FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and expectations, which
are "forward-looking statements." Any statement in this prospectus that is not a
statement of historical fact may be deemed to be a forward-looking statement.
These statements include:
- forecasts of growth in business-to-business electronic commerce, and
growth in the number of consumers using online banking and billpaying
services;
- statements regarding Online Resources' preparedness for the Year 2000
date change and trends in Online Resources' revenues, expense levels, and
liquidity and capital resources;
- statements regarding Online Resources' plans for growth of the Financial
Services Center; and
- other statements, including statements containing words such as
"anticipate," "believe," "plan," "estimate," "expect," "seek," "intend"
and other similar words that signify forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Specific
factors that might cause such a difference include, but are not limited to:
- our history of losses and anticipation of future losses;
- our dependence on the marketing efforts of third parties;
- the potential fluctuations in our operating results;
- our potential need for additional capital;
- our potential inability to expand our services and related products in
the event of substantial increases in demand for these services and
related products;
- our competition;
- our ability to attract and retain skilled personnel.
- our reliance on our patents and other intellectual property;
- the early stage of market adoption of the services we offer; and
- consolidation of the banking and financial services industry.
See additional discussion under "Risk Factors" beginning on page 7.
12
<PAGE> 14
USE OF PROCEEDS
Our net proceeds from the sale of common stock offered hereby are estimated to
be approximately $ million (approximately $ million if the
underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $ per share (the midpoint of the range set
forth on the cover page of this prospectus), and after deducting underwriting
discounts and commissions and estimated offering expenses. We currently intend
to use:
- net proceeds of this offering for the repayment of our outstanding
corporate debt which at March 31, 1999, was $9.5 million; and
- between 20-40% of the net proceeds of this offering for the expansion of
co-marketing programs with existing financial institution clients
directed at their retail customers.
We intend to use the balance of the net proceeds of this offering for general
corporate purposes, including capital expenditures and working capital. At March
31, 1999, the corporate debt to be repaid included $8.0 million of loans,
incurred for working capital purposes, which bear interest at 12.75% per annum
and are due March 2003, and an equipment note of $1.5 million which bears
interest at 9% per annum and is due June 1, 2000. We also may use net proceeds
to pursue opportunities to invest in or acquire services, products, technologies
or companies that complement or otherwise enhance our existing businesses.
However, we currently have no understandings, commitments or agreements with
respect to any such acquisition. Pending use of the net proceeds for the above
purposes, we intend to invest such funds in short-term, interest-bearing,
investment-grade obligations.
The foregoing discussion represents our best estimate of the allocation of the
net proceeds of this offering based upon our current plans. Actual expenditures
may vary substantially from these estimates and we may find it necessary or
advisable to reallocate the net proceeds within the above-described categories
or to use portions thereof for other purposes.
DIVIDEND POLICY
We intend to retain our future earnings, if any, to fund the development and
growth of our business and, therefore, do not anticipate paying any cash
dividends in the foreseeable future. Our future decisions concerning the payment
of dividends on the common stock will depend upon our results of operations,
financial condition and capital expenditure plans, as well as such other factors
as the Board of Directors, in its sole discretion, may consider relevant. In
addition, our existing indebtedness restricts, and we anticipate our future
indebtedness may restrict, our ability to pay dividends. To date, we have not
paid dividends.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth as of March 31, 1999, our actual capitalization,
our pro forma capitalization which gives effect to the automatic conversion of
our redeemable convertible preferred stock into common stock and our pro forma
capitalization, as adjusted to reflect the issuance and sale of shares
of common stock in this offering and the application of the resulting net
proceeds. See "Use of Proceeds." You should read this table in conjunction with
our financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Put option liability........................................ $ 432,450 $ --
Long term obligations, less current portion................. 8,926,045 8,926,045
------------ ------------
Redeemable convertible preferred stock...................... 32,105,196 --
------------ ------------
Stockholders' equity:
Series A convertible preferred stock, $0.01 par value;
1,000,000 shares authorized, 795,000 shares issued
and outstanding....................................... 7,950 7,950
Common Stock, $.0001 par value; 35,000,000 shares
authorized 11,587,847 shares issued and outstanding,
actual; 20,813,740 shares issued and outstanding,
pro forma; shares issued and outstanding, pro forma
as adjusted........................................... 1,159 2,081
Additional paid-in capital............................. 10,132,560 42,669,284
Accumulated deficit.................................... (45,263,135) (45,263,135)
Receivable from sale of common stock................... (560,240) (560,240)
------------ ------------
Total stockholders' equity (deficit).............. (35,681,706) (3,144,060)
------------ ------------
Total capitalization.............................. $ 5,781,985 $ 5,781,985
============ ============
</TABLE>
14
<PAGE> 16
DILUTION
Net tangible book value represents the amount of total tangible assets less
total liabilities. We had a net tangible book value of $(35,681,706) or $(3.08)
per share at March 31, 1999. After giving effect to the offering at an assumed
initial public offering price of $ per share (the midpoint of the range
set forth on the cover of this prospectus) and the receipt of proceeds
therefrom, and after deducting estimated offering expenses and underwriting
discounts, our pro forma net tangible book value as of March 31, 1999, would
have been approximately $ or $ per share. This represents an
immediate dilution of $ per share to new investors purchasing shares of
common stock in the offering and an immediate increase in net tangible book
value to existing stockholders of $ per share. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of March 31, 1999...... $(3.08)
Pro forma increase in net tangible book value per share
attributable to the offering and use of proceeds
therefrom.................................................
------
Pro forma increase in net tangible book value per share
after the offering........................................
----------
Pro forma dilution per share to new investors (assuming
exercise of all outstanding options and warrants)......... $
==========
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of March 31,
1999, the number of shares of common stock purchased, the total consideration
paid for the common stock and the average price per share paid by the existing
stockholders and by the new investors purchasing shares of common stock in the
offering, assuming an offering price of $ per share (the midpoint of
the range set forth on the cover page of this prospectus) before the deduction
of underwriting discounts and estimated expenses payable by Online Resources:
<TABLE>
<CAPTION>
---------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. % $ % $
New investors.........................................
----- ----- ------ ----- ------
Total............................................ $ $
===== ===== ====== ===== ======
</TABLE>
Except as indicated above, the foregoing tables assume no exercise of the
underwriters' over-allotment option and no exercise of outstanding stock options
or warrants to purchase common stock. See "Management--Stock Option Plans" and
"Description of Capital Stock--Warrants."
15
<PAGE> 17
SELECTED FINANCIAL INFORMATION
The tables that follow present portions of our financial statements and are not
complete. You should read the following selected financial information in
conjunction with our financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the three years ended December 31, 1998 and the balance sheet data as
of December 31, 1997 and 1998 are derived from our audited financial statements,
which are included elsewhere in this prospectus. The statement of operations
data for the two years ended December 31, 1995 and the balance sheet data as of
December 31, 1994, 1995 and 1996 are derived from audited financial statements
that are not included in this prospectus. The interim financial data set forth
below for the three month periods ended March 31, 1998 and 1999 has been derived
from the unaudited financial statements included elsewhere in this prospectus.
The unaudited financial statements include all adjustments consisting of only
normal recurring adjustments, that management considers necessary for a fair
presentation of the financial position and results of operations for the
periods. Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1999. Pro forma balance sheet data reflects the conversion
of the redeemable convertible preferred stock upon consummation of this
offering. Historical results are not necessarily an indication of future
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Core services............ $ 449,386 $ 372,573 $ 417,590 $ 1,011,161 $ 2,221,230 $ 479,409 $ 795,929
Support services......... 254,309 307,423 176,653 207,697 644,818 105,322 349,699
Implementation fees...... -- 66,620 417,116 1,310,950 1,200,158 159,825 300,809
Related products......... 149,529 237,654 119,150 324,736 259,898 75,184 57,259
----------- ----------- ----------- ------------ ------------ ----------- -----------
Total revenues.... 853,224 984,270 1,130,509 2,854,544 4,326,104 819,740 1,503,696
Cost of revenues......... 1,067,446 1,853,486 1,864,991 5,128,584 6,289,462 1,368,803 1,905,916
----------- ----------- ----------- ------------ ------------ ----------- -----------
Gross profit........... (214,222) (869,216) (734,482) (2,274,040) (1,963,358) (549,063) (402,220)
General and
administrative......... 1,050,929 1,699,363 2,208,218 2,508,058 2,705,029 521,397 679,970
Sales and marketing...... 963,330 1,423,255 2,249,405 3,257,725 3,377,728 733,827 983,281
Systems and
development............ 890,716 1,241,874 1,469,272 2,682,261 2,444,615 547,028 904,355
----------- ----------- ----------- ------------ ------------ ----------- -----------
Total expenses.... 2,904,975 4,364,492 5,926,895 8,448,044 8,527,372 1,802,252 2,567,606
----------- ----------- ----------- ------------ ------------ ----------- -----------
Loss from operations....... (3,119,197) (5,233,708) (6,661,377) (10,722,084) (10,490,730) (2,351,315) (2,969,826)
Other income (expense)..... 92,651 6,251 (315,014) (323,727) (1,067,739) (71,744) (356,243)
----------- ----------- ----------- ------------ ------------ ----------- -----------
Net loss................... (3,026,546) (5,227,457) (6,976,391) (11,045,811) (11,558,469) (2,423,059) (3,326,069)
Preferred stock
accretion................ -- -- -- (1,998,665) (3,779,169) (1,035,585) (1,266,184)
----------- ----------- ----------- ------------ ------------ ----------- -----------
Net loss available for
common................... (3,026,546) (5,227,457) (6,976,391) (13,044,476) (15,337,638) (3,458,644) (4,592,253)
Net loss per share basic
and diluted.............. $ (0.36) $ (0.54) $ (0.66) $ (1.20) $ (1.36) $ (0.31) $ (0.40)
=========== =========== =========== ============ ============ =========== ===========
Shares used in calculation
of basic and diluted loss
per share................ 8,388,865 9,617,661 10,500,930 10,825,662 11,250,270 11,183,792 11,521,215
Pro forma net loss per
share basic and
diluted(1)............... -- -- -- -- (0.68) -- $ (0.16)
Shares used in calculation
of pro forma basic and
diluted loss per
share(1)................. -- -- -- -- 17,040,349 -- 20,656,015
</TABLE>
- ------------------
(1) The pro forma earnings per share reflect the effect of the conversion of the
weighted average number of shares of Series B and Series C preferred stock
as if the shares were converted as of the date of issuance. The pro forma
earnings per share do not give effect to the initial public offering or to
the application of the offering proceeds to repay debt.
16
<PAGE> 18
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, AS OF MARCH 31, 1999
------------------------------------------------------------------- ----------------------------
1994 1995 1996 1997 1998 ACTUAL PRO FORMA
---------- ---------- ----------- ------------ ------------ -------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents......... $ 586,932 $ 762,738 $ 41,142 $ 1,855,809 $ 3,471,620 $ 5,006,189 $ 5,006,189
Working capital.............. 1,333,985 1,265,745 (1,399,022) (144,592) 580,376 2,172,443 2,172,443
Total assets................. 2,654,184 2,429,060 2,082,436 4,681,995 9,421,428 10,345,891 10,345,891
Notes payable, less current
portion.................... -- 475,000 4,555,808 1,199,225 8,525,467 8,136,806 8,136,806
Capital lease obligations,
less current portion....... 123,006 92,154 -- 352,956 605,322 595,839 595,839
Put option liability......... -- -- -- -- 362,700 432,450 --
Other non-current
liabilities................ -- -- -- -- 193,400 193,400 193,400
Total liabilities............ 704,677 993,447 6,927,011 4,217,590 14,833,950 13,922,401 13,489,951
Redeemable convertible
preferred stock............ -- -- 645,000 16,836,016 25,776,254 32,105,196 --
Series A Preferred Stock..... 7,950 7,950 7,950 7,950 7,950 7,950 7,950
Stockholders' equity
(deficit).................. 1,949,507 1,435,613 (5,489,575) (16,371,611) (31,188,776) (35,681,706) (3,144,060)
</TABLE>
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
anticipated in these forward-looking statements as a result of factors
including, but not limited to, those under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are a leading provider of electronic commerce services that enable regional
and community financial institutions to provide Internet and other online
banking services to their retail customers under such financial institution's
name. In 1992, we began offering banking and billpaying services through our
screen-based telephone. In 1993, our real-time ATM network-based processing
patent was issued. In 1995, additional PC and conventional telephone access
capabilities were added, as were third-party brokerage services. In 1996, in
response to the rapid growth of the Internet, we launched Internet banking and
billpaying services. In November 1998, we launched our Financial Services Center
which currently offers our clients' retail customers loan approval, insurance,
investment information and securities trading through our third-party partners.
We derive revenue from long-term service contracts with our financial
institution clients, who pay us recurring fees based primarily on the number of
their retail customers enrolled and transaction volumes, as well as an up-front
implementation fee. Our financial institution clients typically subsidize some
or all of our fees when reselling our services to their retail customers, as
they derive significant potential benefits including account retention, delivery
and paper cost savings, account consolidation and cross-selling of other
products. As a network-based service provider, we have made substantial up-front
investments in infrastructure. We believe our financial performance and
operating leverage will be based primarily on increasing retail customer
subscriptions and transaction volumes over a relatively fixed cost base.
Our current sources of revenue are from core services, support services,
implementations and selling related products. We expect that our primary source
of revenue growth will come from core services and support services as a result
of continued growth of retail customers.
- Core Services. Our primary source of revenue is from providing core
services which include banking and billpaying for which we charge our
financial institution clients a fixed monthly fee based on the number of
retail customers who use our service. We recognize revenue from core
services as provided.
- Support Services. Support services include our customer service center,
Web page design and hosting, consumer marketing, information reporting,
administrative services, and communications services. Fees for these
services are closely tied to the number of retail customers and are
bundled as either fixed price monthly charges, fixed price project fees,
or hourly billings.
- Implementation. We generate revenue from implementation of our fully
integrated services to our financial institution clients. Implementation
fees are paid on a one time basis at signing and recognized as revenue
using the percentage of completion method tied to pilot and launch
milestones.
- Related Products. We also derive revenue from sales of related enabling
products and software at fixed prices, including our PC software,
screen-based telephone and customer service software. These have not been
a significant source of revenue.
Historically, the majority of our resources have been directed to creating our
proprietary Opus(sm) system. Our proprietary system enables us to provide a
broad range of services to our financial institution clients including online
banking, billpaying, and access to complementary financial services supported by
our customer call center, marketing services and other support services. While
investment to date has been significant, we believe the infrastructure we have
built will enable us to support our anticipated growth over the next several
years with only nominal incremental cost for additional retail customers.
Since our founding, we have incurred high costs to create our infrastructure,
while generating low revenues. As a result we have historically experienced
large operating losses and negative cash flow. At March 31, 1999 we had
accumulated deficits of $45.3 million and net property and equipment of $3.1
million. We have funded our operations primarily through the issuance of equity
and debt securities. Ongoing working capital requirements will primarily consist
of personnel costs related to enhancing and maintaining our Opus(sm) system. We
expect to continue to incur losses in the near future.
18
<PAGE> 20
Our strategy is to rapidly expand and enhance our electronic commerce systems
with additional financial institution clients, retail customers and financial
services. We believe that our revenue growth and future profitability will
depend on the speed of launching our financial institution clients and the rate
of adoption of our services by their retail customers. By achieving growth in
these areas, we believe we can increase our operating margins through economies
of scale and create increased marketing and distribution opportunities. We
intend to use a portion of the proceeds from this offering to expand our co-
marketing efforts with our financial institution clients in order to promote
adoption of our services by their retail customers. We are presently conducting
co-marketing pilot programs with several of our clients. However, we cannot
predict whether our co-marketing programs will be successful.
Our limited operating history makes it difficult to evaluate our prospects for
success and our revenue and profitability potential is unproven. Investors
should not use our operating history as a basis for assessing our future
performance.
RESULTS OF OPERATIONS
The following table presents certain items derived from our statements of
operations expressed as a percentage of revenue.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31
------------------------------------ ----------------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues: 1996 1997 1998 1998 1999
------ ------ ------ ------ ------
Core services........................... 36.9% 35.4% 51.3% 58.5% 52.9%
Support services........................ 15.6% 7.3% 14.9% 12.8% 23.3%
Implementation fees..................... 36.9% 45.9% 27.7% 19.5% 20.0%
Related products........................ 10.6% 11.4% 6.1% 9.2% 3.8%
------ ------ ------ ------ ------
Total revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Cost of revenues........................ 165.0% 179.7% 145.4% 167.0% 126.7%
------ ------ ------ ------ ------
Gross margin.............................. (65.0)% (79.7)% (45.4)% (67.0)% (26.7)%
General and administrative.............. 195.3% 87.9% 62.5% 63.6% 45.2%
Sales and marketing..................... 199.0% 114.1% 78.1% 89.5% 65.4%
Systems and development................. 130.0% 94.0% 56.5% 66.7% 60.2%
------ ------ ------ ------ ------
Total expenses.................. 524.3% 296.0% 197.1% 219.8% 170.8%
------ ------ ------ ------ ------
Loss from operations...................... (589.3)% (375.7)% (242.5)% (286.8)% (197.5)%
------ ------ ------ ------ ------
Total other income (expense).............. (27.9)% (11.3)% (24.7)% (8.8)% (23.7)%
------ ------ ------ ------ ------
Net loss.................................. (617.2)% (387.0)% (267.2)% (295.6)% (221.2)%
====== ====== ====== ====== ======
</TABLE>
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1999
Revenues
We derive revenues from providing core services, support services,
implementations and from selling related products. Revenues increased 83.4% to
$1.5 million for the three months ended March 31, 1999 as compared to $819,740
for the three months ended March 31, 1998. This increase was primarily
attributable to a 66.0% increase in core services fees and a 232.0% increase in
support service fees which were driven by a 200% increase in the number of
retail customers. Additionally, implementation fees increased 88.2% as a result
of increases in sales and clients launched onto our system.
Cost of Revenues
Cost of revenues primarily includes telecommunications, payment processing,
systems operations, customer service, implementation and related products. Cost
of revenues increased 39.2% to $1.9 million for the three months ended March 31,
1999 as compared to $1.4 million for the three months ended March 31, 1998. This
increase was primarily due to a 161.0% increase in customer service costs and a
66.9% increase in payment processing costs as a result of increased support
staff and transactional costs associated with the 200% increase in the number of
retail customers.
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General and Administrative
General and administrative expenses primarily consist of salaries for executive,
administrative and financial control personnel and facilities costs such as
office leases, insurance, and depreciation. General and administrative expenses
increased 30.4% to $679,970 for the three months ended March 31, 1999 as
compared to $521,397 for the three months ended March 31, 1998. The increase in
general and administrative expenses results from a 39.3% increase in salaries
and benefits associated with additional staffing.
Sales and Marketing
Sales and marketing expenses include salaries and commissions paid to sales and
marketing personnel, consumer marketing costs, public relations costs, and other
costs incurred in marketing our services and products. Sales and marketing
expenses increased 34.0% to $983,281 for the three months ended March 31, 1999
as compared to $733,827 for the three months ended March 31, 1998.
Approximately, 14.8% of this increase was attributable to the consumer marketing
group which was formed in order to provide marketing support to our clients and
promote adoption of our services by the retail customers of the growing number
of launched financial institution clients. Additionally, sales salaries and
benefits increased 16.1% and sales travel expenses increased 54.4% as the result
of new sales representatives.
Systems and Development
Systems and development expenses include salaries of personnel in the systems
and development department, consulting fees and all other expenses incurred in
supporting the development of new services and products, and new technology to
enhance existing products. Systems and development expenses increased 65.3% to
$904,355 for the three months ended March 31, 1999 as compared to $547,028 for
the three months ended March 31, 1998. This increase was primarily attributable
to costs associated with a technical staff expansion to support the enhancement
of our systems, which resulted in a 16.2% increase in salaries and benefits and
a 299.3% increase in consulting services.
Other Income and Expense
Interest income increased to $41,709 for the three months ended March 31, 1999
as compared to $12,126 for the three months ended March 31, 1998. The increase
was offset by a 436.0% increase in interest expense as a result of the equipment
financing loans and $8 million in senior debt incurred during 1998 and
outstanding as of March 31, 1999.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenues
Revenues increased 51.6% to $4.3 million in 1998 as compared to $2.9 million in
1997. This increase was primarily attributable to a 119.7% increase in core
services fees and a 210.5% increase in support services fees, which were driven
by a 138.5% increase in the number of retail customers. The increase in retail
customers was driven primarily by the launch of an additional 60 clients during
1998.
Cost of Revenues
Cost of revenues increased 22.6% to $6.3 million in 1998 as compared to $5.1
million in 1997. This increase was primarily due to a 110.6% increase in payment
processing costs as a result of increased support staff and transactional costs
associated with the 138.5% increase in retail customers. Additionally,
telecommunications costs increased 57.5% and customer service costs increased
34.1% as a result of the increase in retail customers. Related product costs
decreased 78.5% as the result of the recognition of a $496,721 reserve on
screen-based telephones taken in 1997.
General and Administrative
General and administrative expenses increased by 7.9% to $2.7 million in 1998 as
compared to $2.5 million in 1997. The increase was due to a 480.1% increase in
professional services and a 49.6% increase in rent expense, which were partially
offset by a 22.9% decrease in salaries expenses. In 1997, a one-time charge of
$137,000 was incurred for severance costs paid to terminated employees. This
reduction in employees contributed to the reduction in salaries expense in 1998.
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Sales and Marketing
Sales and marketing expenses increased 3.7% to $3.4 million in 1998 as compared
to $3.3 million in 1997. This increase was due to a 3.8% increase in personnel
expenses, a significant increase in advertising expenses and expenses related to
the distribution of marketing materials.
Systems and Development
Systems and development expenses decreased by 8.9% to $2.4 million in 1998 as
compared to $2.7 million in 1997. This decrease was attributable to a 7.5%
decrease in personnel expenses and a 74.4% decrease in recruiting expenses as
hiring growth slowed and we relied less on external recruiting services, which
were partially offset by a 39.1% increase in consulting services.
Other Income and Expense. Interest expense increased 143.3% to $1.1 million in
1998 as compared to $471,187 in 1997 as we continued to finance our working
capital through equipment financing loans in late 1997 and financings in 1998.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues
Revenues increased 152.5% to $2.9 million in 1997 as compared to $1.1 million in
1996. This increase was attributable to a 142.1% increase in core services
revenue due to a 319% increase in the number of retail customers. Additionally,
implementation fees increased 214.3% as a result of increases in sales and
clients launched onto our system. Related product revenue increased 172.5% as we
delivered additional screen-based telephones and fulfillment material to our new
retail customers.
Cost of Revenues
Cost of revenues increased 175.0% to $5.1 million in 1997 as compared to $1.9
million in 1996. This increase was primarily attributable to a 239.3% increase
in telecommunication costs, a 237.9% increase in customer service costs and a
98.8% increase in billpaying processing costs. These increases resulted from the
increased number of retail customers, an increase in staff to support the growth
of our operations and the recognition of a $496,721 reserve on screen-based
telephones.
General and Administrative
General and administrative expenses increased 13.6% to $2.5 million in 1997 as
compared to $2.2 million in 1996. This increase was due to a one-time $137,000
charge incurred in November 1997 for severance costs paid to terminated
employees. As a result of the growth in operations we had a 130.5% increase in
rent expense associated with office expansion, a 92.9% increase in depreciation
and amortization expense, and an 18.4% increase in salaries expense associated
with additional staffing. These expenses increased as a result of the growth of
our operations. The increase in general and administrative expenses was
partially offset by the absence of bonus awards in 1997.
Sales and Marketing
Sales and marketing expenses increased 44.8% to $3.3 million in 1997 as compared
to $2.2 million in 1996. Approximately 27.7% of this increase was attributable
to the account services group which was formed in order to strengthen client
relations and promote adoption of our services by the retail customers of the
growing number of launched financial institution clients. Additionally, sales
commissions increased 97.9% commensurate with the increase in the number of
signed financial institution clients. Travel expenses increased 19.0% due to the
addition of new sales representatives.
Systems and Development
Systems and development expenses increased 82.6% to $2.7 million in 1997 as
compared to $1.5 million in 1996. This was primarily attributable to costs
associated with a technical staff expansion to support the enhancement of our
Opus(sm) system, which resulted in a 78.5% increase in salary and benefits and a
480.4% increase in recruiting costs.
Other Income and Expense
Interest income increased 338.7% to $147,988 in 1997 as compared to $33,730 in
1996. This increase was offset by a 37.2% increase in interest expense to
$471,187 in 1997 as compared to $343,384, in 1996 as a result of increased
bridge loans and equipment financing in 1997.
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Quarterly Results of Operations
The following table presents certain unaudited quarterly financial information
for each of the eight quarters during the years ended December 31, 1997 and 1998
and the first quarter of the year ending December 31, 1999. In the opinion of
management, this information has been prepared on the same basis as the audited
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the unaudited quarterly
results set forth herein. We expect to continue to experience fluctuations in
our quarterly operating results. Our quarterly results have in the past been
subject to fluctuations and, therefore, the operating results for any quarter or
quarters are not necessarily indicative of results for any future period. The
quarterly results data should be read in conjunction with our financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
THREE MONTHS ENDED,
-----------------------------------------------------------------------------------
1997 1998
---------------------------------------- ----------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Core services...................... $ 193,592 $ 308,144 $ 392,131 $ 479,409 $ 484,642 $ 583,070
Support services................... 45,231 64,946 76,475 105,322 123,671 166,959
Implementation fees................ 316,650 340,525 422,900 159,825 274,100 354,509
Related products................... 56,344 80,290 141,125 75,184 63,037 58,393
----------- ----------- ----------- ----------- ----------- -----------
Total revenues............... 611,817 793,905 1,032,631 819,740 945,450 1,162,931
Expenses:
Cost of revenues................... 1,067,636 1,213,454 2,043,802 1,368,803 1,513,971 1,538,946
General and administrative......... 541,482 611,519 831,496 521,397 543,781 564,323
Sales and marketing................ 918,937 854,229 790,155 733,827 731,935 853,876
Systems and development............ 626,686 765,952 660,350 547,028 607,131 601,616
----------- ----------- ----------- ----------- ----------- -----------
Total expenses............... 3,154,741 3,445,154 4,325,803 3,171,055 3,396,818 3,558,761
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations................. (2,542,924) (2,651,249) (3,293,172) (2,351,315) (2,451,368) (2,395,830)
----------- ----------- ----------- ----------- ----------- -----------
Total other income (expense)......... (131,596) 3,884 (66,811) (71,744) (290,894) (367,243)
----------- ----------- ----------- ----------- ----------- -----------
Net loss............................. $(2,674,520) $(2,647,365) $(3,359,983) $(2,423,059) $(2,742,262) $(2,763,073)
=========== =========== =========== =========== =========== ===========
<CAPTION>
-------------------------
THREE MONTHS ENDED,
-------------------------
1998 1999
----------- -----------
DECEMBER 31 MARCH 31
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Core services...................... $ 674,109 $ 795,929
Support services................... 248,866 349,699
Implementation fees................ 411,724 300,809
Related products................... 63,284 57,259
----------- -----------
Total revenues............... 1,397,983 1,503,696
Expenses:
Cost of revenues................... 1,867,742 1,905,916
General and administrative......... 1,075,528 679,970
Sales and marketing................ 1,058,090 983,281
Systems and development............ 688,840 904,355
----------- -----------
Total expenses............... 4,690,200 4,473,522
----------- -----------
Loss from operations................. (3,292,217) (2,969,826)
----------- -----------
Total other income (expense)......... (337,858) (356,243)
----------- -----------
Net loss............................. $(3,630,075) $(3,326,069)
=========== ===========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have raised approximately $50.3 million of capital,
consisting of $12.5 million for common stock and Series A preferred stock, $18.5
million for redeemable preferred stock and $19.3 million of debt. Of the debt,
$850,000 has been exchanged for common stock and $8.0 million has been exchanged
for redeemable preferred stock. We have also utilized $2.0 million of capital
lease financing. Through March 31, 1999, we invested $5.7 million in capital
expenditures and applied the remainder to development of our Opus(sm) system and
the creation of the infrastructure requirements to support our increased client
base.
Beyond our capital expenditures, the funds we have raised have been applied to
support our working capital needs. These needs prior to 1996 consisted primarily
of costs to develop and implement our infrastructure. In these years, we raised
a total of $14.1 million, consisting of $795,000 from the issuance of Series A
preferred stock, $1.6 million from the issuance of debt, and $11.7 million from
the issuance of common stock.
Beginning in 1996 and through March 31, 1999, our working capital needs expanded
significantly as our client base grew from 18 to 333 financial institution
clients. Our infrastructure needs grew to accommodate our expanding client base.
During 1996, we raised $4.0 million of debt. During 1996, we also issued
$670,000 of Series B preferred stock.
During 1997, we received $335,000 from the issuance of Series B preferred stock,
net cash proceeds of $7.6 million from the issuance of Series C preferred stock
and $3.3 million from the issuance of convertible debt. In 1997 we also issued
an equipment financing note from which we received $1.5 million.
During 1998, we received net cash proceeds of $4.6 million from the issuance of
Series C preferred stock and $8.0 million from the issuance of two senior debt
notes. We also received an additional $434,000 under our equipment financing
note. Additionally, in 1998 we incurred $450,000 of debt.
Throughout the thirty-nine months ended March 31, 1999, we used lease financing
to obtain systems hardware and other assets. In total, we obtained $2.0 million
of capital lease financing during this period, mostly in 1998.
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<PAGE> 24
Finally, in the first quarter of 1999 we received net cash proceeds of $5.3
million from the issuance of Series C preferred stock.
As of March 31, 1999, we had $8 million of senior debt outstanding, with
principal and interest maturing on March 31, 2001. Also at March 31, 1999 we had
$1.5 million of equipment notes outstanding. The equipment notes require monthly
payments of $61,500 from July 1, 1998 through maturity on June 1, 2001. As of
March 31, 1999, we had $1.3 million of capital lease financing obligations
outstanding. At March 31, 1999, we had cash of $5.0 million. In the next twelve
months we expect capital expenditures of approximately $500,000.
We believe that these resources, together with the estimated net proceeds from
this offering and anticipated debt and capital lease financing, will be
sufficient to fund our operations for at least the next 12 months. If we expand
more rapidly than currently anticipated, if our working capital needs exceed our
current expectations or if we make acquisitions, we will need to raise
additional capital from equity or debt sources. We cannot be sure that we will
be able to obtain the additional financing to satisfy our cash requirements or
to implement our growth strategy on acceptable terms or at all. If we cannot
obtain such financing on terms acceptable to us, we may be forced to curtail our
planned business expansion and may be unable to fund our ongoing operations.
In addition, until cash generated from operations is sufficient to satisfy our
future liquidity requirements, we believe that we will be required to seek
additional funds through issuance of additional equity or debt securities or
through credit facilities. The sale of additional equity will result in
additional dilution to our stockholders. Financing may not be available in the
future in amounts or on terms acceptable to us, if at all.
IMPACT OF YEAR 2000 ISSUE ON THE OPERATIONS AND FINANCIAL CONDITION OF ONLINE
RESOURCES
Year 2000 Issue
Many computer programs, computer systems and other equipment that process or
store date-related information by using two digits to represent the year cannot
appropriately differentiate the century. As a result, these systems may not be
able to accurately process data before, during or after the year 2000. While we
believe that we have taken adequate steps to make sure that our systems are Year
2000 compliant and we do not believe that we will incur material costs to
prepare for the Year 2000 date change, achieving complete Year 2000 compliance
is subject to various risks and uncertainties. We acknowledge that the Year 2000
date change may lead to failures of systems that may have a material and adverse
effect on our business.
State of Readiness
We have been aware of the Year 2000 issue since our inception in 1989 and have
focused attention on making our business systems Year 2000 compliant since that
time. We developed and deployed our Year 2000 compliant platform architecture
starting in 1996. During 1998, the Year 2000 project team began Year 2000
compliance testing. We are currently engaged in implementing Year 2000 compliant
systems for all of our customers. Additionally, effort has been concentrated on
business systems owned or operated by us or third parties, and which directly
affect our ability to provide our services or otherwise affect revenues or
reliability. The failure of such systems (collectively identified as "Critical
Systems") for a period of time may lead to unrecoverable consequences. To
mitigate risks associated with the Year 2000 issue, we have adopted a Year 2000
compliance program for our Critical Systems that has included designation of a
Year 2000 project team; formulation and implementation of a Year 2000 project
plan; systematic and comprehensive inventory, assessment, remediation and
testing of all Critical Systems; and contingency planning.
Our Year 2000 program has the following phases and components:
Phase 1. Awareness of Problem
A Year 2000 coordinator has been designated to monitor Year 2000 events, direct
communications within the company regarding Year 2000 and report and monitor
progress of Year 2000 activities. It is our policy to evaluate for Year 2000
compliance, all software, hardware and telecommunications services we purchase.
A checklist of Year 2000 considerations is used for this purpose.
Phase 2. Assessment of Impact and Complexity
To assess the magnitude and complexity of Year 2000 conversion issues, we
performed a comprehensive inventory of Year 2000 issues at the enterprise level.
We approved an operating definition of Year 2000 compliance to mean that the
system hardware and software supports dates changing from the 1900s to the 2000s
without major delays resulting from the date change and
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<PAGE> 25
without affecting the intended performance of the system. We completed a
comprehensive system inventory of core operations, development systems and
administration that encompassed the following areas: proprietary software;
operating systems; third party software and products of other companies utilized
for critical operations; computer equipment and network components;
telecommunications including voice, data and automated call distribution
systems; database systems and data; automated accounting systems; computer
equipment; infrastructure including buildings, electrical power, security
systems, elevators and HVAC systems; and interfaces to external networks,
processors and financial institutions. Because the Year 2000 project has been
considered part of the overall planning, no initiatives will be delayed
significantly as a result of Year 2000 testing. However, testing and
certification will be required.
Phase 3. Remediation and Renovation
We have adopted a plan for renovation with regard to computer systems that
involves the following main steps:
- identify all systems that are not currently Year 2000 compliant;
- prioritize all conversion issues based on identifying those systems and
processes that directly affect the delivery of our products and services,
other mission-critical systems and non-critical ancillary or support
systems;
- determine whether to renovate, retire or replace each noncompliant system
(renovate, retire, or replace);
- convert the system or software to be Year 2000 compliant or replace the
system depending on the system;
- schedule Year 2000 compliance testing and test all interfaces, starting
with mission-critical interfaces; and
- implement Year 2000 compliant platform architecture and systems for all
customers.
Phase 4. Validation and Testing
The goal of Year 2000 testing is to demonstrate the capability of systems to
process dates into the next century and to identify any additional modifications
that may be required. Systems and software are then modified or replaced so that
they process date information correctly. As of March, 1999, testing of internal
"mission-critical" systems has been completed and testing with external service
providers and customers has been started.
Phase 5. Implementation
The process for implementing Year 2000 compliant platform architecture and
deploying Year 2000 compliant systems for all customers is currently in
progress. Testing will continue through the Year 2000 as new customers are
connected to the system.
Costs
We have incurred expenses of $250,000 through March 16, 1999 in connection with
the Year 2000 program. All expenses relating to Year 2000 compliance have been
incurred in the normal course of our business, as we have developed and acquired
the necessary products, network components and services, and implemented
specific client applications. The most significant costs to date have been those
related to testing and certifying our systems with external parties,
particularly ATM networks. The Year 2000 budget of $300,000 to $500,000 for
fiscal 1999 is included within the current information systems budget.
Prioritizing Year 2000 work within the context of the total budget is through
submission and approval by the executive sponsors.
Risks
If we fail to solve a Year 2000 compliance problem with one of our systems, the
result could be a failure or interruption of normal business operations. We
believe that, due to the relative newness of our systems, the comprehensive
scope of our Year 2000 planning and program, and the remediation and testing
undertaken and completed by our compliance team, the potential for significant
interruptions to normal operations should be minimal. The primary risks of Year
2000 failures are those related to external service providers including
telecommunications, electrical power, ATM networks, and financial and accounting
systems that we rely upon daily. Worst-case risks inherent in this business
include the following:
- Protracted interruption of electrical power to our operations and data
centers could materially and negatively impact our ability to provide
online transaction processing and other services. As part of our disaster
recovery program, we have an emergency power generation system and the
capability to transfer all critical systems to the alternative source for
a period of up to 60 days. However, electrical power interruptions that
impact external telecommunication services could adversely impact us due
to reliance on these systems for day-to-day business.
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<PAGE> 26
- Protracted interruption of telecommunications and data network services
to our operations facilities could materially and negatively impact our
ability to provide data center operations. We have performed a detailed
assessment of the components of our telecommunications infrastructure and
tested our systems for compliance. We have contacted all critical
external service providers and obtained assurances and information about
the compliance programs of these companies. In some instances, we have
identified alternative providers and requisitioned alternative service
agreements.
- The failure of certain components of our "back office" and related
systems could materially and negatively impact our business. However, as
a function of business growth, these systems are planned to be retired
before the end of 1999. As a contingency planning measure, we have
performed a technical assessment of the current systems and their
software applications in the event that the deployment of any Year 2000
compliant system is delayed beyond December, 1999.
- In the course of business, we use software products and services provided
by other companies and some of our systems interface to other companies'
systems. We have obtained information from various other third-party
providers regarding the Year 2000 readiness of their systems and we are
continuing to review this information. We have submitted requests to
other third parties for information regarding the Year 2000 readiness of
their systems. We do not have any control over these third parties, and
we cannot guarantee that their products and systems will not suffer any
adverse effects due to the Year 2000 issue that may have a material
adverse effect on our business.
- We anticipate completing our Year 2000 readiness and compliance program
by the third quarter of 1999. If we do not complete our testing and
implementation plans, the potential Year 2000 liabilities may be
increased. We could respond late or not at all to problems caused by the
date changeover at the end of 1999. In addition, any response we make may
be poorly conceived or executed. Our compliance program includes
contingency plans that are continually being reviewed.
Risk Management
From a risk management perspective, the types of potential losses related to
Year 2000 issues include material or "property" losses due to data corruption,
erasure, reduced system performance, or calculation errors, including loss of
income. We may also face losses resulting from liability to an injured third
party due to the use of our software or systems with a Year 2000 deficiency. We
are attempting to mitigate losses by ensuring Year 2000 capability. In addition,
we are currently reviewing our general liability and other insurance policies to
ensure that appropriate coverage is provided for the Year 2000 risks.
Contingency Plans
Contingency plans have been established to mitigate the risks associated with
the project not being completed on time. If the Year 2000 project is not
completed on time for any reason, we have solicited and received proposals from
Year 2000 consulting specialists to fulfill the Year 2000 process including
performance of tests and validation. Unexpected production problems could result
in the utilization of Year 2000 staffing and system resources. In the unlikely
scenario that we fail to successfully complete renovation or testing of
mission-critical systems, Year 2000 specialists are contracted to complete the
remediation process.
Although we have found no material Year 2000 problems with our internal
mission-critical systems, and despite our expectation that Year 2000 compliance
efforts will result in Year 2000 compliant services, we are currently developing
business continuation contingency plans and performing tests on our existing
systems. We expect to complete all testing with material third parties by
September 1999.
Although we have taken appropriate steps to ensure that our business is not
impacted by the date transition to Year 2000 dates, we are not responsible for,
and we do not control the various telecommunications networks including voice
and data communication carriers, the ATM networks, the Internet or other
external parts of our technological environment and infrastructure.
Forward-looking Statements
This Year 2000 discussion contains "forward-looking statements." Such statements
including without limitation, anticipated costs and the dates by which we expect
to complete certain actions, are based on management's best current estimates,
which were derived based on numerous assumptions about future events, including
the continued availability of certain resources, representations received from
third parties and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the ability to identify and remediate all
relevant systems, the results of Year 2000
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testing, adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are outsourcers, service providers,
suppliers, and vendors to us, unanticipated system costs, the adequacy of and
ability to implement contingency plans, and similar uncertainties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have operations subject to risks of foreign currency fluctuations, nor
do we use derivative financial instruments in our operations or investment
portfolio. We do not have significant exposure to market risks associated with
changes in interest rates related to our corporate debt instruments held as of
March 31, 1999.
RECENT PRONOUNCEMENTS
Impairment of Long-Lived Assets
We assess the impairment of long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, or SFAS 121. SFAS
121 requires impairment losses to be recognized for long-lived assets when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The impairment loss of these
assets is measured by comparing the carrying amount of the asset to its fair
value, with any excess of carrying value over fair value written off. Fair value
is based on market prices where available, an estimate of market value, or
determined by various valuation techniques including discounted cash flow.
The Financial Accounting Standards Board recently issued Statements of Financial
Accounting Standards No.'s 130 and 131, which establish standards for the
reporting of comprehensive income and disclosure concerning segment,
respectively. The adoption of the requirements of these standards has not
resulted in a material effect on our financial position or results of
operations.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", or SFAS 133, which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. We currently are assessing the effect of this new
standard.
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BUSINESS
OVERVIEW
We are a leading provider of electronic commerce services that enable our
clients to provide Internet and other online banking services to their retail
customers under such client's name. Our clients are regional and community
financial institutions. We offer our clients' retail customers online banking,
billpaying and access to complementary financial products. As part of our
services, we provide customer support through our call center, marketing
services and other services. Together, our capabilities provide a single source
solution to the electronic commerce challenges of our clients.
We provide a financial electronic commerce network through our proprietary
Opus(sm) system. The key to our system is the middleware component which
connects our clients, their retail customers and financial service providers,
and integrates customer and financial data through our three gateways.
Our Access Gateway provides our clients' retail customers with a choice of
access either through the Internet or through private communications networks,
using either our PC software, our screen-based telephone, or a touch tone
telephone. Our patented EFT Gateway enables real-time electronic funds transfer
with substantially all U.S. depository financial institutions through various
ATM networks. Our Services Gateway links retail customers to our online banking
and billpaying services, as well as to other services offered through our
third-party partners. These other services presently include loan approval,
insurance, investment information and securities trading.
By March 31, 1999 we had substantially completed a key component of our
proprietary system by connecting with 51 ATM networks and processors. This
essentially constitutes all major regional ATM networks, such as Star, Honor and
NYCE, and most major core banking processors, including EDS, Fiserv and Alltel.
We had launched a total of 149 financial institution clients, with 60 of these
launched during 1998. Of our clients' total estimated customer base of
approximately 4.1 million, we had 62,948 retail customers who were using our
services by year end.
INDUSTRY BACKGROUND
Growth of Financial Electronic Commerce
Consumer acceptance of easy-to-use electronic media has had a significant impact
on the financial services industry. Since most financial transactions require
transferring only information, rather than tangible goods, the financial
services industry is particularly well-suited for electronic commerce. The
combination of the following trends is driving the adoption of financial
electronic commerce:
- - Expanding PC Ownership. Declining prices for PCs and rapid growth in the
number of computer-literate consumers are driving increased penetration of
PCs in U.S. homes. The Yankee Group estimates that by 1998 the percentage of
U.S. consumer households owning a PC had grown to 44% and expects this number
to increase to 54% by the year 2001.
- - Increasing Internet Accessibility. Reduced communications costs, improved
Web browsers, and faster connection speeds have made the Internet
increasingly accessible to consumers and to businesses offering products and
services online. International Data Corporation or IDC estimates that there
were 56 million Internet users in the U.S. at the end of 1998, and that this
figure will grow to 137 million by the end of 2002.
- - Increasing Acceptance of Electronic Commerce. Consumers have grown
increasingly comfortable with the security of electronic commerce and are
willing to conduct large transactions online. IDC estimates that goods and
services purchased over the Internet in the U.S. will increase from
approximately $26 billion in 1998 to over $268 billion in 2002.
Emergence of Online Financial Services
Financial institutions have begun to recognize the advantages offered by online
delivery systems. Financial electronic commerce provides these institutions the
opportunity to offer their services to targeted audiences. Additionally, these
solutions provide financial institutions with the opportunity to reduce or
eliminate personnel, paper and other back office expenses associated with
traditional distribution channels.
Banks, thrifts and credit unions have responded by offering customers convenient
at-home or at-work access to a range of financial services. Retail customers now
have the capability to execute a wide array of online transactions, including
funds transfers, billpaying, and consumer and residential loan processing. IDC
estimates that the number of users banking online will expand from 8.1 million
in 1998 to 39.8 million by 2003.
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With the rapid growth of the online banking market, financial institutions can
no longer rely exclusively on traditional retail delivery methods. Financial
institutions that are unable to offer competitive electronic banking as part of
their overall services will find it increasingly difficult to attract and retain
customers.
A number of Web-based financial service specialists such as Charles Schwab's
E-Schwab, E*Trade, DLJdirect, and Datek are taking advantage of these trends in
financial electronic commerce. According to IDC, the number of online brokerage
accounts grew 73% over 1997 to 6.4 million by December 31, 1998. IDC expects
this figure to reach 24 million by the end of 2002. IDC further estimates that
the percentage of individual investors trading online will increase from 8% of
the total trading population in 1998 to 30% in 2002.
Challenges for Regional and Community Financial Institutions
SNL Securities estimates that of 22,000 depository financial institutions in the
U.S., all but approximately 80 are regional and community institutions with
assets of less than $10 billion. Approximately 50% of U.S. deposits are held in
these institutions. While the online banking trend is being driven primarily by
very large financial institutions, regional and community financial institutions
are being compelled to offer competitive products.
These financial institutions face many obstacles in making electronic commerce
services available to their customers. In particular, they often lack the
capital and human resources to:
- develop the substantial technology infrastructure necessary to provide
their customers with Internet and other online banking services;
- develop the operating and technical expertise to deliver online services
and manage rapidly changing technologies;
- design and execute consumer marketing campaigns necessary to promote the
use of online banking services; and
- provide integrated customer support for their online banking services.
We believe that these limitations present a significant impediment to retaining
and attracting customers and put these financial institutions at a distinct
disadvantage.
THE ONLINE RESOURCES SOLUTION
We provide a single source solution to these impediments which we believe
enables regional and community financial institutions to offer the breadth of
services needed to remain competitive. We bring economies of scale and technical
expertise to our clients that would otherwise lack the resources to compete in
the rapidly changing, complex financial services industry. We differentiate
ourselves by internally developing, integrating and controlling many critical
services, such as billpaying and call center support, rather than relying
primarily on third-party providers for these services. As a single source
vendor, we believe our clients benefit from one point of accountability and
control. We believe our solution to the obstacles faced by our clients in
connection with electronic commerce provides them with a cost-effective means to
retain and expand their customer base, deliver their services more efficiently
and strengthen their customer relationships.
We provide our services through our (1) technology infrastructure, (2) operating
and technical expertise, (3) marketing services, and (4) support services.
Our Technology Infrastructure
Regional and community financial institutions often lack the resources to
develop the substantial infrastructure necessary to provide their customers with
Internet and other online banking services. We provide our services through our
proprietary Opus(sm) system. This system integrates our communications, systems,
processing and support capabilities. We serve as a financial electronic commerce
network by connecting our financial institution clients, their retail customers
and other financial service providers through three gateways. Our middleware
component enables us to integrate customer and financial data gathered through
our gateways. This unifying software co-ordinates customer authorization,
transactions, settlement, security, user profiles, data warehousing,
registration, fulfillment, administrative support and our customer call center
services. These functions and our gateways operate substantially in real-time
and provide an integrated application for our clients and their retail
customers.
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The following diagram illustrates our financial electronic commerce network:
[ONLINE RESOURCES' FINANCIAL HUB GRAPH]
- - Our access gateway provides our clients' retail customers with a choice of
access either through the Internet or through private communications networks
using our PC software, our screen-based telephone or a touch tone telephone.
- - Our electronic funds transfer gateway uses our patented process to link us to
financial institutions in real-time through ATM networks, thereby leveraging
the established banking industry infrastructure for online payments. We have
completed connection and certification to 51 ATM networks and processors. Our
connectivity through these ATM networks and processors gives us an established
path to most U.S. depository financial institutions and provides a rapid, low
cost way to securely link to their host and legacy systems.
- - Our services gateway allows us to provide our clients' retail customers with a
single point of selection for a broad range of financial products. We perform
and integrate our own online banking and billpaying services. Third-party
partners provide other financial products through our Financial Services
Center. Today these products include loan approval, insurance, investment
information and securities trading.
Our Operating and Technical Expertise
We provide regional and community financial institutions with our operating and
technical expertise. We believe that our industry focus and outsourcing
capabilities add value for our clients by simplifying complex processes and
technologies. After seven years of operating experience, we have established the
processes, procedures, controls and staff necessary to keep our systems running
reliably and securely. At the same time, we have developed the organizational
flexibility and inter-disciplinary staff skills necessary to adjust to a rapidly
changing environment.
Our Marketing Services
We actively support the retail customer marketing programs of our clients. We
supply marketing support material, such as standardized retail customer
applications, signage, media templates and promotional programs. All marketing
support material is privately branded by our financial institution clients. In
addition, for selected clients, we assume some consumer marketing
responsibilities. These services are also privately branded.
Our Support Services
We provide a comprehensive set of support services to complement our banking and
billpaying services. These support services include our customer service center,
Web site design and hosting, billing, administrative services, security and
communications services. We provide each of these services on an optional basis
and have fully integrated them into our banking, billpaying and related
products.
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STRATEGY
Our goal is to become the leading provider of electronic commerce services to
financial institutions by rapidly expanding and enhancing our network. As our
business grows, we believe we can lower costs through economies of scale and
create new opportunities for marketing and distribution. Our strategy includes
the following key elements:
Continue Rapid Expansion of Our Financial Institution Client Base
We rapidly increased our financial institution client base from 18 at January 1,
1996 to 333 at March 31, 1999; however, a large portion of our target market is
still unserved. We seek to expand our universe of financial institution clients
through a multiple channel sales strategy. Our direct sales force focuses on the
mid-sized financial institution within our target client base. In addition, we
intend to leverage our growing network of marketing partners to resell our
services to the smaller and larger financial institution market.
Increase Retail Customer Usage
We intend to increase retail customer usage by accelerating the launches of our
financial institution clients using our system and increasing the percentage of
their retail customers using our services. The recently completed connections
and certifications with 51 ATM networks and processors provide us with a
platform that allows us to more aggressively launch our backlog of 184 signed
financial institution clients. We are also expanding our consumer marketing
services to increase the percentage of our clients' retail customers using our
services. We have hired a senior consumer marketing director and have begun
direct marketing pilot programs with some of our financial institution clients.
As part of this initiative, we utilize our BankOnline.com Web site to direct
potential retail customers to our financial institution clients.
Enhance Our Services Gateway
We believe our financial institution clients and their retail customers
represent an attractive distribution channel for additional financial services
and content provided by us and by our third-party partners. We expect to
integrate bill presentment into our billpaying services through alliances with
companies who specialize in servicing billers. We also intend to expand our
Financial Services Center to include additional retail services and content. Our
recent partnership with Intuit will further support retail customers with their
"small office/home office" business banking needs. Our patented method for
targeting advertising will allow us to support our clients' efforts to
cross-sell financial services.
Maintain Superior Service Quality and Support Services
We believe that providing superior quality service is important in attracting
and retaining financial institutions and their retail customers. This is
imperative to our clients since our online banking services and customer call
center are branded in their name. Despite the challenges of building our
infrastructure to meet the demands of our rapidly growing client base, we
believe our quality of service is currently among the highest in the industry.
Our system availability now exceeds 99.5%. Approximately 54% of our billpayments
are made electronically and our billpaying error rate is 0.1%. We also expanded
our customer call center from 44 to 57 employees during 1998 and we have
invested substantially in specialized call center systems, software and
management. We believe that we are able to provide our technology-based services
with a high level of proficiency and interaction that could not easily be
attained and controlled when outsourced to third parties.
Strengthen Integration of Financial Data
We believe that a key to assisting our clients in remaining competitive in
electronic commerce will hinge on their ability to package and seamlessly
integrate multiple services and products. This ability will allow our clients'
retail customers to conduct and control all of their financial affairs
conveniently. We expect that this will further strengthen the relationships
between our clients and their retail customers. We recently upgraded our
proprietary middleware and made substantial investments in software tools and
technical staff to further enhance our integration capabilities. Using these
resources, we plan to create a more fully integrated application with
third-party financial service providers, such as by performing real-time debits
and credits for their services.
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The following diagram illustrates our fully integrated applications:
[ONLINE RESOURCES' FULLY INTEGRATED APPLICATION GRAPH]
SERVICES AND RELATED PRODUCTS
We offer a single source solution to the electronic commerce challenges of our
financial institution clients. Typically, we contract with our clients to
provide a fully-integrated set of Internet and other online banking and
financial services and related products. We are able to provide these services
and products to meet our clients' specific needs. Our services and related
products include: (1) implementation, (2) banking and billpaying, (3) support
services, and (4) third-party services gateway.
Implementation
Initially, we contract with a financial institution to provide services and
products tailored to meet its specific needs. At the time of entering into a
contract, a financial institution client pays a one-time fee which generally
ranges from $3,000 to $50,000 based on certain factors, including the size of
the financial institution and the scope of services.
Implementation consists of systems integration and a pilot testing period. A
project management team is assembled to integrate our systems with a financial
institution client's legacy host system, typically via an ATM network. A
financial institution's legacy host system houses its transaction accounts. Upon
completion of systems integration, we conduct a pilot testing period using
selected customers and employees. Following the pilot, the financial institution
client is fully launched and services are made generally available to its retail
customers. At this point, the financial institution client begins to pay at
least the minimum user fees. Our goal is to complete full implementation within
180 days from the date a contract is signed.
As of March 31, 1999, we signed 333 financial institution clients, of which 149
have completed full implementation. The remaining backlog of 184 clients are in
various stages of the implementation process.
Banking and Billpaying
Our banking and billpaying services allow a financial institution to offer to
its retail customers and "small office/home office" business customers 24 hours
a day, seven days a week account access and transaction capabilities. Retail
customers are able to access their accounts anytime and anywhere either through
the Internet or through a private communications network using our PC software,
our screen-based telephone or a touch tone telephone.
Our banking and billpaying services offer retail customers the following
features:
- viewing transaction histories and real-time account balances;
- transferring funds within and between financial institutions either
immediately or in the future;
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- initiating immediate and future bill payments or transfers; and
- viewing projected balances based upon billpaying and account activities.
Using our PC software, our clients' retail customers may import and export data
with popular personal financial management software such as Quicken and
Microsoft Money. We also offer "small office/home office" capabilities and have
partnered with Intuit to support QuickBooks and other popular small business
services.
Using our billpaying service, retail customers may pay any merchant biller or
individual. Approximately 54% of our billpayments are currently made
electronically to merchants. We guarantee electronic billpayments will be
received within two business days of initiation by the retail customer. We
guarantee paper payment will be received within five business days. Paper and
electronic payments are drawn on our escrow account. As of December 31, 1998, we
had a billpaying database of approximately 460,000 merchant-user links to 47,000
discreet merchant billers.
We believe our real-time debit process, described under "Systems and Technology"
below, offers substantial cost and quality advantages in our billpaying
services. Under alternative batch-oriented debit systems, the billpaying
processor cannot immediately verify the availability of sufficient funds to
cover the bill payment. This may result in potential collections issues, the
need to assess credit risk and increased use of paper versus electronic
payments. We therefore believe that real-time debit capability results in a
higher percentage of electronic payments, lower operating costs and a higher
quality of service.
Our banking and billpaying services generate revenues from recurring monthly
fixed fees charged to financial institution clients, typically based on the
number of enrolled retail customers. Banking and billpaying services are priced
on a monthly per retail customer basis, and in limited cases, on a transaction
basis. Pricing ranges from $1.95 to $7.45 per month per retail customer
depending upon the level of services we provide to the financial institution.
The pricing of these services to retail customers is at the discretion of each
financial institution. Because our clients generally derive internal cost
savings, account retention and other marketing benefits by offering our
services, the majority of our clients do not pass all of these charges through
to their retail customers, and an increasing number of clients offer the banking
portion of our services free-of-charge.
Support Services
We complement our banking and billpaying services with the following
comprehensive support services:
- Customer Service Center. We maintain a customer service center for
financial institution clients that choose to outsource this service to
us. Retail customers can access the customer service operation by phone
or e-mail 24 hours a day, seven days a week. As of March 31, 1999, our
customer service center had 71 employees available to respond to retail
customers' questions relating to enrollment, transactions or technical
support. For those clients that choose not to use our customer service
bureau, we provide proprietary software for their customer service
operations.
- Web Site Design and Hosting. We offer Web site design and hosting
services to our financial institution clients. We charge an upfront fee
for design and a recurring monthly maintenance fee for hosting the Web
site.
- Consumer Marketing. We provide packaged and customized marketing
materials to our financial institution clients which are, in turn,
privately labeled by them. These materials include customer applications,
signage, regulatory compliance forms, demonstration software, and devices
and advertising templates for a variety of media, including television
and radio. Standard marketing services are bundled with our
implementation services. Customized marketing support is provided for an
additional charge.
- Administrative Services. We provide administrative support services to
our financial institution clients including the compilation of customized
reports regarding their retail customers' account activity. We charge our
clients on an hourly basis for these services.
- Communications and Security Services. We provide communications network
management and related security support for financial institution clients
that use our non-Internet-based services. In some cases, we bundle the
cost of these services with our banking and billpaying services fees. In
other cases, we unbundle these costs and charge on a usage basis.
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Third-Party Services Gateway
We facilitate retail customers' linking to additional financial services beyond
our proprietary banking and billpaying services. We provide our clients' retail
customers with a comprehensive suite of financial services through our Financial
Services Center, which currently supports Internet-based delivery of:
- investment tools and access to major online investment brokerage services
(Thomson Financial);
- loans (Bisys Marketing Solutions);
- insurance (InsWeb);
- financial planning tools for home buying, college education and
retirement; and
- shopping services (Amazon.com, 1-800 Flowers and the Travel Page).
We have also developed business arrangements and links to third parties for
expanded retail customer access. We currently have such arrangements, in various
stages of development, with eight third-party access providers, such as America
Online, UltraData (a banking software provider of hosting and server solutions),
Voice Access (a voice response system provider to financial institutions), and
Aftech (a core banking processor subsidiary of Fiserv serving credit unions).
In addition, by aggregating the retail customers of our financial institution
clients into a large online community, we believe we have begun to assemble an
attractive audience for third parties to market their products and services. In
cooperation with our financial institution clients, we believe that over time
this aggregated community will generate significant buying power and could
attract many additional third-party providers.
SALES AND MARKETING
We have adopted a multiple channel institutional sales strategy, covering both
direct and indirect sales. Our direct sales team focuses on mid-sized financial
institutions. Our indirect sales team supports our marketing partners, who sell
to small or very large financial institutions. In addition to our institutional
sales strategy, we also actively assist with or assume the consumer marketing
programs of our clients.
Direct Marketing to Financial Institutions
As of March 31, 1999, we had an eight person direct sales force focusing on our
target market: depository institutions with 10,000 to 350,000 transaction
accounts. Members of the direct sales team have an average of over 12 years of
industry experience. Our direct sales team operates out of seven field locations
throughout the U.S. and is geographically organized with some specialization by
industry and account size. Sales representatives earn a base salary plus
commission and are offered incentives to support indirect sales with our
marketing partners.
Indirect Sales to Financial Institutions
We support an indirect sales channel by partnering with third parties who sell
complementary services or products to financial institutions. As of March 31,
1999, we had an experienced three-person indirect sales team coordinating 36
marketing partners covering approximately 15,000 financial institutions. These
alliances leverage the established vending relationships of our marketing
partners and reduce marketing costs by replacing the need for a larger direct
sales force. Our marketing partners include ATM networks such as MAC and Honor,
software providers such as Intuit, communications server vendors such as
UltraData, core banking processors such as Affiliated Computer Systems, payment
servicers such as Deluxe Payment Systems, and endorsers such as America's
Community Bankers. Fee arrangements for our marketing partners vary and are
based on the value-added and scope of responsibilities assumed by the marketing
partner. Typically, marketing partners earn a portion of our implementation fee.
If the marketing partner performs additional on-going account management and
other support services, then the marketing partner may earn a small portion of
our on-going operating fees. Additionally, marketing partners may benefit from
the direct sales of their products and services, such as transaction fees for
ATM networks and processors.
Consumer Marketing Support for Financial Institution Clients
We intend to use a portion of the proceeds of this offering to provide
co-marketing programs to our financial institution clients. We recently created
a consumer marketing department whose main focus is creating cost-effective
programs to increase the percentage of our clients' retail customers using our
services. Initially, the programs will use several direct marketing media
including, direct mail, telemarketing and direct selling. The marketing programs
will be privately branded by the financial institutions so they may take
advantage of their existing relationships. We believe this will be a critical
factor to the success of
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our marketing programs. We also developed and support our BankOnline.com Web
site. This site is being used as a co-marketing vehicle to attract and expand
the number of retail customers of our financial institution clients.
SYSTEMS AND TECHNOLOGY
Overview
We designed our systems and technology around real-time communications and
processing which optimizes quality, scalability and cost. Our systems are based
on a multi-tiered architecture consisting of:
- Enabling technology--proprietary and commercial software and hardware
enabling retail customers to easily access our network;
- Front-end servers--proprietary and commercial communications software and
hardware providing Internet and private communications access to our
network for retail customers;
- Middleware--proprietary and commercial software and hardware used to
integrate customer and financial data and to process financial
transactions;
- Back-end systems--databases and proprietary software which support our
banking and billpaying services; and
- Support systems--proprietary and commercial systems supporting our
customer service and other support services.
Our systems architecture is designed to provide retail customer access across
multiple devices and communications channels, into a common database integrated
with our banking and billpaying services and our proprietary support services
software. Third-party financial services are linked to our systems through the
Internet, which we plan to more fully integrate into our retail customer
application and transaction processing. Our proprietary enabling PC software is
designed to export and import data to popular personal financial management
software, such as Quicken and Microsoft Money. By incorporating such third-
party capabilities into our system, we are able to focus our technical resources
on our proprietary middleware and integrating capabilities.
Real-Time ATM Network-Based Process
We typically link to financial institution clients through an ATM network. By
using an ATM network or processor to link into a financial institution client's
primary database for retail customer accounts, we take advantage of established
electronic funds transfer infrastructure. This includes all telecommunications
and software links, security, settlements and other critical operating rules and
processes. Using this ATM architecture, financial institution clients avoid the
substantial additional costs necessary to expand their existing infrastructure.
The net result of using this architecture is that high quality remote financial
electronic commerce services can be provided, enabling retail customers to
access their financial account information and pay bills by debiting funds from
their accounts.
The following diagram illustrates our patented ATM network-based process:
[ONLINE RESOURCES STEP 4 GRAPH]
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- - Step 1: The retail customer accesses our services either through the Internet
or through a private network using our PC software, our screen-based telephone
or a touch tone telephone. Once connected, the retail customer has the ability
to execute transactions and view banking and billpaying information on a
real-time basis.
- - Step 2: Once the retail customer authorizes payment to a merchant, we verify
availability of sufficient funds in the customer's account via the ATM
network.
- - Step 3: Upon verification of funds availability, the customer's account is
debited immediately and the guaranteed payment amount is transferred into our
escrow account at the end of the day.
- - Step 4: We forward the funds with remittance information to the merchant
biller for processing.
In addition to quality and cost benefits associated with billpaying, we believe
that our real-time architecture is more scalable than traditional batch systems,
which warehouse and store duplicate data. Instead of duplicating each financial
institution's host system by daily batch transmittal of customer balance
information, we communicate in real-time through online ATM networks and
processors to retrieve account balances as needed. We are therefore working with
ATM networks and processors to expand their transaction support to include
retail customer account histories, access to additional information and
interest-related security standards.
Security and Systems Integrity
Our services and related products provide security and system integrity which
are based on proven Internet and other communications standards, certified ATM
network transaction processing procedures and banking industry standards for
control and data processing. Prevailing security standards for Internet-based
transactions are incorporated into our Internet services, including but not
limited to, Secure Socket Layer 128K encryption, using public-private key
algorithms developed by RSA, along with firewall technology for secured
transactions. In the case of payment and transaction processing, we meet
security transaction processing and other operating certification standards for
each ATM network through which we route transactions. We also employ Digital
Encryption Standards technology for transactions processed through our
screen-based telephone and PC software. Our interactive voice response system
performs transactions only if the retail customer is first verified through the
financial institution client's interactive voice response security system.
Finally, in conformance with industry standards promulgated by applicable
financial institution regulatory bodies, we adhere to SAS 70 types I and II
requirements for control, data processing and disaster recovery.
PROPRIETARY RIGHTS
In June 1993, we were awarded U.S. patent number 5,220,501 covering our
real-time ATM network-based payments process. Our patent covers billpaying and
other online payments made from the home using any enabling device where the
transaction is routed in real-time through an ATM network. We have licensed this
patent to other parties for limited use. In March 1995 we cross-licensed our
patent to Citibank for their internal use in settlement of litigation.
On February 9, 1999, we were awarded U.S. patent number 5,870,724 for targeting
advertising in a home retail banking delivery service. This patent provides for
the targeting of advertising or messaging to home banking users, using their
confidential billpayment and other financial information, while preserving
consumer privacy. Acting in co-operation and on behalf of a financial
institution client, we first analyze their billpaying and other financial data
to determine an advertising profile or purchasing power. The patent provides for
the targeted advertisement or other message to the selected person or group
based on their profile. No third parties have access to the retail customers'
sensitive financial data. Through interactive messaging, selected retail
customers of our financial institutions receiving the advertisement or message
then have the choice of releasing their names to the advertiser or messenger.
The confidentiality of their sensitive financial information is thereby
preserved and released only with the approval of the financial institution
client and their retail customers.
In addition to our patent we have registered trademarks. We also have Internet
domain names including BankOnline.com. A significant portion of our systems,
software and processes are proprietary. So, as a matter of policy, all
management and technical employees execute non-disclosure agreements as a
condition of employment.
COMPETITION
We believe that the principal competitive factors in our market are industry
trust, technical capabilities, operating effectiveness, cost and scalability,
customer service, security, speed to market, and capital. Many of our
competitors have the financial, technical and marketing resources, plus
established industry relationships, to better compete based on these factors.
Competitive pressures we face may have a material adverse effect on our
business, financial condition or operating results.
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We are not aware of any other company which offers a similar financial
electronic commerce network which integrates multiple consumer access channels
into a common database, in-sources banking and billpaying services, fully
integrates support services and links to other financial service providers.
However, many of our current and potential competitors have longer operating
histories, greater name recognition, larger installed customer bases and
significantly greater financial, technical and marketing resources. Further,
some of our competitors, namely CheckFree and TransPoint (the joint venture
between Microsoft, First Data Corporation and Citibank), while currently
targeting billpaying and presentment services to large financial institutions,
do provide or have the ability to provide the same range of services we offer
and could determine to direct their marketing initiatives towards our targeted
smaller financial institution client base.
Other competitors such as M&I Data, EDS, Fiserv and other core banking
processors have broad distribution channels that bundle competing products
directly to financial institutions. These core banking processors also have
developed or acquired extensive online banking capabilities of their own,
including billpayers in the case of M&I, which may be further expanded to exceed
or meet our capabilities.
In addition, a significant number of companies offer portions of the services
provided by us and compete directly with us to provide such services. For
example, the Web servers of companies such as Broadvision, Digital Insight,
Edify, Funds Express, nFront and Q-Up compete with our front-end Internet access
capabilities. These and other software providers, such as Security First
Technologies, First Data Direct Banking and CFI ProServices, have created
outsourced units to provide a portion of our services. These companies may in
turn use billpayers, such as CheckFree, Princeton Telecom, M&I Data (which is
acquiring Travelers Express), who often team with access providers. Finally,
there are networks, such as Integrion and NYCE, who facilitate connectivity by
some of our competitors to certain larger financial institutions. Also, certain
services such as Intuit's Quicken.com and Yahoo! Finance may be available to
retail customers independent of financial institutions.
GOVERNMENT REGULATION
We are not licensed by the Office of the Comptroller of the Currency, the
Federal Reserve Board, the Office of Thrift Supervision or other Federal or
state agencies that regulate or monitor banks or other types of providers of
financial electronic commerce services. Federal, state or foreign agencies may
attempt to regulate our activities. Congress could enact legislation that would
require us to comply with data, record keeping, processing and other
requirements. We may be subject to additional regulation as the market for our
business continues to evolve. For example, Regulation E which is promulgated by
the Federal Reserve Board, governs certain electronic funds transfers made by
regulated financial institutions and providers of access devices and electronic
fund transfer services, including many aspects of our services. Under Regulation
E, we are required, among other things, to provide certain disclosure to retail
customers, to comply with certain notification periods regarding changes in the
terms of service provided and to follow certain procedures for dispute
resolutions. The Federal Reserve Board may adopt new rules and regulations for
electronic funds transfers that could lead to increased operating costs and
could also reduce the convenience and functionality of our services, possibly
resulting in reduced market acceptance. Because of the growth in the electronic
commerce market, Congress has held hearings on whether to regulate providers of
services and transactions in the electronic commerce market, and Federal or
state authorities could enact laws, rules or regulations affecting our business
operations. We also may be subject to Federal, state and foreign money
transmitter laws, encryption and security export laws and regulations and state
and foreign sales and use tax laws. If enacted or deemed applicable to us, such
laws, rules or regulations could be imposed on our activities or our business
thereby rendering our business or operations more costly, burdensome, less
efficient or impossible, any of which could have a material adverse effect on
our business, financial condition and operating results.
The market we currently target, the financial services industry, is subject to
extensive and complex Federal and state regulation. Our current and prospective
clients, which consist of financial institutions such as commercial banks,
thrifts, credit unions, brokerage firms, credit card issuers, consumer finance
companies, other loan originators, insurers and other providers of retail
financial services, operate in markets that are subject to extensive and complex
Federal and state regulations and oversight. While we are not generally subject
to such regulations, our services and related products must be designed to work
within the extensive and evolving regulatory constraints in which our clients
operate. These constraints include Federal and state truth-in-lending disclosure
rules, state usury laws, the Equal Credit Opportunity Act, the Electronic Funds
Transfer Act, the Fair Credit Reporting Act, Bank Secrecy Act and the Community
Reinvestment Act. Because many of these regulations were promulgated before the
development of our system, the application of such regulations to our system
must be determined on a case by case basis. We do not make representations to
clients regarding the applicable regulatory requirements, but instead rely on
each such client making its own assessment of the applicable regulatory
provisions in deciding whether to become a client. Furthermore, some consumer
groups have expressed concern regarding the privacy, security and interchange
pricing of financial electronic commerce services. It is possible that one or
more states or the federal government may adopt
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laws or regulations applicable to the delivery of financial electronic commerce
services in order to address these or other privacy concerns. It is not possible
to predict the impact that any such regulations could have on our business.
We currently offer services on the Internet. Due to the increasing popularity of
the Internet, it is possible that laws and regulations may be enacted with
respect to the Internet, covering issues such as user privacy, pricing, content,
characteristics and quality of services and products. The adoption of any such
laws or regulations may limit the growth of the Internet, which could affect our
ability to utilize the Internet to deliver financial electronic commerce
services.
PROPERTIES
We are headquartered in McLean, Virginia where we lease approximately 36,000
square feet of office space, which will be expanded to 54,000 square feet by May
1999. The lease has a five-year term and expires July 31, 2002. We also lease
approximately 3,000 square feet of office space in McLean, Virginia for our
back-up site. We have field offices located in Atlanta, Chicago, Denver, Fort
Worth, Orlando, Sacramento, and St. Louis.
EMPLOYEES
At March 31, 1999, we had 203 employees. None of our employees are represented
by a collective bargaining arrangement. We believe our relationship with our
employees is good.
LITIGATION
From time to time we may be involved in litigation arising in the normal course
of our business. We are not a party to any litigation, individually or in the
aggregate, that we believe would have a material adverse effect on our financial
condition or results of operations.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------
NAME AGE POSITION
- ---------------------------------------------------------------------------------
<S> <C> <C>
Matthew P. Lawlor 51 Chief Executive Officer and Chairman of the Board
Raymond T. Crosier 43 Executive Vice President--Client Services
Alex J. Seltzer 45 Executive Vice President--Systems & Technology
Ronald J. Bergamesca 39 Senior Vice President--Product and Consumer Marketing
Richard A. Martin 44 Senior Vice President--Operations
George E. Northup 40 Senior Vice President--Chief Financial Officer
Lori S. Stewart 49 Senior Vice President--Corporate Marketing
Barry F. Fingerhut* 51 Director
Michael H. Heath 56 Director
Thomas S. Johnson+ 58 Director
Michael K. Lee+ 40 Director
George M. Middlemas* 52 Director
David A. O'Connor* 64 Director
Joseph J. Spalluto+ 40 Director
</TABLE>
- ---------------
* Member of Compensation Committee
+ Member of Audit Committee
MATTHEW P. LAWLOR has served as Chairman and Chief Executive Officer since March
1989. Mr. Lawlor started his career as a project engineer with RCA. After
completing his graduate business education in 1973, he joined Chemical Bank,
where he later headed its leading regional consumer branch division and its
international equity investment company. In 1980, he served as a Presidential
Exchange Executive with the White House. He formed US Multitrade in 1981, a
venture development firm noted for the seed financing of Security Dynamics
Technologies, Inc. and other emerging growth companies. He later co-founded
Online Resources, and currently serves on the Board of Directors of the
Electronic Funds Transfer Association where he chairs its Internet Commerce
Council. Mr. Lawlor has a BS in mechanical engineering from the University of
Pennsylvania and an MBA from Harvard University.
RAYMOND T. CROSIER joined Online Resources in January 1996 as Senior Vice
President responsible for institutional sales and was promoted to Executive Vice
President responsible for client services, including institutional sales, client
implementation, and client account management, in December 1997. He has 22 years
of sales and marketing experience with the financial services industry. Before
joining Online Resources, he served as Vice President of Sales and Customer
Service for TeleCheck International, a check verification and guarantee firm,
from 1990 to 1996. TeleCheck was a subsidiary of First Financial Management
Corp., which later merged with First Data Corp. He served in a variety of other
management positions at TeleCheck, including its national account division from
1989 to 1990 and its regional marketing divisions from 1977 to 1989. Mr. Crosier
received a BS in Psychology from the University of Virginia.
ALEX J. SELTZER joined Online Resources in January 1991 and currently serves as
Executive Vice President responsible for systems and technology. Mr. Seltzer has
20 years experience in computer systems and electronics hardware. He formerly
headed systems integration at NetExpress (a large facsimile network later
acquired by Canon) from 1987 to 1989 and designed and developed a hand-held
communications terminal for United Software Security. He also served with
Telenet from 1976 to 1977, Data Resources from 1973 to 1976, and Strategic
Planning Associates from 1980 to 1989. Mr. Seltzer has a BS in Computer Science
from Massachusetts Institute of Technology and an MBA from Stanford University.
RONALD J. BERGAMESCA joined Online Resources in November 1998 and currently
serves as Senior Vice President responsible for product and consumer marketing.
He has 13 years of experience in direct marketing management. He was a Vice
President of Cendant Corporation (formerly CUC International) from 1996 to 1998.
He also served as a Product Manager at MBI, Inc. from 1986 to 1996, and was a
Project Engineer at Exxon Corporation from 1981 to 1984. Mr. Bergamesca holds a
BS degree in Mechanical Engineering from Lafayette College and an MBA degree
from Massachusetts Institute of Technology.
38
<PAGE> 40
RICHARD A. MARTIN joined Online Resources in June 1997 as Senior Vice President
responsible for operations including billpayment operations, customer service
bureau, and enabling product fulfillment. He has 20 years of operations
experience in the financial services industry. He served as Director of
Accounting Services for Boston Market, a retail franchiser, before joining
Online Resources in 1997. From 1993 to 1996 he served as Vice President of
Operations and Chief Financial Officer of MedKit Corporation, a medical software
company. From 1979 to 1993, Mr. Martin served with Telecheck Services, Inc., a
worldwide leader in check acceptance, guarantee, and collection services. While
at TeleCheck, Mr. Martin attained the position of Vice President, Support
Services including its customer service and call center. Mr. Martin holds a BS
from the University of Maryland and is a CPA.
GEORGE E. NORTHUP joined Online Resources in October 1996 as Senior Vice
President and Chief Financial Officer. He is responsible for corporate
accounting and finance, legal affairs, and administration. Mr. Northup has 18
years experience, primarily in the high-technology and telecommunications arena.
He previously held positions as vice president and controller of Intellicall,
from 1992 to 1996, and Chief Financial Officer of Iverson Technology Corp from
1990 to 1991. Mr. Northup obtained his CPA while a member of the professional
staff at Deloitte & Touche and received a BS from Duke University.
LORI S. STEWART joined Online Resources in May 1990 and serves as Senior Vice
President responsible for corporate marketing, including public relations,
product management, Internet services and marketing support. Ms. Stewart has 20
years of experience in financial services. From 1970 to 1983 she served with
Lehman Brothers in corporate finance, where she was involved in general client
services and financial marketing strategies. From 1985 to 1988 she served with
Smith Barney & Co., where she was engaged in new business development and
general marketing activities. Ms. Stewart has a BS from Santa Clara University.
BARRY K. FINGERHUT, has served as a Director of Online Resources since May 1996.
He currently serves as President of Geo Capital Corp., an investment advisory
firm, and as General Partner of Applewood Associates, 21(st) Century Capital,
and Wheatley Partners, which are investment limited partnerships. Prior to
joining Geo Capital, in 1981, Mr. Fingerhut was a limited partner and analyst at
First Manhattan Co., and a general partner at Weiss, Peck and Greer, both of
which are investment management and brokerage concerns. Mr. Fingerhut is a
director of Carriage Services, Inc. UOL Publishing, Inc. and the Millbrook
Press, Inc. Mr. Fingerhut holds a BS from the University of Maryland and an MBA
from New York University. Mr. Fingerhut is a Director at the designation of
Series C preferred stockholders.
MICHAEL H. HEATH has served as a Director since March 1989, and served as
President of Online Resources from January 1995 to October 1997. Mr. Heath has
held positions both in and outside of the financial services industry. He is the
former President of MediaNews, which owned the Denver Post and the Houston Post;
and President of The Record, a New Jersey-based regional newspaper and broadcast
company. Mr. Heath also worked in a variety of senior management positions with
Chemical Bank and a consumer branch division. Mr. Heath received his BA from
Williams College and an MBA from Harvard University.
THOMAS S. JOHNSON has served as a Director of Online Resources since May 1994.
Since August 1993, Mr. Johnson has served as Chairman and Chief Executive
Officer of GreenPoint Bank and GreenPoint Financial Corp., a large thrift and
specialty mortgage originator based in New York. Mr. Johnson formerly served as
President of Chemical Banking Corporation from 1983 to 1989, and as President of
Manufacturers Hanover Trust Company from 1989 to 1991. Mr. Johnson is a director
of R.R. Donnelly & Sons Company, Alleghany Corporation and GreenPoint Financial
Corp. He holds a BA from Trinity College and an MBA from Harvard University.
MICHAEL K. LEE, a Director since June 1997, is founder and Managing Partner of
Dominion Ventures, a venture capital firm specializing in emerging growth
companies. With offices in Boston and San Francisco, Dominion currently manages
over $200 million in institutional funds. Mr. Lee is a director of five private
companies. Mr. Lee received his BS in Economics and an MBA from Brigham Young
University. Mr. Lee is a Director at the designation of Series C preferred
stockholders.
GEORGE M. MIDDLEMAS, a Director since June 1997, is a Managing General Partner
of Apex Investment Partners ("Apex") focused in the telecommunications, software
and information services industries. He has been a venture capital investor
since 1979. Prior to joining Apex, Mr. Middlemas was a senior vice president and
principal with Inco Venture Capital Management and a vice president and member
of the investment commitment committee of Citicorp Venture Capital. He was
instrumental in the founding of America Online and Security Dynamics
Technologies, Inc. Mr. Middlemas is a director of Security Dynamics, Tutt
Systems and Pure Cycle. Mr. Middlemas holds a BA in both history and political
science from Pennsylvania State University, an MA in political science from the
University of Pittsburgh, and an MBA from Harvard University. Mr. Middlemas is a
Director at the designation of Series C preferred stockholders.
DAVID A. O'CONNOR, a Director since April 1996, is an EFT industry consultant.
He was Vice Chairman of Honor Technologies, one of the largest ATM networks in
the nation from 1997 to 1998. Mr. O'Connor was previously President of
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<PAGE> 41
CashFlow, Inc. an electronic banking subsidiary of Sovran Financial Services
(now NationsBank) and one of the first shared ATM networks. Later, Mr. O'Connor
served as President and CEO of Internet, Inc., owner of MOST, which was the
nation's fifth largest ATM network before merging with Honor Technologies. Mr.
O'Connor served on the Board of Directors of the Electronic Funds Transfer
Association and served as its chairman. He also served as President of the
Mid-Atlantic Exchange and Senior Vice President of Virginia National Bank. Mr.
O'Connor holds a BS from American University.
JOSEPH J. SPALLUTO, a Director since May 1995, is a Managing Director of
Corporate Finance for Keefe Bruyette & Woods, Inc., a national investment
banking firm specializing in the financial services industry. Keefe, Bruyette &
Woods, Inc. is an investor in Online Resources and has participated in joint
marketing programs with Online Resources. Mr. Spalluto has been with Keefe
Bruyette & Woods, Inc. since August 1981. He holds a BA from Amherst College and
a JD from the University of Connecticut.
CLASSIFICATION OF DIRECTORS
The eight directors comprising the Board of Directors will be divided into three
classes. Three directors, Messrs. Spalluto, Middlemas and O'Connor, will
constitute Class I and will stand for election at the annual meeting of
stockholders to be held in 1999. Two directors, Messrs. Johnson and Heath, will
constitute Class II and will stand for election at the annual meeting of
stockholders to be held in 2000. Three directors, Messrs. Lawlor, Fingerhut and
Lee, will constitute Class III and will stand for election at the annual meeting
of stockholders to be held in 2001. After their initial term following the
offering, directors in each class will serve for a term of three years. The
Certificate of Incorporation will provide that directors can be removed only for
cause and only by a majority of the other directors or by the vote of
stockholders owning 80% or more of the voting power of Online Resources.
Officers are chosen by and serve at the discretion of the Board of Directors.
DIRECTOR COMPENSATION
Directors who are also employees are not separately compensated for serving on
the Board of Directors. Non-employee directors are compensated through stock
option plans and are reimbursed for related travel expenses. No cash
compensation is currently paid. Specifically, each non-employee director
receives 10,000 options to purchase common stock (with an exercise price at the
fair market value of the common stock at the time of grant) for each year of
service.
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<PAGE> 42
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents certain information regarding compensation paid
during the year ended December 31, 1998 to the Chief Executive Officer and each
of our other executive officers (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
-----------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Matthew P. Lawlor........................................... $124,000 $33,500 50,000
Chief Executive Officer and Chairman of the Board
Raymond T. Crosier.......................................... 117,094 52,500 88,125
Executive Vice President -- Client Services
Alex J. Seltzer............................................. 116,000 24,500 11,000
Executive Vice President -- Systems and Technology
Ronald J. Bergamesca........................................ 17,969 -- 73,422
Senior Vice President -- Product and Consumer Marketing(1)
Richard A. Martin........................................... 112,062 -- 5,650
Senior Vice President -- Operations
George E. Northup........................................... 99,000 -- 61,000
Senior Vice President -- Chief Financial Officer
Lori S. Stewart............................................. 94,846 -- 20,238
Senior Vice President -- Corporate Marketing
</TABLE>
- ---------------
(1) Mr. Bergamesca joined Online Resources in November 1998.
41
<PAGE> 43
Option Grants During 1998
The following table presents for each of the Named Executive Officers certain
information concerning stock options granted during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
GRANTED(#) FISCAL YEAR ($/SH) DATE 5% 10%
NAME ---------- ------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Matthew P. Lawlor.................... 50,000 4.5% $3.00 05/13/05 $ 61,065 $142,308
Raymond T. Crosier................... 50,000 4.5 3.00 01/31/05 61,065 142,308
10,000 0.9 3.00 02/11/05 12,213 28,462
28,125 2.5 3.00 12/29/05 34,349 80,048
Alex J. Seltzer...................... 11,000 1.0 3.00 02/11/05 13,434 31,308
Ronald J. Bergamesca................. 40,000 3.6 3.00 11/08/05 48,852 113,846
32,000 2.9 3.00 11/08/05 39,082 91,077
1,422 0.1 3.00 12/29/05 1,737 4,047
Richard A. Martin.................... 5,650 0.5 3.00 12/29/05 6,900 16,081
George E. Northup.................... 11,000 1.0 3.00 01/13/05 13,434 31,308
15,000 1.3 3.00 02/14/05 18,320 42,692
25,000 2.2 3.00 03/28/05 30,533 71,154
10,000 0.9 3.00 02/11/05 12,213 28,462
Lori S. Stewart...................... 7,500 0.7 3.00 02/14/05 9,160 21,346
12,738 1.1 3.00 03/11/05 15,557 36,254
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
(7 years) and is calculated by assuming that the fair market value of common
stock on the date of grant as determined by the Board of Directors appreciates
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term for
the appreciated price. The 5% and 10% assumed rates of appreciation are derived
from the rules of the Securities and Exchange Commission. The actual value
realized may be greater than or less than the potential realizable values set
forth in the table.
Aggregated Option Exercises and Fiscal Year-end Option Values
The following table provides certain information regarding the number and value
of stock options held by the Named Executive Officers at December 31, 1998.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END(#) FISCAL YEAR END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Matthew P. Lawlor................... 87,500 $133,125 177,875 -- 53,500 --
Raymond T. Crosier.................. -- -- 189,588 80,000 47,500 15,000
Alex J. Seltzer..................... 423,750 820,006 494,333 37,500 979,750 18,750
George E. Northup................... -- -- 75,602 45,000 -- --
Lori S. Stewart..................... 87,500 175,000 212,738 20,000 254,375 10,000
Richard A. Martin................... -- -- 18,030 27,857 -- --
Ronald J. Bergamesca................ -- -- 2,088 71,334 -- --
</TABLE>
STOCK OPTION PLANS
1989 Stock Option Plan
The 1989 Stock Option Plan was adopted by the Board of Directors in 1989 and
approved by the stockholders in the same year. The 1989 option plan permits the
granting of both incentive stock options (i.e., options that meet the
requirements of
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<PAGE> 44
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) and
nonqualified stock options (i.e., options that do not meet such requirements) to
employees, consultants and directors. The aggregate number of shares of common
stock that may be issued pursuant to options granted under the 1989 option plan
may not exceed 6,500,000 shares, subject to adjustment in the event of certain
events affecting our capitalization.
The 1989 option plan is administered by the Board of Directors or by a duly
appointed committee of the Board of Directors, which is authorized, subject to
the provisions of the 1989 option plan, to determine to whom and at what time
the stock options may be granted, the designation of the option as either an
incentive option or a nonqualified option, per share exercise price, duration of
each option, the number of shares subject to each option, any limitations,
restrictions and conditions on such shares, the rate and manner of exercise and
the timing and form of payment.
An incentive option may not have an exercise price less than the fair market
value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant and is subject to certain other
limitations which allow the option holder to qualify for favorable tax
treatment. Nonqualified options may have an exercise price less than the fair
market value of the underlying common stock on the date of grant but, like
incentive options, are limited to an exercise period of no longer than ten
years.
The exercise price of an option may be paid in (i) cash; (ii) by delivery of
previously acquired shares of common stock having a fair market value not less
than the option price; or (iii) by such other consideration as the Board of
Directors may approve on the date of grant.
An option is not transferable except by will or by the laws of descent and
distribution and may be exercised, during the lifetime of the optionee, only by
the optionee or by the optionee's legal representative.
Any incentive option granted under the 1989 option plan will terminate
automatically (i) three months after the employee's termination of employment
other than by reason of death or disability, and (ii) one year after the
employee's death or termination of employment by reason of disability unless the
option expires earlier by its terms. Any nonqualified option granted under the
1989 option plan will terminate automatically if the optionee's relationship
with Online Resources is terminated for cause. The 1989 option plan may be
amended or terminated by action of the Board of Directors, subject to certain
limitations. The 1989 option plan terminates in 1999, unless earlier terminated
by the Board of Directors.
As of December 31, 1998, we had granted options for 7,351,915 shares of common
stock at exercise prices ranging from $.02 to $3.50 under the 1989 option plan.
Certain of these options have exercise prices which are tied to our initial
public offering price or discount thereof. As of December 31, 1998, 1,103,286
shares had been exercised at an exercise prices ranging from $.33 to $1.25 per
share, unexercised options for 4,993,149 shares of common stock had been granted
at exercise prices ranging from $.02 to $3.50 per share (of which options for
4,174,093 shares were exercisable) and shares remained eligible for grant under
the 1989 option plan.
1999 Stock Option Plan
The 1999 Stock Option Plan was adopted by our Board of Directors and approved by
the stockholders in April 1999. The 1999 option plan permits the granting of
both incentive stock options and nonqualified stock options to employees,
directors and consultants. The aggregate number of shares of common stock that
may be issued pursuant to options granted under the 1999 option plan may not
exceed shares, subject to adjustment in the event of certain changes in the
outstanding shares of common stock.
The 1999 option plan also permits the granting of limited rights simultaneously
with the grant of any option to an employee or director. Limited rights become
exercisable in the event of a change in control of Online Resources. Upon
exercise, the option holder will be entitled to receive in lieu of purchasing
the stock underlying the option, a lump sum cash payment equal to the difference
between the exercise price of the related option and the fair market value of
the shares of common stock subject to the option on the date of exercise of the
right.
The 1999 option plan is administered by our Board of Directors or by a duly
appointed committee of our Board of Directors, which is authorized, subject to
the provisions of the 1999 option plan, to grant awards and establish rules and
regulations as it deems necessary for the proper administration of option plan
and to make whatever determinations and interpretations it deems necessary or
advisable.
An incentive option may not have an exercise price less than the fair market
value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant and is subject to certain other
limitations which allow the option holder to qualify for favorable tax
treatment. Nonqualified options may have an exercise price less than the fair
market
43
<PAGE> 45
value of the underlying common stock on the date of grant but, like incentive
options, are limited to an exercise period of no longer than ten years.
The exercise price of an option may be paid in cash, delivery of previously
acquired shares of common stock having a fair market value not less than the
option price, or by such other consideration as our Board of Directors may
approve.
An option is not transferable except by will or by the laws of intestate
succession or pursuant to a domestic relations order or unless determined
otherwise by our Board of Directors.
An option granted under the 1999 option plan will terminate automatically (1)
upon the employee's termination of employment for cause, (2) three months after
the employee's termination of employment other than for cause or by reason of
death or disability, and (3) one year after a change in control or the
employee's termination of employment by reason by death or disability unless the
option expires earlier by its terms. The 1999 option plan may be amended or
terminated by action of our Board of Directors, subject to limitations. The 1999
option plan terminates in 2009, unless earlier terminated by our Board of
Directors. As of the date of this prospectus, no awards had been made under the
1999 option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during the year ended December 31, 1998, consisted of
David A. O'Connor (Chairman), Barry K. Fingerhut and George M. Middlemas. Each
is a member of the Board of Directors and none is an employee. None of the
executive officers served as a director or member of the Compensation Committee
or other board committee performing equivalent functions of another corporation,
one of whose executive officers served on the Board of Directors or Compensation
Committee of Online Resources.
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<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table presents information with respect to the beneficial
ownership of common stock as of March 16, 1999, and as adjusted to reflect the
sale of the common stock offered hereby (1) each person we know to own
beneficially five percent or more of our outstanding shares of common stock; (2)
each director of Online Resources; (3) the Named Executive Officers; and (4) all
current directors and executive officers as a group. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares issuable upon conversion of
preferred stock and shares of common stock subject to options or warrants held
by that person that are currently convertible or exercisable or that are or may
become convertible or exercisable within 60 days of March 16, 1999 are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community property
laws, each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such stockholder's name.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF PERCENTAGE OF
SHARES OWNERSHIP OWNERSHIP
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) PRIOR TO OFFERING(2) AFTER OFFERING(3)
------------------- --------------------- -------------------- -----------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Matthew P. Lawlor..................................... 4,055,992(4) 18.6%
Alex J. Seltzer....................................... 854,610(5) 3.9
Ronald J. Bergamesca.................................. 7,422(6) *
Richard A. Martin..................................... 19,180(7) *
Raymond T. Crosier.................................... 225,447(8) 1.3
Lori S. Stewart....................................... 312,257(9) 1.4
George E. Northup..................................... 82,852(10) *
Thomas S. Johnson..................................... 190,960(11) *
Joseph J. Spalluto.................................... 94,191(12) *
David A. O'Connor..................................... 30,000(13) *
Barry K. Fingerhut.................................... 3,511,212(14) 15.1
George M. Middlemas................................... 1,502,745(15)
Michael K. Lee........................................ 2,093,897(16) 9.4
Michael H. Heath...................................... 270,613(17) 1.2
All directors and executive officers as a group (14
persons)............................................ 13,251,378(18) 51.1%
</TABLE>
- ---------------
* Less than 1 percent
(1) Except as otherwise indicated below, the address for each executive officer
and director is 7600 Colshire Drive, McLean Virginia 22102.
(2) Assumes the conversion of all outstanding shares of preferred stock into
common stock. Beneficial ownership is determined based on 21,454,330 shares of
common stock, consisting of 11,485,064 shares of common stock outstanding on
March 16, 1999 and 9,969,266 shares of common stock issuable upon the conversion
of all of our outstanding shares of preferred stock.
(3) Assumes the underwriters do not exercise their over-allotment option.
(4) Includes 150,782 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 182,375 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999.
(5) Includes 534,083 shares of common stock issuable pursuant to options
exercisable within 60 days of March 16, 1999.
(6) Represents 6,088 shares of common stock issuable pursuant to options
exercisable within 60 days of March 16, 1999.
(7) Represents 19,180 shares of common stock issuable pursuant to options
exercisable within 60 days of March 16, 1999.
(8) Includes 32,826 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 220,588 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999.
(9) Includes 85,238 shares of common stock issuable pursuant to options
exercisable within 60 days of March 16, 1999.
(10) Represents 76,602 shares of common stock issuable pursuant to options
exercisable within 60 days of March 16, 1999.
(11) Includes 13,801 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 26,000 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999.
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<PAGE> 47
(12) Includes 26,946 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 23,000 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999.
Options exercisable for 16,667 of these shares are held of record by Ellen
Spalluto, Mr. Spalluto's wife.
(13) Represents 30,000 shares of common stock issuable pursuant to options
exercisable within 60 days of March 16, 1999.
(14) Includes 1,745,269 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 20,000 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999. Of
the total shares, 1,716,217 are held of record by 21st Century Communications
Partners, L.P. of which 974,724 are issuable upon exercise of warrants, 230,791
are held of record by 21st Century Communications Foreign Partners, L.P. of
which 131,034 are issuable upon the exercise of warrants, 583,905 are held of
record by 21st Century Communications T-E Partners, L.P. of which 331,697 are
issuable upon the exercise of warrants and 744,963 are held of record by
Applewood Associates, L.P. of which 307,814 are issuable upon the exercise of
warrants. Mr. Fingerhut has shared voting and investment power of all the shares
which he does not hold of record. The address for Mr. Fingerhut and the
partnerships is 767 5th Avenue, 45th Floor, New York, NY 10153.
(15) Includes 305,506 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 10,000 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999. Of
the total shares 585,904 are held of record by Apex Investment Fund II, L.P. of
which 138,839 are issuable upon the exercise of warrants; 849,961 shares are
held of record by Apex Investment Fund III, L.P. of which 156,214 are issuable
upon the exercise of warrants and 56,880 shares are held of record by Apex
Strategic Partners, LLC of which 10,453 are issuable upon the exercise of
warrants. Mr. Middlemas has shared voting and investment power of all the shares
which he does not hold of record. The address for Mr. Middlemas and all the
above-named parties is 233 S. Wacker Drive, Suite 900, Chicago, IL 60606.
(16) Includes 750,000 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 10,000 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999. Of
the total shares 2,083,867 are held of record by Dominian Fund IV, L.P. of which
750,000 are issuable upon the exercise of warrants. Mr. Lee has shared voting
and investment power of all the shares which he does not hold of record. The
address for Mr. Lee and Dominion Fund IV, L.P. is 44 Montgomery Street, Suite
4200, San Francisco, CA 94104.
(17) Includes 5,455 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 217,811 shares of common stock
issuable pursuant to options exercisable within 60 days of March 16, 1999. Of
these, 17,112 shares are held of record by Mary L. Heath, Mr. Heath's wife.
(18) Includes 3,016,784 shares of common stock issuable pursuant to warrants
exercisable within 60 days of March 16, 1999 and 1,460,965 shares of common
stock issuable pursuant to options exercisable within 60 days of March 16, 1999.
46
<PAGE> 48
CERTAIN RELATED PARTY TRANSACTIONS
At March 31, 1999, we had promissory notes outstanding with three senior
officers which were made in connection with the exercise of stock options by the
employees. The promissory notes are payable, upon maturity, by Matthew P. Lawlor
in the amount of $9,375, Alex J. Seltzer, in the amount of $62,004, and Lori S.
Stewart, in the amount of $225,000. The promissory notes carry an interest rate
of 8% per annum and mature on the earlier of January 1, 2000 or 180 days
following the effective date of a registration statement on Form S-1. The
promissory notes are collateralized by the underlying common stock issued in
connection with the exercise of the stock options related to the promissory
notes.
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
The following summarizes all of the material provisions of the common stock and
preferred stock. It does not purport to be complete, however, and is subject to,
and qualified in its entirety by, the provisions of our Restated Certificate of
Incorporation which will become effective immediately prior to the consummation
of this offering and our Amended and Restated Bylaws, as they will be amended at
the same time, and by the provisions of applicable law.
Upon consummation of the offering, the authorized capital stock of Online
Resources will consist of 35,000,000 shares of common stock, par value $.0001
per share, and 3,000,000 shares of preferred stock, par value $.001 per share,
of which shares of common stock (assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options and
warrants to purchase shares of common stock) and shares of preferred
stock will be outstanding. All of the issued and outstanding shares of common
stock will be fully paid and nonassessable. As of March 16, 1999, there were 198
holders of record of outstanding shares of common stock.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
for the payment of dividends. See "Dividend Policy." If we liquidate, dissolve
or wind up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preferences of any
outstanding shares of preferred stock. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of holders of any series of preferred stock currently outstanding or
which we may designate and issue in the future. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock.
Delaware law does not require stockholder approval for any issuance of
authorized shares of common stock. These additional shares may be used for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of unissued and unreserved common stock may be to enable the
Board of Directors to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of Online Resources by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of management and possibly deprive
the stockholders of opportunities to sell their shares of common stock at prices
higher than prevailing market prices. See "Restrictions on Acquisition of Online
Resources."
PREFERRED STOCK
Pursuant to our Certificate of Incorporation, the Board of Directors will have
the authority, without further action by the stockholders, to issue up to
3,000,000 shares of preferred stock in one or more series and to fix the
designations, powers, preferences, privileges, and relative, participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. The Board of Directors, without stockholder
approval, can issue preferred stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
common stock. Preferred stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of Online Resources or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock, and may
adversely affect the voting and other rights of the holders of common stock.
As of December 31, 1998, three series of convertible preferred stock comprising
1,387,000 shares have been designated. Of these shares, 1,020,700 were issued
and outstanding and were convertible into 8,318,333 shares of common stock. The
Series A preferred stock is convertible, at the holder's option, into one share
of common stock and is entitled to receive dividends at the same rate as holders
of common stock. Additionally, each Series A preferred stockholder is entitled
to a liquidation preference equal to $1.00 plus declared but unpaid dividends.
Pursuant to the terms of the Series B preferred stock and Series C preferred
stock, as of December 31, 1998 the preferred stock of these series will
automatically convert into 7,523,333 shares in the aggregate upon consummation
of a public offering of $30 million or more.
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<PAGE> 50
WARRANTS
In order to encourage investors to purchase the securities offered in some of
its private placements, we have often included warrants as part of the
securities issued in the private placements. As of March 16, 1999, the following
outstanding warrants had been issued:
<TABLE>
<CAPTION>
-----------------------------------------
NUMBER OF
ISSUED EXERCISE OUTSIDE
PLACEMENT WARRANTS PRICE EXPIRATION DATE(1)
--------- --------- -------- ------------------
<S> <C> <C> <C>
1995 Bridge Note Financing.................................. 160,300 $2.50 March 31, 2000
10% Notes Due 12/31/97...................................... 13,637 $2.75 December 31, 2000
10% Notes Due 6/30/99....................................... 1,750,000 $2.50 April 30, 2001
Series C Convertible Preferred Stock........................ 2,307,514 $3.00 June 1, 2002
9% $2 Million Note Due 6/01/01.............................. 350,000(2) $3.00 June 3, 2002
12.75% $6 Million Note Due 3/30/03.......................... 625,000(3) $3.00 May 31, 2003
12.75% $2 Million Note Due 3/30/03.......................... 460,000(4) $3.00 May 31, 2003
Series C Convertible Preferred Stock........................ 1,041,760(5) $3.00 December 31, 2003
</TABLE>
- ---------------
(1) In some but not all cases, the expiration dates of the warrants accelerate
upon an acquisition of Online Resources.
(2) These warrants were initially issuable for 10,500 shares of Series C
convertible preferred stock. The forced conversion into common stock of the
Series C convertible preferred stock resulting from this offering will cause
these warrants to be issuable for common stock.
(3) The number of warrants commences at 250,000 and while the $6 million note is
outstanding, starting on March 31, 1999 the number of warrants increases at the
rate of 75,000 on each March 31, through March 31, 2003.
(4) The number of warrants commences at 100,000 and while the $2 million note is
outstanding, starting on December 30, 1998 the number of warrants increases at
the rate of 40,000 on each December 30 and June 30, through December 30, 2002.
(5) These warrants cannot be exercised if the registration statement of which
this prospectus is a part is declared effective by the SEC prior to July 12,
1999 and if the average closing price for the 20-day trading period following
the initial two-week period of trading of our stock is at least $6.00 per share.
However, if the registration statement is declared effective prior to July 12,
1999 and the average closing price for the above 20-day period is at least $4.30
but less than $6.00 per share then 694,506 of the warrants can be exercised. In
all other cases, these warrants are exercisable for 1,041,760 shares.
We have issued 281,000 warrants as compensation for investment banking services.
These warrants are exercisable at $2.50 per share. All of these warrants expire
by the end of 2001.
49
<PAGE> 51
RESTRICTIONS ON ACQUISITION OF ONLINE RESOURCES
GENERAL
Certain provisions in our Certificate of Incorporation and Bylaws and in our
management remuneration, together with provisions of Delaware corporate law, may
have anti-takeover effects.
RESTRICTIONS IN CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Certificate of Incorporation and Bylaws will deal
with matters of corporate governance and certain rights of stockholders. The
following discussion is a general summary of the provisions of our Certificate
of Incorporation and Bylaws which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so. Such provisions will
also render the removal of the current Board of Directors or management more
difficult.
Board of Directors
The Board of Directors will be divided into three classes, each of which shall
contain approximately one-third of the whole number of members of the Board of
Directors. Each class shall serve a staggered term, with approximately one-third
of the total number of directors being elected each year. The Certificate of
Incorporation and Bylaws will provide that the size of the Board shall be
determined by a majority of the directors. The Certificate of Incorporation and
the Bylaws will provide that any vacancy occurring in the Board, including a
vacancy created by an increase in the number of directors or resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, may be filled for the remainder of the unexpired term exclusively by a
majority vote of the directors then in office. The classified Board is intended
to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a stockholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors. The Certificate of Incorporation will provide that
a director may be removed from the Board of Directors prior to the expiration of
his term only for cause, upon the vote of 80% or more of the outstanding shares
of voting stock. In the absence of these provisions, the vote of the holders of
a majority of the shares could remove the entire Board, with or without cause,
and replace it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent
The Certificate of Incorporation will not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders may be called only by the
Board of Directors or an appropriate committee designated by the Board of
Directors. The Certificate of Incorporation also will provide that any action
required or permitted to be taken by the stockholders may be taken only at an
annual or special meeting and prohibits stockholder action by written consent in
lieu of a meeting.
Authorized Shares
The Certificate of Incorporation will authorize the issuance of 35,000,000
shares of common stock and 3,000,000 shares of preferred stock. The shares of
common stock and preferred stock will be authorized in an amount greater than
that to be issued in the offering to provide the Board of Directors with as much
flexibility as possible to effect, among other transactions, finances,
acquisitions, stock dividends, stock splits and employee stock options. However,
these additional authorized shares may also be used by the Board of Directors
consistent with its fiduciary duty to deter future attempts to gain control of
Online Resources. The Board of Directors also has sole authority to determine
the terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of preferred stock
to persons friendly to management in order to attempt to block a post-tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. Other than this offering, the
Board of Directors currently has no plans for the issuance of additional shares.
50
<PAGE> 52
Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders
The Certificate of Incorporation will require the approval of the holders of at
least 80% of the outstanding shares of voting stock entitled to vote thereon to
approve certain "Business Combinations" involving a "Ten Percent Stockholder,"
each as defined therein, and related transactions. Under Delaware law, absent
this provision, business combinations, including mergers, consolidations and
sales of all or substantially all of the assets of a corporation must, subject
to certain exceptions, be approved by the vote of the holders of only a majority
of the outstanding shares of common stock and any other affected class of stock.
Under the Certificate of Incorporation, the approval of the holders of at least
80% of the shares of capital stock entitled to vote thereon will be required for
any business combination involving a Ten Percent Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved by a
majority of those members of the Board of Directors who are unaffiliated with
the Ten Percent Stockholder and were Directors prior to the time when the
stockholder became a Ten Percent Stockholder or (ii) if the proposed transaction
meets certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
where stockholder approval is required, the approval of only a majority of the
outstanding shares of voting stock is sufficient.
The term "Ten Percent Stockholder" means, among others, any individual, a group
acting in concert, corporation, partnership, association or other entity (other
than Online Resources or its subsidiary) who or which is the beneficial owner,
directly or indirectly, of 10% or more of the outstanding shares of voting
stock.
This provision of the Certificate of Incorporation will apply to any "Business
Combination," which is defined to include:
- any merger or consolidation of Online Resources or any of its
subsidiaries with any Ten Percent Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of a Ten Percent Stockholder or any
corporation which is, or after such merger or consolidation would be, an
Affiliate of a Ten Percent Stockholder;
- any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Ten Percent Stockholder or Affiliate of 25% or
more of the assets of Online Resources or combined assets of Online
Resources and its subsidiary;
- the issuance or transfer to any Ten Percent Stockholder or its Affiliate
by Online Resources (or any subsidiary) of any securities of Online
Resources (or any subsidiary) in exchange for any cash, securities or
other property the value of which equals or exceeds 25% of the fair
market value of the common stock of Online Resources and its
subsidiaries;
- the adoption of any plan for the liquidation or dissolution of Online
Resources proposed by or on behalf of any Ten Percent Stockholder or
Affiliate thereof; and
- any reclassification of securities, recapitalization, merger or
consolidation of Online Resources with any of its subsidiaries which has
the effect of increasing the proportionate share of common stock or any
class of equity or convertible securities of Online Resources or
subsidiary owned directly or indirectly, by a Ten Percent Stockholder or
Affiliate thereof.
Supermajority Voting Requirement for Amendment of Certain Provisions of the
Certificate of Incorporation
The Certificate of Incorporation will provide that specified provisions
contained in the Certificate of Incorporation may not be repealed or amended
except upon the affirmative vote of the holders of not less than 80% of the
outstanding shares of the common stock entitled to vote generally in the
election of directors. This requirement exceeds the majority vote of the
outstanding stock that would otherwise be required by Delaware law for the
repeal or amendment of the Certificate of Incorporation provision. The specific
provisions covered by the supermajority voting requirement for amendment of such
provisions include the following:
- the calling of special meetings of stockholders, the absence of
cumulative voting rights and the requirement that stockholder action be
taken only at annual meetings;
- the number and classification of the Board of Directors;
- removing directors;
- the requirement for the approval of certain Business Combinations
involving Ten Percent Stockholders;
- the indemnification of directors, officers, employees and agents of
Online Resources;
- the limitation of voting rights; and
51
<PAGE> 53
- the required stockholder vote for amending the Certificate of
Incorporation or Bylaws.
This provision is intended to prevent the holders of less than 80% of the
outstanding stock from circumventing any of the foregoing provisions by amending
the Certificate of Incorporation to delete or modify one of such provisions.
This provision will enable the holders of more than 20% of the voting stock to
prevent amendments to the Certificate of Incorporation or Bylaws even if they
were favored by the holders of a majority of the voting stock.
Certain Bylaw Provisions
Our Bylaws will also require a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give at least 90 days advance notice to the Secretary.
The notice provision will require a stockholder who desires to raise new
business to provide us certain information concerning the nature of the new
business, the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director will need to provide us with certain information concerning the nominee
and the proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Board of Directors believes that the provisions of the Certificate of
Incorporation, Bylaws and management remuneration plans to be established are in
the best interest of Online Resources and its stockholders. An unsolicited
non-negotiated proposal can seriously disrupt the business and management of a
corporation and cause it great expense. Accordingly, the Board of Directors
believes it is in the best interests of Online Resources and its stockholders to
encourage potential acquirors to negotiate directly with Board of Directors and
that these provisions will encourage such negotiations and discourage non-
negotiated takeover attempts. It is also the Board of Directors' view that these
provisions should not discourage persons from proposing a merger or other
transaction at a price that reflects the true value of Online Resources and that
otherwise is in the best interest of all stockholders.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware corporations
with additional protection against hostile takeovers. The takeover statute,
which is codified in Section 203 of the Delaware General Corporate Law, is
intended to discourage certain takeover practices by impeding the ability of a
hostile acquiror to engage in certain transactions with the target company.
In general, Section 203 provides that a person who owns 15% or more of the
outstanding voting stock of a Delaware corporation (an "interested stockholder")
may not consummate a merger or other business combination transaction with such
corporation at any time during the three-year period following the date such
Person became an interested stockholder. The term "business combination" is
defined broadly to cover a wide range of corporate transactions including
mergers, sales of assets, issuances of stock, transactions with subsidiaries and
the receipt of disproportionate financial benefits.
The statute exempts the following transactions from the requirements of Section
203:
- any business combination if, prior to the date a person became an
interested stockholder, the Board of Directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
- any business combination involving a person who acquired at least 85% of
the outstanding voting stock in the transaction in which he became an
interested stockholder, with the number of shares outstanding calculated
without regard to those shares owned by the corporation's directors who
are also officers and by certain employee stock plans;
- any business combination with an interested stockholder that is approved
by the Board of Directors and by a two-thirds vote of the outstanding
voting stock not owned by the interested stockholder; and
- certain business combinations that are proposed after the corporation had
received other acquisition proposals and which are approved or not
opposed by a majority of certain continuing members of the Board of
Directors.
A corporation may exempt itself from the requirements of the statute by adopting
an amendment to its certificate of incorporation or bylaws electing not to be
governed by Section 203. At the present time, the Board of Directors does not
intend to propose any such amendment.
52
<PAGE> 54
REGISTRATION RIGHTS
We have granted registration rights under registration rights agreements to the
purchasers of shares of common stock in 1995, to the recipients of warrants who
purchased 10% notes due June 30, 1999 who did not convert their notes into
shares of Series C preferred stock, to the purchasers of shares of Series B
preferred stock who did not exchange their shares for Series C preferred stock,
to the purchasers of shares of Series C preferred stock and to Sirrom Capital
Corporation. The registration rights granted to the purchasers of Series C
preferred stock cover not only the shares of common stock issued upon conversion
of this series but also all other shares of common stock which these purchasers
currently hold and all shares of common stock issued to them in the future upon
exercise of any warrants. Sirrom has the same rights as the holders of Series C
preferred stock.
All persons to whom registration rights have been granted possess the right to
include their shares, subject to underwriter consent, in any registration which
we undertake to sell our shares or the shares of any stockholder other than in
connection with employee benefit plans or other types of registrations which
preclude the inclusion of their shares. All registration rights which we have
granted other than to the purchasers of common stock in 1995 also contain a
demand right. This demand right requires us to register shares under certain
circumstances. As to the holders of Series B preferred stock as of March 16,
1999, only 24,999 shares of common stock remain subject to this right since all
other holders of these notes and stock exchanged their notes and stock for
shares of Series C preferred stock. The demand right granted to the holders of
Series C preferred stock limits these holders to two demand registrations if we
cannot register shares on a short form such as an S-3. If we qualify to use a
short form, these holders have unlimited demand rights if the shares being
registered have a value of more than $250,000. We are required to bear the
expenses of all registrations we are required to undertake.
Stockholders of Online Resources who will hold in the aggregate shares
of common stock upon completion of this offering have agreed not to exercise any
registration rights during the 180 day period beginning on the date of this
prospectus.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is American Stock Transfer
& Trust Company.
LISTING
Application has been made to list the shares of common stock on the Nasdaq
National Market under the symbol "ORCC."
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<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect market prices of the common stock prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after the consummation of this offering due to certain contractual and
legal restrictions on resale (as described below), sales of substantial amounts
of common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price of the common stock and our ability
to raise equity capital in the future. For a discussion of certain potential
issuances of capital stock to address liquidity needs, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option (and no exercise of outstanding exercisable options for an
aggregate of 4,195,300 shares and outstanding exercisable warrants for an
aggregate of 5,252,451 shares at March 16, 1999 and assuming conversion of
795,000 shares of Series A Convertible Preferred Stock into like number of
shares of common stock) and based upon the number of shares outstanding as of
March 16, 1999. Of these shares, all of the shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by our affiliates may generally
only be sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES; OPTIONS
Upon the consummation of this offering, Online Resources will have
shares of common stock outstanding assuming no exercise of the underwriters'
over-allotment option. All of the shares of common stock sold in this offering
will be freely tradeable under the Securities Act, unless purchased by our
"affiliates," as the Securities Act defines that term. Upon the expiration of
lock-up agreements among Online Resources, certain of our stockholders, our
executive officers and directors and the underwriters, which will occur 180 days
after the date of this prospectus and exercise of all options granted under our
stock option plan, shares of common stock will become eligible for
sale, subject to compliance with Rule 144 or Rule 701 of the Securities Act as
described below.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
restricted stock for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of common stock or (ii) the
average weekly trading volume in the common stock during the four calendar weeks
preceding the date on which notice of such sale is filed. In addition, under
Rule 144(k), a person who is not an affiliate and has not been an affiliate for
at least three months prior to the sale and who has beneficially owned shares of
restricted stock for at least two years may resell such shares without
compliance with the foregoing requirements. In meeting the one and two year
holding periods described above, a holder of restricted stock can include the
holding periods of a prior owner who was not an affiliate.
Rule 701 under the Securities Act provides that the shares of common stock
acquired on the exercise of currently outstanding options may be resold by
persons, other than affiliates, beginning 90 days after the date of this
prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period, subject to certain limitations.
As of March 16, 1999, options to purchase a total of 5,065,543 shares of common
stock were outstanding at a weighted average exercise price of $2.36. An
additional 219,671 shares of common stock are available for future grants under
our stock option plans. See "Management--Stock Option Plans."
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issuable pursuant to our stock option plans that
do not qualify for an exemption under Rule 701 from the registration
requirements of the Securities Act. We expect to file these registration
statements as soon as practicable following the closing of this offering, and
such registration statements are expected to become effective upon filing.
Shares covered by these registration statements will thereupon be eligible for
sale in the public markets subject to the lock-up agreements, to the extent
applicable.
At March 16, 1999, we had outstanding warrants to purchase an aggregate of
5,252,451 shares of common stock as more fully described under "Description of
Capital Stock--Warrants." Any shares acquired pursuant to the exercise of any
warrants will be deemed restricted securities unless the sale of such shares is
registered under the Securities Act under such registration rights or otherwise
and will be subject to the resale limitations of Rule 144.
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<PAGE> 56
LOCK-UP AGREEMENTS
Certain stockholders and members of senior management and all directors have
agreed, pursuant to the lock-up agreements that, during the period beginning
from the date of this prospectus and continuing and including the date 180 days
after the date of this prospectus, they will not, directly or indirectly offer,
sell, offer to sell, contract to sell or otherwise dispose of, or register for
sale under the Securities Act, any shares of common stock or any of our
securities which are substantially similar to the common stock, including but
not limited to any securities that are convertible into or exchangeable for, or
that represent the right to receive, common stock or any such substantially
similar securities or enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequence of
ownership of common stock or any securities substantially similar to the common
stock, without the prior written consent of J.P. Morgan Securities Inc.
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<PAGE> 57
UNDERWRITING
The underwriters named below, for whom J.P. Morgan Securities Inc., U.S. Bancorp
Piper Jaffray Inc. and Keefe, Bruyette & Woods, Inc. are acting as
representatives, have severally agreed, subject to the terms and conditions set
forth in the underwriting agreement between us and the representatives, to
purchase from us, and we have agreed to sell to the underwriters, the respective
number of shares of common stock set forth opposite their names below:
<TABLE>
<CAPTION>
------------
NUMBER OF
SHARES
------------
<S> <C>
UNDERWRITER
J.P. Morgan Securities Inc..................................
U.S. Bancorp Piper Jaffray Inc. ............................
Keefe, Bruyette & Woods, Inc................................
------------
Total.............................................
============
</TABLE>
The nature of the underwriters' obligations under the underwriting agreement is
such that all of the common stock being offered, excluding shares covered by the
over-allotment option granted to the underwriters, must be purchased if any are
purchased.
The representatives have advised us that the several underwriters propose to
offer the common stock to the public initially at the public offering price set
forth on the cover page of this prospectus and may offer the common stock to
selected dealers at such price less a concession not to exceed $ per
share. The underwriters may allow, and such dealers may reallow, a concession to
other dealers not to exceed $ per share. After the initial public
offering of the common stock, the public offering price and other selling terms
may be changed by the representatives.
We have granted the underwriters an option, exercisable within 30 days after the
date of this prospectus, to purchase up to additional shares of common
stock from us at the same price per share to be paid by the underwriters for the
other shares offered hereby. If the underwriters purchase any such additional
shares pursuant to the option, each of the underwriters will be committed to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The underwriters may exercise the option only to cover
over-allotments, if any, made in connection with the distribution of the common
stock offered hereby.
Prior to the offering, there has been no public market for our common stock. The
initial public offering price will be determined by negotiations between us and
the representatives. Among the factors to be considered in determining the
initial public offering price are prevailing market conditions, the market
valuations of certain publicly traded companies, our past and present financial
performance and revenues and earnings of comparable companies in recent periods,
estimates of our business
56
<PAGE> 58
potential and the prospects and experience of our management and our position in
the industry. The following table shows the per share and total underwriting
discounts to be paid to the underwriters by us.
<TABLE>
<CAPTION>
--------------------------------
NO EXERCISE FULL EXERCISE
------------ -------------
<S> <C> <C>
Per Share................................................ $ $
Total.................................................... $ $
</TABLE>
The representatives have informed us that the underwriters will not confirm,
without prior specific written approval, sales to their customer accounts as to
which they have discretionary trading power.
Online Resources, certain of our stockholders and each of our officers and
directors, have agreed, with limited exceptions, that, during the period
beginning from the date of this prospectus and continuing and including the date
180 days after the date of this prospectus, they will not, directly or
indirectly offer, sell, offer to sell, contract to sell or otherwise dispose of,
or register for sale under the Securities Act, any shares of common stock or any
of our securities which are substantially similar to the common stock, including
but not limited to any securities that are convertible into or exchangeable for,
or that represent the right to receive, common stock or any such substantially
similar securities or enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequence of
ownership of common stock or any securities substantially similar to the common
stock, other than by us pursuant to employee stock option and restricted stock
plans existing on the date of this prospectus, without the prior written consent
of J.P. Morgan Securities Inc.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof
It is expected that delivery of the shares will be made to investors on or about
, 1999.
We estimate that the total expenses of this offering, excluding underwriting
discounts, will be $ .
Application has been made to have the common stock quoted on The Nasdaq National
Market under the trading symbol "ORCC."
At our request, the underwriters have reserved % of the common stock
offered for sale at the initial offering price to employees and other persons
having business relationships with us. The number of shares of common stock
available for sale to other members of the public will be reduced to the extent
that these persons purchase such reserved shares. Any reserved shares not
purchased will be offered by the underwriters on the same basis as the other
shares offered hereby.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot the offering, creating a syndicate
short position. In addition, the underwriters may bid for, and purchase, shares
of common stock in the open market to cover syndicate shorts or to stabilize the
price of the common stock. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing shares of common stock in the
offering, if the syndicate repurchases previously distributed common stock in
syndicate covering transactions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the shares of
common stock above independent market levels. The underwriters are not required
to engage in these activities, and may end any of these activities at any time.
From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with us and
our affiliates.
In addition, two of the representatives, Keefe, Bruyette & Woods, Inc. and U.S.
Bancorp Piper Jaffray Inc., hold common stock, warrants and convertible
preferred stock of Online Resources representing beneficial ownership of 4.0%
and 1.1%, respectively, of our common stock. Furthermore, employees of Keefe,
Bruyette & Woods, Inc. hold common stock, warrants, options and convertible
preferred stock of Online Resources representing beneficial ownership of 2.3% of
our common stock.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common stock
offered hereby will be passed upon for Online Resources by Patton Boggs LLP,
Washington, D.C. and by Michaels, Wishner & Bonner, P.C., Washington D.C. and
for the underwriters by Cahill Gordon & Reindel, a partnership including a
professional corporation, New York, New York.
57
<PAGE> 59
EXPERTS
The financial statements and schedule of Online Resources & Communications
Corporation at December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (which term shall encompass all amendments, exhibits and
schedules thereto) under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all the information set forth
in the registration statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC, and to which reference is hereby
made. Statements made in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the registration statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The registration statement
can be inspected and copied at the public reference section of the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or by calling at
1-800-SEC-0330 and at the SEC's regional offices at Seven World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the registration
statement can be obtained from the Public Reference Section of the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
SEC maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, that file
electronically with the SEC.
Upon completion of this offering, we will become subject to the information and
periodic reporting requirements of the Exchange Act, and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the SEC. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the regional offices, public
reference facilities and Web site of the SEC referred to above.
58
<PAGE> 60
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Online Resources & Communications Corporation
We have audited the accompanying balance sheets of Online Resources &
Communications Corporation as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Online Resources &
Communications Corporation at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Vienna, Virginia
February 26, 1999
F-2
<PAGE> 62
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------
PRO FORMA
STOCKHOLDERS'
EQUITY (DEFICIT)
DECEMBER 31, MARCH 31, AT MARCH 31,
1997 1998 1999 1999
------------ ------------ ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 1,855,809 $ 3,471,620 $ 5,006,189
Escrow deposit -- 400,985 145,985
Accounts receivable (net of allowance of approximately
$80,000, $52,000, and $52,000 at December 31, 1997,
1998, and March 31, 1999, respectively) 516,056 933,585 1,001,815
Prepaid expenses and other current assets 148,953 921,247 582,360
------------ ------------ ------------
Total current assets 2,520,818 5,727,437 6,736,349
Property and equipment, net (Note 3) 2,161,177 3,166,019 3,122,307
Other assets -- 527,972 487,235
------------ ------------ ------------
Total assets $ 4,681,995 9,421,428 10,345,891
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 989,402 1,707,675 1,293,992
Accrued expenses and other current liabilities 458,429 809,019 755,966
Accrued wages 436,606 425,703 330,877
Deferred revenues 382,200 678,117 702,938
Current portion of capital lease obligation 175,935 614,585 655,194
Current portion of long term debt (Note 4) 222,838 711,962 824,939
Current portion of notes payable to related parties -- 200,000 --
------------ ------------ ------------
Total current liabilities 2,665,410 5,147,061 4,563,906
Capital lease obligation 352,955 605,322 595,839
Notes payable to related parties 200,000 -- --
Long term debt (net of unamortized discount of $277,936,
$506,861, and $535,901 at December 31, 1997, 1998, and
March 31, 1999, respectively) less current portion 999,225 8,525,467 8,136,806
Put option liability -- 362,700 432,450 --
Other noncurrent liabilities -- 193,400 193,400
------------ ------------ ------------ ------------
Total Liabilities 4,217,590 14,833,950 13,922,401
Commitments (Notes 4 and 5)
Redeemable convertible Preferred Stock, $.01 par value (Note
7)
Series B redeemable convertible preferred stock;
100,000 shares designated, 1,000 shares issued and
outstanding at December 31, 1997 and 1998, and 750
shares issued and outstanding at March 31, 1999,
respectively 110,331 120,854 92,650 --
Series C redeemable convertible preferred stock;
287,000 shares designated, 173,036, 224,700, and
276,029 shares issued and outstanding at December
31, 1997 and 1998, and March 31, 1999, respectively 16,725,685 25,655,400 32,012,546 --
------------ ------------ ------------ ------------
Total redeemable convertible Preferred Stock 16,836,016 25,776,254 32,105,196 --
Stockholders' equity (deficit) (Note 8)
Series A convertible preferred stock, $0.01 par value;
1,000,000 shares authorized, 795,000 shares issued
and outstanding at December 31, 1997 and 1998;
liquidation preference of $795,000 at December 31,
1997 7,950 7,950 7,950 7,950
Common stock, $.0001 par value; 35,000,000 shares
authorized, 10,919,027, 11,373,564, and 11,587,847
issued and outstanding at December 31, 1997, 1998 and
March 31, 1999, respectively 1,092 1,138 1,159 2,081
Additional paid-in capital 14,217,442 11,077,575 10,132,560 42,669,284
Accumulated deficit (30,378,597) (41,937,066) (45,263,135) (45,263,135)
Receivable from the sale of common stock (219,498) (338,373) (560,240) (560,240)
------------ ------------ ------------ ------------
Total stockholders' equity (deficit) (16,371,611) (31,188,776) (35,681,706) (3,144,060)
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit) $ 4,681,995 $ 9,421,428 $ 10,345,891 $ 10,345,891
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1996 1997 1998 1998 1999
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Core services $ 417,590 $ 1,011,161 $ 2,221,230 $ 479,409 $ 795,929
Support services 176,653 207,697 644,818 105,322 349,699
Implementation fees 417,116 1,310,950 1,200,158 159,825 300,809
Related products 119,150 324,736 259,898 75,184 57,259
----------- ------------ ------------ ----------- -----------
Total revenues 1,130,509 2,854,544 4,326,104 819,740 1,503,696
Expenses:
Cost of revenues 1,864,991 5,128,584 6,289,462 1,368,803 1,905,916
----------- ------------ ------------ ----------- -----------
(734,482) (2,274,040) (1,963,358) (549,063) (402,220)
General and administrative 2,208,218 2,508,058 2,705,029 521,397 679,970
Selling and marketing 2,249,405 3,257,725 3,377,728 733,827 983,281
Systems and development 1,469,272 2,682,261 2,444,615 547,028 904,355
----------- ------------ ------------ ----------- -----------
Total expenses 5,926,895 8,448,044 8,527,372 1,802,252 2,567,606
Loss from operations (6,661,377) (10,722,084) (10,490,730) (2,351,315) (2,969,826)
Other income (expense):
Interest income 33,730 147,988 94,312 12,126 41,709
Interest expense (343,384) (471,187) (1,146,614) (74,241) (397,952)
Other (5,360) (528) (15,437) (9,629) --
----------- ------------ ------------ ----------- -----------
Total other income
(expense) (315,014) (323,727) (1,067,739) (71,744) (356,243)
----------- ------------ ------------ ----------- -----------
Net loss (6,976,391) (11,045,811) (11,558,469) (2,423,059) (3,326,069)
----------- ------------ ------------ ----------- -----------
Preferred stock accretion -- (1,998,665) (3,779,169) (1,035,585) (1,266,184)
----------- ------------ ------------ ----------- -----------
Net loss available to common
stockholders $(6,976,391) $(13,044,476) $(15,337,638) $(3,458,644) $(4,592,253)
=========== ============ ============ =========== ===========
Loss per share:
Basic and diluted $ (0.66) $ (1.20) $ (1.36) $ (0.31) $ (0.40)
Pro forma basic and diluted -- -- (0.68) -- (0.16)
Shares used in calculation of loss
per share:
Basic and diluted 10,500,930 10,825,662 11,250,270 11,183,792 11,512,215
Pro forma basic and diluted -- -- 17,040,349 -- 20,656,015
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
SERIES A ADDITIONAL EMPLOYEE STOCK
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE
------- ------ ---------- ------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 795,000 7,950 10,397,283 1,040 13,783,018 (12,356,395) --
Issuance of common stock -- -- 5,056 -- 17,196 -- --
Purchase of treasury shares -- -- (1,784) -- (6,244) -- --
Exercise of stock options -- -- 307,500 31 40,220 -- --
Net loss (6,976,391) --
------- ------ ---------- ------ ----------- ------------ ---------
Balance at December 31, 1996 795,000 7,950 10,708,055 1,071 13,834,190 (19,332,786) --
Issuance of common stock -- -- 432 -- 1,454 -- --
Exercise of stock options -- -- 210,540 21 234,477 -- (219,498)
Issuance of common stock warrants -- -- -- -- 2,145,986 -- --
Series B preferred stock accretion -- -- -- -- (10,331) -- --
Series C preferred stock accretion -- -- -- -- (1,988,334) -- --
Net loss -- -- -- -- -- (11,045,811) --
------- ------ ---------- ------ ----------- ------------ ---------
Balance at December 31, 1997 795,000 $7,950 10,919,027 $1,092 $14,217,442 $(30,378,597) $(219,498)
Issuance of common stock -- -- 1,959 -- 5,400 -- --
Exercise of stock options -- -- 585,246 59 674,002 -- (118,875)
Purchase of treasury stock -- -- (180,668) (18) (517,985) -- --
Issuance of common stock options -- -- -- -- 333,890 -- --
Conversion of series C preferred stock
to common stock -- -- 48,000 5 143,995 -- --
Series B preferred stock accretion -- -- -- -- (10,523) -- --
Series C preferred stock accretion -- -- -- -- (3,768,646) -- --
Net loss -- -- -- -- -- (11,558,469) --
------- ------ ---------- ------ ----------- ------------ ---------
Balance at December 31, 1998 795,000 $7,950 11,373,564 $1,138 $11,077,575 $(41,937,066) $(338,373)
Issuance of common stock (Unaudited) -- -- 133 -- 399 -- --
Exercise of stock options (Unaudited) -- -- 217,900 21 328,829 -- (231,250)
Repayment of stock subscription
(Unaudited) -- -- -- -- -- -- 9,383
Issuance of common stock options
(Unaudited) -- -- -- -- 3,191 -- --
Purchase of treasury stock (Unaudited) -- -- (3,750) -- (11,250) -- --
Series B preferred stock accretion
(Unaudited) -- -- -- -- (2,679) -- --
Series C preferred stock accretion
(Unaudited) -- -- -- -- (1,263,505) -- --
Net loss (Unaudited) -- -- -- -- -- (3,326,069) --
------- ------ ---------- ------ ----------- ------------ ---------
Balance at March 31, 1999 (Unaudited) 795,000 $7,950 11,587,847 $1,159 $10,132,560 $(45,263,135) $(560,240)
======= ====== ========== ====== =========== ============ =========
<CAPTION>
----------------
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Balance at December 31, 1995 1,435,613
Issuance of common stock 17,196
Purchase of treasury shares (6,244)
Exercise of stock options 40,251
Net loss (6,976,391)
------------
Balance at December 31, 1996 (5,489,575)
Issuance of common stock 1,454
Exercise of stock options 15,000
Issuance of common stock warrants 2,145,986
Series B preferred stock accretion (10,331)
Series C preferred stock accretion (1,988,334)
Net loss (11,045,811)
------------
Balance at December 31, 1997 $(16,371,611)
Issuance of common stock 5,400
Exercise of stock options 555,186
Purchase of treasury stock (518,003)
Issuance of common stock options 333,890
Conversion of series C preferred stock
to common stock 144,000
Series B preferred stock accretion (10,523)
Series C preferred stock accretion (3,768,646)
Net loss (11,558,469)
------------
Balance at December 31, 1998 $(31,188,776)
Issuance of common stock (Unaudited) 399
Exercise of stock options (Unaudited) 97,600
Repayment of stock subscription
(Unaudited) 9,383
Issuance of common stock options
(Unaudited) 3,191
Purchase of treasury stock (Unaudited) (11,250)
Series B preferred stock accretion
(Unaudited) (2,679)
Series C preferred stock accretion
(Unaudited) (1,263,505)
Net loss (Unaudited) (3,326,069)
------------
Balance at March 31, 1999 (Unaudited) $(35,681,706)
============
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(6,976,391) $(11,045,811) $(11,558,469) $(2,423,059) $(3,326,069)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation 277,042 496,745 813,988 143,034 237,111
Amortization of long-term debt
discount -- 47,063 166,009 26,178 56,827
Compensation expense related to
issuance of common stock 15,250 1,454 333,890 -- --
Provision for losses on accounts
receivable 26,000 53,553 (28,118) -- --
Reserve for inventory obsolescence 77,741 496,721 -- -- --
Loss on write-off of long-term
receivable -- 100,000 -- -- --
Changes in assets and liabilities:
Accounts receivable (10,304) (342,025) (389,411) 21,117 (68,230)
Inventory (308,745) 85,215 -- -- --
Prepaid expenses and other
current assets 245,089 (27,434) (322,294) (226,091) (111,113)
Escrow deposit -- -- (400,985) (765,000) 255,000
Other assets -- -- (352,009) -- (8,881)
Accounts payable 581,807 151,219 718,273 439,856 (413,683)
Accrued expenses 999,824 299,476 339,687 14,515 (147,879)
Deferred revenues 363,883 15,650 295,917 62,825 24,821
----------- ------------ ------------ ----------- -----------
Net cash used in operating
activities (4,708,804) (9,668,174) (10,383,522) (2,706,625) (3,502,096)
INVESTING ACTIVITIES
Purchase of property and equipment (681,795) (1,096,582) (559,787) (356,078) (30,695)
----------- ------------ ------------ ----------- -----------
Net cash used in investing
activities (681,795) (1,096,582) (559,787) (356,078) (30,695)
FINANCING ACTIVITIES
Proceeds from issuance of common
stock 35,953 15,000 43,065 241 96,132
Proceeds from issuance of Series B
redeemable convertible Preferred
Stock 645,000 360,000 -- -- --
Net proceeds from issuance of Series
C redeemable convertible Preferred
Stock -- 7,598,750 4,589,791 -- 5,349,000
Proceeds from issuance of long-term
debt 3,725,000 4,020,000 8,434,000 6,434,000 --
Proceeds from issuance of long-term
debt to related parties 300,000 750,000 450,000 250,000 --
Repayment of capital lease
obligations (36,950) (114,327) (568,026) (31,829) (131,578)
Repayment of long-term debt -- (50,000) (189,710) -- (246,194)
Repayment of long-term debt to
related parties -- -- (200,000) (50,000) --
----------- ------------ ------------ ----------- -----------
Net cash provided by financing
activities 4,669,003 12,579,423 12,559,120 6,602,412 5,067,360
----------- ------------ ------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents (721,596) 1,814,667 1,615,811 3,539,709 1,534,569
Cash and cash equivalents at
beginning of period 762,738 41,142 1,855,809 1,855,809 3,471,620
----------- ------------ ------------ ----------- -----------
Cash and cash equivalents at end of
period $ 41,142 $ 1,855,809 $ 3,471,620 $ 5,395,518 $ 5,006,189
=========== ============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Online Resources & Communications Corporation (the "Company") is a provider of
interactive financial services to the banking and financial services industry in
the United States. The Company provides its financial institution clients with
an outsourced "privately branded" service enabling their consumers and small
business customers (end-users) to perform bill paying, cash management,
securities trading and other financial services from their homes, offices and
other places of convenience.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. Cash held for bill
payments in process is immediately disbursed on behalf of users and no net cash
balance is reflected on the Company's financial statements.
Cash paid for interest during the years ended December 31, 1996, 1997 and 1998,
and the three months ended March 31, 1998 and 1999 was approximately $16,000,
$151,000, $953,000, $180,000, and $271,000 respectively.
Revenue Recognition
The Company generates revenues from several sources including implementation
fees, core services, support services and related products. Revenues from core
services include account access and transaction fees. Support services include
customer service, communications, web page design and other services.
Implementation revenues are generated from the linking of the Financial
Institution client's to the Company's proprietary Opus(sm) system through
various networks and the Company's gateways. The Company earns revenues from
related products through the sale of devices used to access the Opus(sm) system.
Core and support service revenues are recognized over the term of the contract
as the services are provided. Revenues from implementation fees are recognized
under the percentage of completion method in accordance with Statement of
Position ("SOP") 81-1, "Accounting for performance of Construction-Type and
Certain Production Type Contracts" as certain milestone output measures are
completed. Related product sales revenue is recognized as products are shipped.
Deferred revenues result from advance receipts on product sales and
implementation services while complying with the aforementioned revenue
recognition policies. For the years ended December 31, 1996, 1997 and 1998, the
Company derived 34%, 36% and 11% of its revenue from one, three and one
customer(s), respectively. For the three months ended March 31, 1998 the Company
derived 30% of its revenue from two customers. For the three months ended March
31, 1999, the Company derived 15% of its revenue from one customer.
Systems and Development
Systems and development costs are charged to expense as incurred.
Inventory
Inventory is stated at the lower of cost or market, with market determined on a
FIFO (first-in, first-out) basis and is composed primarily of finished goods. At
December 31, 1997 and 1998, and March 31, 1999, the reserve for inventory
obsolescence is $899,359, $815,817, and $807,555, respectively.
Property and Equipment
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the related assets which range from five to seven
years. Equipment recorded under capital leases is amortized over the shorter of
the estimated useful life of the asset or the lease term.
F-7
<PAGE> 67
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The Company has the following financial instruments: cash and cash equivalents,
accounts receivable, accounts payable, accrued liabilities, capital lease
obligations and long term debt. The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximates their
fair value based on the liquidity of these financial instruments or based on
their short term nature. The carrying value of capital lease obligations and
long term debt approximates fair value based on the market interest rates
available to the Company for debt of similar risk and maturities.
Reclassifications
Certain balances in prior periods have been reclassified to conform with the
1998 presentation.
Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings (loss) per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the SFAS No. 128 requirements.
Basic and diluted earnings per share is also computed pursuant to SEC Staff
Accounting Bulletin No. 98 ("SAB 98"). SAB 98 requires that all equity
instruments issued at nominal prices, prior to the effective date of an initial
public offering, be included in the calculation of basic and diluted earnings
(loss) per share as if they were outstanding for all periods presented. To date
the Company has not had any nominal issuances or options granted at nominal
prices.
Pro forma earnings per share is computed by dividing net loss by the weighted
average number of common shares outstanding and the weighted average redeemable
convertible preferred stock outstanding as if such shares were converted into
common stock at the time of issuance. The pro forma earnings per share does not
give effect to the initial public offering or to the application of the offering
proceeds to repay debt.
Stock Based Compensation
The Company has adopted Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). The provisions of SFAS
No. 123 allow companies to either expense the estimated fair value of stock
options or to continue to follow the intrinsic value method set forth in APB
Opinion 25, "Accounting for Stock Issued to Employees" (APB No. 25) but disclose
the pro forma effects on net loss had the fair value of the options been
expensed. The Company has elected to continue to apply APB No. 25 in accounting
for its stock option incentive plan and, accordingly, recognizes compensation
expense for the difference between the fair value of the underlying common stock
and the grant price of the option at the date of grant.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("SFAS 121"). SFAS 121 requires impairment losses to be recognized for
long-lived assets when indicators of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets' carrying amount. The
impairment loss of these assets is measured by comparing the carrying amount of
the asset to its fair value, with any excess of carrying value over fair value
written off. Fair value is based on market prices where available, an estimate
of market value, or determined by various valuation techniques including
discounted cash flow.
Recent Pronouncements
The Financial Accounting Standards Board recently issued Statements of Financial
Accounting Standards No.'s 130 and 131, which establish standards for the
reporting of comprehensive income and disclosure concerning segments,
respectively. The adoption of the requirements of these standards has not
resulted in a material effect on the Company's financial position or results of
operations.
F-8
<PAGE> 68
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Pronouncements (continued)
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. We currently are assessing the effect of this new
standard.
Interim Financial Statements (unaudited)
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
-------------------------------------
DECEMBER 31, MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Central processing systems and terminals $2,141,562 $2,348,465 $2,373,370
Office furniture and equipment 449,426 643,895 649,685
Central processing systems and terminals under capital
leases 552,640 1,212,103 1,359,032
Office furniture and equipment under capital leases 182,118 781,698 797,473
Leasehold improvements 325,272 483,687 483,687
---------- ---------- ----------
3,651,018 5,469,848 5,663,247
Less accumulated depreciation 1,489,841 2,303,829 2,540,940
---------- ---------- ----------
$2,161,177 $3,166,019 $3,122,307
========== ========== ==========
</TABLE>
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets.
4. LONG TERM DEBT
From November 1995 to May 1996, the Company issued $4,500,000 of long-term notes
payable, $360,000 of which was to related parties. Each bridge unit consisted of
a 10% promissory note with a face value ranging from $10,000 to $500,000 (the
"Bridge Notes"), convertible into shares of preferred stock at a price per share
achieved in future equity placements, and warrants to purchase 1,456,727 shares
of common stock (36,000 of which are held by directors of the Company) ranging
from $2.50 to $2.75 per share which approximated the fair value of the warrants
(Note 8). Payments of $50,000 plus $51,900 in accrued interest, were made during
1997. In addition, during 1997, $4,250,000 of the Bridge Notes plus accrued
interest of approximately $443,000 were converted into 46,920 shares of Series C
redeemable convertible Preferred Stock ("Series C Preferred Stock"). Upon
conversion into Series C Preferred Stock, each stockholder received a warrant
with a five year term to purchase common stock equal to 40% of the stockholder's
investment at $3.00 per share (Notes 7 and 8).
From January 1997 through May 1997, the Company obtained $3,270,000 in bridge
financing, through the sale of bridge units. Each bridge unit consisted of an 8%
promissory note with a face value ranging from $10,000 to $750,000 (The "1997
Bridge Notes") and warrants to purchase common stock equal to 40% of the
principal amount of the underlying note at $3.00 per share. In conjunction with
the 1997 Bridge Notes, warrants to purchase 436,000 shares of common stock at
$3.00 per share were issued (Note 8). Utilizing the Black-Scholes pricing model,
the Company allocated $405,000 of the 1997 Bridge Notes to
F-9
<PAGE> 69
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LONG TERM DEBT (CONTINUED)
the fair value of the warrants issued and recorded a corresponding debt discount
which was amortized using the effective interest method. The effect of this
allocation resulted in an effective interest rate of 11% until conversion of the
notes. The terms of these 1997 Bridge Notes provided for the automatic
conversion of principal plus accrued interest into Series C redeemable
convertible Preferred Stock ("Series C Preferred Stock") at a purchase price of
$100.00 per share upon the successful completion of an equity offering of at
least $5,000,000. Upon successful completion of a Series C Preferred Stock
offering during 1997 (Note 7), the Company converted $3,270,000 in principal
plus $60,741 in accrued interest less the unamortized discount of $392,000 into
33,301 shares of Series C Preferred Stock.
In June 1997, the Company entered into a $2,000,000 four year note secured by
inventory and equipment (the "Equipment Note"). The Equipment Note bears
interest at 9% per annum with interest only to be paid in the first twelve
months and with principal and interest starting in month thirteen. The Company
must pay a loan fee equal to 10% of the total advances under the agreement on
the due date of the last monthly payment. At December 31, 1998, this $193,000 is
included in noncurrent liabilities. The Company drew $1,500,000 of proceeds
under the agreement in June 1997 and $434,000 in April 1998. No further advances
were available under this agreement subsequent to June 1, 1998. In connection
with this note, the Company issued warrants to purchase 10,500 shares of Series
C Preferred Stock at $100.00 per share (Note 8). Utilizing the Black-Scholes
pricing model, the Company allocated $325,000 of the Equipment Note proceeds to
the fair value of the warrants issued. The $325,000 allocated to the warrants is
being amortized to interest expense using the effective interest method over the
term of the debt. The effect of this allocation results in an effective interest
rate of 14%. During the years ended December 31, 1997 and 1998, and the three
months ended March 31, 1998 and 1999, the Company recognized additional interest
expense of $47,000, $82,000, $20,364 and $20,364, respectively, related to this
allocation.
In March 1998, the Company issued $250,000 promissory notes to certain
stockholders which bear interest at 8% per annum. The principal and accrued
interest was converted into 2,653 shares of Series C Preferred Stock in December
1998.
In March 1998, the Company entered into a $6,000,000 Loan Agreement with Sirrom
Capital Corporation ("Sirrom"), which is secured by a second lien on the
Company's existing secured assets and a first lien on the balance of the
Company's assets. The Loan Agreement bears interest at a stated annual rate of
12.75% payable monthly from May 1998 through February 2003, with principal and
any remaining interest due in March 2003. In connection with the Loan Agreement,
the Company issued stock purchase warrants expiring in May 2003, granting Sirrom
the right to purchase 250,000 shares of the Company's common stock at $3.00 per
share. Sirrom received additional warrants to purchase 75,000 shares of the
Company's common stock on March 31, 1999 due to the fact that the note was still
outstanding on that date. In the event the note remains outstanding on March 31,
2000 and for each year thereafter, Sirrom receives an additional warrant to
purchase 75,000 shares of the Company's common stock at $3.00 per share until
maturity or prepayment of the loan up to a maximum of 625,000 warrants. In June
1998, the Company entered into an additional $2,000,000 Loan Agreement with
Sirrom, collectively the "Sirrom Loan" which is secured by a second lien on the
Company's existing secured assets and a first lien on the balance of the
Company's assets. The Loan Agreement bears interest at a stated annual rate of
12.75% payable monthly from July 1998 through February 2003, with principal and
any remaining interest due in March 2003. In connection with the Loan Agreement,
the Company issued stock purchase warrants expiring in May 2003, granting Sirrom
the right to purchase 100,000 shares of the Company's common stock at $3.00 per
share. Based on the fact that the note was still outstanding at December 31,
1998, Sirrom received an additional warrant to purchase 40,000 shares of the
Company's common stock. In the event the note remains outstanding on June 30,
1999 and for every six months thereafter, Sirrom receives an additional warrant
to purchase 40,000 shares of the Company's common stock until maturity or
prepayment of the loan up to a maximum of 460,000 warrants. The unissued
warrants could result in an additional discount if the notes are not paid in
accordance with the terms above. The Sirrom loans require the Company to
maintain cash in an escrow account to be used by the lender for the first year
of interest payments.
The stock purchase warrants are subject to a put option whereby Sirrom can sell
the warrants to the Company in the 30-day period prior to the warrants
expiration date. The put option price is equal to the fair market value of the
common stock issuable under the warrants. Utilizing the Black-Scholes pricing
model, the Company allocated $432,450 to the fair value of the 465,000 warrants
issued. The allocation of value to the warrants resulted in a corresponding debt
discount and put option liability. The $432,450 debt discount will be amortized
to interest expense using the effective interest method over the term of
F-10
<PAGE> 70
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LONG TERM DEBT (CONTINUED)
the loan. During the year ended December 31, 1998 and the three months ended
March 31, 1999, the Company recognized additional interest expense of $52,320
and $20,346 related to this allocation, respectively.
As of December 31, 1996, 1997, and 1998, and March 30, 1998 and 1999, accrued
interest on notes payable totaled approximately $333,000, $57,000, $125,000,
$64,000, and $81,000 respectively.
The following table summarizes the notes payable activity:
<TABLE>
<CAPTION>
-------------------------------------
DECEMBER 31, MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Related Party Notes (8% notes at December 31, 1997, 10%
convertible demand notes at December 31, 1998) $ 200,000 $ 200,000 $ --
Equipment Note (net of unamortized discount of $277,936,
$196,481, and $176,117 at December 31, 1997 and 1998 and
March 31, 1999, respectively) 1,222,063 1,547,809 1,321,529
Sirrom Notes (net of unamortized discount of $310,380 and
$359,784 at December 31, 1998 and March 31, 1999,
respectively -- 7,689,620 7,640,216
---------- ---------- ----------
1,422,063 9,437,429 8,961,745
Less current portion 222,838 911,962 824,939
---------- ---------- ----------
Long term debt, less current portion $1,199,225 $8,525,467 $8,136,806
========== ========== ==========
</TABLE>
Annual maturities of notes payable at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
------------
DECEMBER 31,
1998
------------
<S> <C>
1999 911,962
2000 672,423
2001 359,905
2002 --
2003 8,000,000
Thereafter --
---------
9,944,290
=========
</TABLE>
5. COMMITMENTS
Office Space
In July 1997, the Company entered into a new operating lease for its office
space which expires in July 2002. Rent expense under this lease and other
operating leases was approximately $193,000, $500,000, $676,000, $150,000, and
$163,000 for the years ended December 31, 1996, 1997, and 1998, and the three
months ended March 31, 1998 and 1999, respectively. These leases provide for
escalating rent over the lease term.
Equipment
The Company also leases equipment under capital leases. The net book value of
equipment under the capital leases was approximately $566,000 and $1,496,000 at
December 31, 1997 and 1998, respectively. In 1998, the Company incurred a
capital lease obligation of $1,259,043 for the purchase of equipment. During the
three months ended March 31, 1999 the Company incurred a capital lease
obligation of $162,704 for the purchase of equipment. Amortization of assets
held under capital leases is included in depreciation and amortization in the
statements of cash flows.
F-11
<PAGE> 71
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS (CONTINUED)
Equipment (continued)
Future minimum lease payments on operating and capital leases are as follows:
<TABLE>
<CAPTION>
---------------------------
OPERATING CAPITAL
DECEMBER 31, DECEMBER 31,
1998 1998
------------ ------------
<S> <C> <C>
1999 $ 642,305 $ 673,682
2000 658,153 470,821
2001 677,897 165,994
2002 407,304 62,279
2003 -- --
---------- ----------
Total minimum lease payments $2,385,659 1,372,776
==========
Less amount representing interest 152,869
----------
Present value of minimum lease payments 1,219,907
Less current portion 614,585
----------
Long-term portion of minimum lease payments $ 605,322
==========
</TABLE>
6. INCOME TAXES
At March 31, 1999 and December 31, 1998, the Company has net operating loss
carryforwards of approximately $44 and $40 million, respectively, that expire at
varying dates from 2010 to 2019. The use of these losses may be subject to
significant limitations due to ownership changes pursuant to Section 382 of the
Internal Revenue Code resulting from the issuances of Preferred and Common
Stock.
Significant components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
------------------------------------------
DECEMBER 31, MARCH 31,
1997 1998 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Inventory allowance $ 360,000 $ 322,000 $ 323,000
Net operating loss carryforwards 11,766,000 16,348,000 17,722,000
Deferred wages 257,000 446,000 408,000
Other deferred tax assets 97,000 49,000 123,000
------------ ------------ ------------
Total deferred tax assets 12,480,000 17,165,000 18,576,000
Deferred liabilities:
Depreciation (93,000) (161,000) (243,000)
Other deferred tax liabilities (12,000) -- --
------------ ------------ ------------
Total deferred tax liabilities (105,000) (161,000) (243,000)
Valuation allowance for net deferred tax assets (12,375,000) (17,004,000) (18,333,000)
------------ ------------ ------------
Net deferred tax assets $ -- $ -- $ --
============ ============ ============
</TABLE>
The Company had not paid income taxes during 1997, 1998 or three months ended
March 31, 1999 due to its net operating loss position.
F-12
<PAGE> 72
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES (CONTINUED)
The following is a summary of the items that caused recorded income taxes to
differ from taxes computed using the statutory federal income tax rate for the
years ended December 31, 1996, 1997 and 1998 and the three months ended March
31, 1998 and 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
1996 1997 1998 1998 1999
------------ ------------ ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax expense (benefit) at statutory
Federal rate $ (2,372,000) $ (3,756,000) $ (3,930,000) $(824,000) $(1,131,000)
Effect of:
State income tax, net (419,000) (663,000) (693,000) (146,000) (201,000)
Non-statutory stock options exercise (228,000) (26,000) (16,000) (9,000) --
Other (109,000) 8,000 10,000 3,000 3,000
Increase in valuation allowance 3,128,000 4,437,000 4,629,000 976,000 1,329,000
------------ ------------ ------------ --------- -----------
Income tax expense $ -- $ -- $ -- $ -- $ --
============ ============ ============ ========= ===========
</TABLE>
7. PREFERRED STOCK
Of the 3,000,000 authorized preferred shares of the Company, 100,000 shares have
been designated as Series B redeemable convertible Preferred Stock ("Series B
Preferred Stock") and 287,000 have been designated as Series C Preferred Stock.
In addition, 1,000,000 shares have been designated as Series A convertible
Preferred Stock ("Series A Preferred Stock"). Upon liquidation of the Company,
the following represents the order of preference given to holders of the
Company's Preferred Stock: Series C Preferred Stock, Series B Preferred Stock
and Series A Preferred Stock. The Company has not designated for any series the
remaining 1,613,000 preferred shares.
Series A Preferred Stock
Each share of Series A Preferred Stock is convertible, at the holder's option,
into one share of common stock and is entitled to one vote per share on that
basis. Holders of Series A Preferred Stock shares are entitled to receive
dividends at the same rate as holders of common stock. Additionally, each Series
A Preferred Stock holder is entitled to a liquidation preference equal to $1.00
plus declared but unpaid dividends.
Series B Preferred Stock
Each share of Series B Preferred Stock is convertible, at the holder's option
into 33.333 shares of common stock and is entitled to votes based on the
equivalent number of common stock shares. Series B Preferred Stock stockholders
are entitled to receive, on an equivalent share for share basis, any dividends
or distributions paid to holders of common stock. Each share of Series B
Preferred Stock will automatically convert into common stock upon (i) an initial
public offering of at least $30 million or (ii) a change of control, provided
such change of control is at an equivalent price per share of at least 175% of
the Series B Preferred Stock purchase price until December 31, 1998, thereafter
increasing by 10% annually. Series B Preferred stockholders are entitled to a
liquidation preference of $175 per share plus declared but unpaid dividends.
Additionally, on December 31, 2003, the holders of Series B Preferred Stock may
demand redemption at the greater of (i) $175 per share or (ii) the fair market
value of the preferred stock. The excess of the redemption value over the
carrying value of $75,000 is being accreted using the interest method so that
the carrying value will equal the redemption value of $175 per share plus
cumulative unpaid dividends on the scheduled redemption date. In the fourth
quarter of 1996 and during 1997, the Company issued 6,700 and 3,350 shares of
Series B Preferred Stock at $100 per share for total proceeds of $670,000 and
$335,000, respectively. During 1997, Series B Preferred Stock stockholders
converted 9,050 shares of Series B Preferred Stock into an equivalent number of
shares of Series C Preferred Stock. Additionally, as an incentive to convert to
Series C Preferred Stock, the Series B Preferred Stock stockholders received in
aggregate an additional consideration of 322 shares of Series C Preferred Stock
which was included in the calculation of the discount for purposes of accretion.
At December 31, 1998 holders of 1,000 shares of Series B Preferred Stock had the
option of converting their investment into an equivalent number of shares of
F-13
<PAGE> 73
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. PREFERRED STOCK (CONTINUED)
Series B Preferred Stock (continued)
Series C Preferred Stock. During the first quarter of 1999, a stockholder
converted 250 shares of Series B Preferred Stock into an equivalent number of
shares of Series C Preferred Stock. The stockholder received an additional seven
shares of Series C Preferred Stock and 3,431, warrants to purchase common stock
at $3 per share expiring on June 1, 2002.
Series C Preferred Stock
Each Series C Preferred Stock share is convertible, at the holder's option, into
33.333 shares of common stock and is entitled to votes based on the equivalent
number of common stock shares. Series C Preferred Stock stockholders are
entitled to receive, on an equivalent share for share basis, any dividends or
distributions paid to holders of common stock. Series C Preferred Stock
stockholders have a liquidation preference of $100 per share plus $17,500,000
allocated based on the percentage of shares owned, and any declared but unpaid
dividends. Each share of Series C Preferred Stock will automatically convert
into common stock upon an initial public offering of at least $30 million.
Commencing on the earlier of January 1, 2004 or the occurrence of a defined
change in control, any holders of Series C Preferred Stock may demand redemption
at a per share redemption price equal to declared but unpaid dividends thereon
plus the greater of (i) $200 or (ii) the fair market value of such share as
determined by the board of directors. The excess of the redemption value over
the carrying value of $24,764,329 is being accreted using the interest method so
that the carrying value will equal the redemption value of $200 per share plus
cumulative unpaid dividends on January 1, 2004 since no change of control is
present.
In conjunction with the 1997 Series C financings and conversions, each
stockholder received a warrant with a five-year term to purchase common stock
equal to 40% of the stockholder's investment at $3 per share. Total warrants
issued in connection with the Series C Preferred Stock were 1,863,416. The
Company allocated $1,732,977 to the value of the warrants based on their
estimated fair value at the date of issuance (Note 8). During 1997, the Company
issued 173,036 shares of Series C Preferred Stock at $100 per share. Of the
173,036 shares issued, 9,050 shares were issued related to the conversion of
Series B Preferred Stock; 42,500 shares were issued related to the conversion of
$4,250,000 of the 1996 Bridge Notes; 32,700 shares were issued related to the
conversion of $3,270,000 of 1997 Bridge Notes; 5,343 shares were issued to
satisfy approximately $504,000 of accrued interest, and 83,443 shares were
issued resulting in cash proceeds of $7,750,000. During 1998, 1,440 shares of
Series C issued in connection with the conversion of the Bridge Notes were
converted into 48,000 shares of common stock.
During December 1998, the Company issued 50,451 shares of Series C Preferred
Stock for total proceeds of $5,039,791. Included in the $5,039,791 of proceeds
is a receivable balance of $450,000 which is classified in prepaid expenses and
other current assets at December 31, 1998. In addition to the Series C Shares,
each stockholder received a warrant to purchase common stock up to 30% of the
stockholder's investment at $3 per share. The number of shares each warrant
holder is able to purchase is contingent upon the Company selling shares
pursuant to an initial public offering prior to July 12, 1999 and the average
price of the stock for the first twenty days subsequent to the sale date. The
maximum number of shares that could be purchased under the warrant agreements is
531,040. These warrants have a five year life.
From January through March 1999, the Company issued 49,034 shares of Series C
Preferred Stock resulting in net proceeds of approximately $4,899,000. The
Company also converted the $200,000 related party note outstanding at December
31, 1998 plus accrued interest of $3,800 into 2,038 shares of Series C preferred
stock during this period. Up to 510,720 warrants to purchase the Company's
common stock at $3.00 per share are attached to the Series C Preferred Stock and
are issuable based upon the same events as discussed above. These warrants have
a five year life.
8. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
During May 1996, the Company created the Online Resources & Communications
Corporation Employee Equity Incentive Plan (the EEIP Plan). The EEIP Plan is
designed to provide a convenient means by which eligible employees of the
Company may (i) save regularly through voluntary systematic payroll deductions
and four times each year use such savings to acquire shares of the Company's
$.0001 par value common stock and/or (ii) elect a salary reduction not to exceed
15% of an eligible employee's regular payroll compensation based upon the
employee's regular rate of pay and receive options not more than four times each
year having an aggregate exercise price of 200% of the amount of the salary
reduction. The exercise price for such
F-14
<PAGE> 74
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Common Stock (continued)
options will equal fair market value at date of grant. The Company has reserved
200,000 shares of common stock for issuance under the EEIP Plan. During 1997 and
1998, respectively, employees purchased 432 and 1,959 shares of common stock for
total proceeds of $1,454 and $5,400, respectively.
Warrants
The Company's common stock warrant activity is as follows:
<TABLE>
<CAPTION>
EXERCISE EXPIRATION
WARRANTS PRICE DATE
--------- -------- -------------
<S> <C> <C> <C>
Outstanding at January 1, 1998 350,300
Warrants issued in connection with debt financing 125,000 2.50 Mar. 31, 2000
Warrants issued in connection with debt financing 1,716,000 2.50 Apr. 30, 2001
Warrants issued in connection with debt financing 13,637 2.75 Dec. 31, 2000
---------
Balance at December 31, 1996 2,204,937
Warrants issued in connection with conversion of Series B
Preferred Stock 125,134 3.00 June 1, 2002
Warrants issued in connection with conversion of the
Bridge Notes 633,808 3.00 June 1, 2002
Warrants issued in connection with the issuance of the
1997 Bridge Notes 436,000 3.00 June 1, 2002
Warrants issued in connection with issuance of Series C
Preferred Stock 1,112,572 3.00 June 1, 2002
---------
Balance at December 31, 1997 4,512,451
Warrants issued in connection with issuance of the Sirrom
debt 390,000 3.00 May 31, 2003
---------
Balance at December 31, 1998 4,902,451
Warrants issued in connection with the Sirrom debt
(Unaudited) 75,000 3.00 May 31, 2003
Warrants issued in connection with conversion of Series B
Preferred Stock (Unaudited) 3,431 3.00 June 1, 2002
---------
Balance at March 31, 1999 (Unaudited) 4,980,882
=========
</TABLE>
The Company also issued 10,500 warrants to acquire Series C preferred stock in
connection with the Equipment Note. These warrants are convertible into 350,000
shares of Common Stock and expire on June 3, 2002.
Reserve for Issuance (Unaudited)
At March 31, 1999, the Company has authorized the following shares of Common
Stock for issuance upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, and Series C Preferred Stock, exercise of options and warrants:
<TABLE>
<S> <C>
Series A Preferred Stock (795,000 shares) 795,000
Series B Preferred Stock (750 shares) 24,999
Series C Preferred Stock (276,029) 9,200,894
Common Stock Options Outstanding 4,940,433
Common Stock Options Available to Grant 238,381
Common Stock Warrants 4,980,882
Contingent Common Stock Warrants 1,661,760
Series C Preferred Stock Warrants 350,000
----------
Total shares of authorized Common Stock reserved 22,192,349
==========
</TABLE>
F-15
<PAGE> 75
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Reserve for Issuance (Unaudited) (continued)
During 1994, a customer was granted an unrestricted right to purchase up to
$100,000 of the Company's Common Stock at the initial public offering price in
the event of an initial public offering.
Stock Options
In February 1989, the Company adopted an Incentive Stock Option Plan (the Plan).
During June 1997, the Company's Board of Directors authorized an increase of
350,000 shares of common stock that can be issued under the Plan. During 1998,
the Company's Board of Directors increased the number of shares of common stock
that can be issued under the plan to 6,500,000. The option price under the Plan
will not be less than fair market value, as determined by the Board of
Directors, on the date of grant. The vesting period of the options is determined
by the Board of Directors and is generally four years. Outstanding options
expire after ten years.
During 1998, three employees tendered a total of 180,668 shares of common stock
to the Company at prices ranging from $2.50 to $3.00 per share. The proceeds
were used to exercise 437,996 options to purchase shares of common stock. During
March of 1999, an employee tendered 3,750 shares of common stock to the Company
for $3.00 per share. The proceeds were used to exercise options to purchase
7,500 shares of common stock.
During the year ended December 31, 1997, two employees exercised 76,004 options
in exchange for notes receivable totaling $71,244. During 1998, four employees
exercised 113,500 options in exchange for $118,875 of notes receivable. From
January through March of 1999, four employees exercised 162,500 options in
exchange for notes receivable totaling $231,250. As of December 31, 1997 and
1998, and March 31, 1999, 76,004, 189,504 and 344,504, respectively, of these
shares of Common Stock were held by the Company as collateral for the notes
receivable.
Additional information with respect to incentive stock option activity under the
Plan is summarized as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
YEARS ENDED DECEMBER 31, 1999
1996 1997 1998 (UNAUDITED)
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period 3,721,740 $1.53 4,065,568 $1.84 4,301,642 $2.02 4,993,149 $2.41
Options granted 702,249 2.79 661,839 3.05 1,548,480 3.00 274,920 $3.00
Options exercised (307,500) .13 (210,540) 1.11 (585,246) 1.15 (217,900) $3.00
Options canceled or expired (50,921) 2.05 (215,225) 2.51 (271,727) 2.33 (109,736) $2.99
--------- --------- --------- ---------
Outstanding at end of period 4,065,568 $1.85 4,301,642 $2.02 4,993,149 $2.41 4,940,433 $2.47
========= ========= ========= =========
Options exercisable at end of
period 3,154,523 $1.63 3,573,400 $1.85 4,174,093 $2.31 4,079,149 $2.36
========= ========= ========= =========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1998
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
----------------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.02 to $2.00 1,467,883 2.47 $1.41 1,457,883 $1.40
$2.25 to $2.50 1,263,491 3.89 2.45 1,134,916 2.44
$2.75 9,000 4.42 2.75 9,000 2.75
$3.00 to $3.50 2,252,775 7.2 3.05 1,572,294 3.05
--------- ---------
4,993,149 4.97 $2.41 4,174,093 $2.31
========= =========
</TABLE>
F-16
<PAGE> 76
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Stock Options (continued)
In 1996, the Company adopted the disclosure-only provisions of SFAS No. 123. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant date for awards under the plan consistent with the
methodology prescribed under SFAS No. 123, the Company would have incurred an
additional expense of approximately $378,000, $580,000 and $933,000 resulting in
a net loss in 1996, 1997, and 1998 of approximately $7,354,000, $11,626,000 and
$12,491,500, respectively. The resulting basic and diluted pro forma net loss
per share would be $(.70), $(1.26), and $(1.45) for the years ended December 31,
1996, 1997 and 1998, respectively. The effect of applying SFAS No. 123 on 1996,
1997, and 1998 pro forma net loss as stated above is not necessarily
representative of the effects on reported net loss for future years due to,
among other things, (1) the vesting period of the stock options and (2) the fair
value of additional stock options in future years. The fair value of the options
granted during 1996, 1997 and 1998 are estimated as $0.89, $0.93 and $0.93 per
share, respectively, on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%, risk-free interest
rate of 6.625%, volatility of 25% and expected life of four years.
9. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss $(6,976,391) $(11,045,811) $(11,558,469) $(2,423,059) $(3,326,069)
Preferred stock accretion -- (1,998,665) (3,779,169) (1,035,585) (1,226,184)
----------- ------------ ------------ ----------- -----------
Net loss available for common stockholders (6,976,391) (13,044,476) (15,337,638) (3,458,644) (4,552,253)
=========== ============ ============ =========== ===========
Weighted average number of common shares 10,500,930 10,825,662 11,250,270 11,183,792 11,521,215
Effect of dilutive securities:
Stock options -- -- -- -- --
Warrants -- -- -- -- --
Redeemable convertible preferred stock -- -- -- -- --
----------- ------------ ------------ ----------- -----------
Adjusted weighted average shares and assumed
conversions 10,500,930 10,825,662 11,250,270 11,183,792 11,521,215
=========== ============ ============ =========== ===========
Pro forma adjustment for redeemable convertible
preferred stock -- -- 5,790,079 -- 9,134,800
Pro forma weighted average shares -- -- 17,040,349 -- 20,656,015
Loss per share:
Basic and diluted $ (0.66) $ (1.20) $ (1.36) $ (0.30) $ (0.40)
Pro forma basic and diluted -- -- $ (0.68) -- $ (0.16)
</TABLE>
Due to their antidilutive effects, outstanding shares of Series A convertible
preferred stock, stock options and warrants to purchase 7,065,505, 9,609,093,
10,690,600, 9,843,639 and 10,716,315 shares of common stock at December 31,
1996, 1997,and 1998, and March 31, 1998 and 1999, respectively, were excluded
from the computation of diluted earnings per share.
The pro forma adjustment for redeemable convertible preferred stock at December
31, 1998 and March 31, 1999, represents the effect of the conversion of the
weighted average number of shares of Series B and C preferred stock as if the
shares were converted as of the date of issuance of the preferred stock. The pro
forma earnings per share does not give effect to the initial public offering.
F-17
<PAGE> 77
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. INITIAL PUBLIC OFFERING
The Board of Directors of the Company has authorized management to pursue an
underwritten sale of shares of the Company's common stock in an initial public
offering ("IPO") pursuant to the Securities Act of 1933.
Upon closing of the IPO, all outstanding shares of Series B and Series C
Preferred will automatically convert into an aggregate of 9,225,893 shares of
common stock.
11. PRO FORMA INFORMATION (UNAUDITED)
The financial statements include unaudited pro forma information as of March 31,
1999 to reflect, upon the Company's IPO, the conversion of all outstanding
shares of Series B and C Preferred Stock into shares of Common Stock and the
termination of the warrant put option. The pro forma information does not give
effect to the IPO or to the application of the offering proceeds to repay debt.
F-18
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Online Resources & Communications Corporation (the "Registrant") estimates that
expenses (other than underwriting discounts and commissions) in connection with
the offering described in this Registration Statement will be as set forth in
the following table. All amounts shown are estimates except for the Securities
and Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 12,788
National Association of Securities Dealers, Inc. filing
fee....................................................... 5,100
Nasdaq National Market listing fees......................... *
Printing and engraving expenses............................. *
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Fees and expenses for qualifications under state securities
laws (including legal fees)............................... *
Transfer agent fees......................................... *
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles TENTH and ELEVENTH of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as
II-1
<PAGE> 79
to an indemnitee who has ceased to be a Director, Officer, employee or
agent and shall inure to the benefit of the indemnitee's heirs, executors
and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expenses
of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest
extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
The underwriting agreement to be filed as Exhibit 1.1 to the Registration
Statement provides for indemnification by the underwriters of Online Resources
and its directors and certain officers, and by Online Resources of the
underwriters, for certain liabilities arising under the Securities Act or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In accordance with Item 701 of Regulation S-K, the following information is
presented with respect to securities sold by the Registrant within the past
three years which were not registered under the Securities Act.
II-2
<PAGE> 80
(i) 1995 Convertible Note Financing.
(a) Between November, 1995 through April, 1996, the Registrant sold $1.18
million of 10% Convertible Notes due on December 31, 1997 convertible at
$2.75 per share along with 128,727 detachable warrants expiring on December
31, 2000, exercisable at $2.75 per share.
(b) The notes and warrants were sold to individuals, all of whom qualified
as accredited investors within the meaning of Regulation D promulgated
under the Securities Act.
(c) The notes and warrants were sold for a total aggregate consideration of
$1.18 million.
(d) Based upon representations of the purchasers of the notes and warrants,
the notes and warrants were offered and sold in reliance upon an exemption
from registration under Section 4(2) of the Securities Act and in
compliance with Rules 502 and 506 of Regulation D promulgated thereunder.
(e) Not applicable.
(f) Not applicable.
(ii) 1996 Convertible Note Financing.
(a) On May 8, 1996, the Registrant sold $3 million of 10% Convertible Notes
due June 30, 1999 with 1.2 million detachable warrants expiring on April
30, 2001, exercisable at $2.50 per share. The conversion price of the notes
has been established under a formula at $3.00 per share. Thereafter,
through the remainder of 1996, the Registrant sold $0.3 million of
additional notes and holders of $1.1 million of the notes due on December
31, 1997 exchanged their notes along with the detachable warrants issued in
conjunction with such notes for the notes due June 30, 1999 and the
detachable warrants issued with such notes. Therefore, a total of 1.75
million warrants were issued with the notes due June 30, 1999.
(b) The initial $3.0 million of the notes with warrants were sold to
venture capital funds each of which constituted an accredited investor
within the meaning of Regulation D under the Securities Act. All additional
notes with their detachable warrants were issued to individuals, all of
whom qualified as accredited investors within the meaning of Regulation D
under the Securities Act.
(c) The Company raised $3.3 million of additional capital from the sale of
the notes and converted approximately $1.1 million of the notes due on
December 31, 1997 for the notes due on June 30, 1999.
(d) Based upon representations of the purchasers of the notes and
accompanying warrants, the notes and such warrants were offered and sold in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act and in compliance with Rules 502 and 506 of Regulation D
promulgated thereunder.
(e) Not applicable.
(f) Not applicable.
(iii) 1996 Series B Convertible Preferred Stock Financing.
(a) Commencing in November, 1996 through January, 1997, the Registrant sold
10,050 shares of $.01 par value Series B Convertible Preferred Stock
("Series B preferred stock"). The conversion price was tied to certain
future events subject to a minimum price of $3.00 and a maximum price of
$6.00 per share.
(b) The shares of Series B preferred stock were sold to individuals, all of
whom qualified as accredited investors within the meaning of Regulation D
promulgated under the Securities Act.
(c) The Registrant raised a total of $1 million from the sale of shares of
Series B preferred stock.
(d) Based upon representations of the purchasers of the shares of Series B
preferred stock, such shares were offered and sold in reliance upon an
exemption from registration under Section 4(2) of the Securities Act and in
compliance with Rules 502 and 506 promulgated thereunder.
(e) Not applicable.
(f) Not applicable.
(iv) 1997 Note Financings.
II-3
<PAGE> 81
(a) From January, 1997 through May, 1997, the Registrant sold 8% short term
notes having an aggregate face amount of $3.3 million which were
automatically convertible into equity securities to be issued in the
registrant's subsequent financing.
(b) The notes were sold to individuals and others, all of whom qualified as
accredited investors within the meaning of Regulation D promulgated under
the Securities Act.
(c) The Registrant raised $3.3 million from the sale of the Notes.
(d) Based upon representations of the purchasers of the notes, such notes
were offered and sold in reliance upon an exemption from registration under
Section 4(2) of the Securities Act and in compliance with Rules 502 and 506
promulgated thereunder.
(e) Not applicable.
(f) Not applicable.
(v) 1997 Series C Convertible Preferred Stock Financing.
(a) Effective as May 30, 1997, the Registrant sold 77,500 shares of $.01
par value Series C Convertible Preferred Stock ("Series C Preferred Stock")
along with 1.03 million detached warrants expiring on June 1, 2002
exercisable at $3.00 per share. The Series C Preferred Stock was
convertible at a rate of $3.00 per share. Additionally, 33,272 shares were
issued in exchange for $3 million of the notes due on June 30, 1999. After
such initial sale, the holders of the Series B Preferred Stock and the
convertible notes due June 30, 1999 were provided the right to exchange
their notes and shares for shares of Series C Preferred Stock and the
warrants issued in conjunction therewith. The short term notes issued
between January and May were also exchanged. As a result of these exchanges
an additional 56,321 shares of Series C Preferred Stock and .75 million
warrants were issued.
(b) The shares were sold to individuals and institutional investors, all of
whom were accredited investors within the meaning of Regulation D
promulgated under the Securities Act.
(c) The initial 77,500 shares of Series C Preferred Stock which were issued
were sold to institutional investors, consisting of venture capital funds
and a strategic investor, all of whom qualified as accredited investors
within the meaning of Regulation D promulgated under the Securities Act.
(d) Based upon representations of the purchasers of the shares of Series C
Preferred Stock and warrants issued in conjunction therewith, such shares
and warrants were offered and sold in reliance upon an exemption from
registration under Section 4(2) of the Securities Act and in compliance
with Rules 502 and 506 of Regulation D promulgated thereunder.
(e) Not applicable.
(f) Not applicable.
(vi) 1997 Equipment Lease Facility.
(a) On June 3, 1997, the Registrant sold a $2 million 9% Senior Secured
Equipment Note due on June 1, 2001, along with detachable warrants for
10,500 shares of Series C Preferred Stock expiring on June 3, 2002,
exercisable at $100 per share.
(b) Dominion Fund IV, a Delaware limited partnership, purchased the notes
and warrants.
(c) The Registrant received an initial draw of $1.5 million upon the sale
of the note and has subsequently drawn an additional $.4 million under the
note.
(d) Dominion Fund IV qualifies as an accredited investor within the meaning
of Regulation D promulgated under the Securities Act and, therefore, the
notes and warrants sold to Dominion Fund IV were sold in reliance upon an
exemption from registration under Section 4(2) of the Securities Act and in
compliance with the Rules 502 and 506 promulgated under Regulation D.
(e) Not applicable.
(f) Not applicable.
(vii) March 31, 1998 Note Financing.
II-4
<PAGE> 82
(a) On March 31, 1998, the Registrant issued a $6 million 12.75% secured
promissory note due on March 30, 2003 with up to 625,000 detachable
warrants expiring on May 31, 2003, exercisable at $3.00 per share.
(b) Sirrom Capital Corporation purchased the notes and warrants.
(c) The Registrant netted $5.13 million from the sale of the note after the
escrow of the first year's interest due under the note of $765,000 and the
payment of certain expenses.
(d) Sirrom Capital Corporation qualifies as an accredited investor within
the meaning of Regulation D promulgated under the Securities Act and,
therefore, the notes and warrants sold to Sirrom Capital Corporation were
sold in reliance upon an exemption from registration under Section 4(2) of
the Securities Act and in compliance with the Rules 502 and 506 promulgated
under Regulation D.
(e) Not applicable.
(f) Not applicable.
(viii) June 30, 1998 Note Financing.
(a) On June 30, 1998, the Registrant issued a $2 million 12.75% secured
promissory note due on March 30, 2003 with up to 460,000 detachable
warrants expiring on May 31, 2003 exercisable at $3.00 per share.
(b) Sirrom Capital Corporation purchased the note along with the warrants.
(c) After escrow of the first year's interest due under the note of
$255,000 and payment of certain expenses, the Registrant received $1.7
million upon the sale of the note.
(d) Sirrom Capital Corporation qualifies as an accredited investor within
the meaning of Regulation D promulgated under the Securities Act and,
therefore, the notes and warrants sold to Sirrom Capital Corporation were
sold in reliance upon an exemption from registration under Section 4(2) of
the Securities Act and in compliance with the Rules 502 and 506 promulgated
under Regulation D.
(e) Not applicable.
(f) Not applicable.
(ix) 1998-1999 Series C Convertible Preferred Stock Financing.
(a) Between December 1998 and March 1999, the Registrant issued an
additional 102,632 shares of Series C Preferred Stock and contingent
warrants expiring in December 31, 2003 exercisable at $3.00 per share.
(b) The shares were issued to accredited investors within the meaning of
Regulation D.
(c) The Registrant received $10.3 million from the sale of the shares.
(d) Based upon representations of the purchasers of the shares of Series C
Preferred Stock and warrants issued in conjunction therewith, such shares
were sold in reliance upon an exemption from registration under Section
4(2) of the Securities Act and in reliance on Rules 502 and 506 of
Regulation D promulgated thereunder.
(e) Not applicable.
(f) Not applicable.
II-5
<PAGE> 83
ITEM 16. EXHIBITS
The exhibits and financial statement schedules filed as a part of the
Registration Statement are as follows:
<TABLE>
<S> <C>
(a) List of Exhibits
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of
Online Resources & Communications Corporation
3.2 Form of Amended and Restated Bylaws of Online Resources &
Communications Corporation
4.1 Specimen of Common Stock Certificate of Online Resources &
Communications Corporation
4.2 Form of warrants issued in 1995 in conjunction with bridge
notes
4.3 Form of warrants issued in 1995 and 1996 to purchasers of
notes due December 31, 1997
4.4 Form of warrants issued to purchasers of senior notes due
June 30, 1999
4.5 Form of warrants issued to purchasers of Series C preferred
stock in 1997
4.6 Form of warrants issued to Dominion Fund IV
4.7 Form of warrants issued in 1998 to Sirrom Capital
Corporation
4.8 Form of warrants issued to purchasers of Series C preferred
stock in 1998 and 1999
4.9 Form of warrants issued to placement agents
4.10 Registration Rights Agreement for purchasers of common stock
in 1995
4.11 Registration Rights Agreement for purchasers of Series C
preferred stock and Sirrom Capital Corporation
5.1 Opinion of Patton Boggs LLP regarding legality
10.1 Lease Agreement for premises at 7600 Colshire Drive, McLean,
Virginia
10.2 Online Resources & Communications Corporation 1989 Stock
Option Plan
10.3 Loan Agreement dated June 3, 1997 with Dominion Fund IV
10.4 Security Agreement Dated June 3, 1997 with Dominion Fund IV
10.5 Loan Agreement dated March 31, 1998 and amendment thereto
with Sirrom Capital Corporation
10.6 Security Agreement dated March 31, 1998 with Sirrom Capital
Corporation
10.7 Form of Stock Option Plan
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Patton Boggs LLP (included in Exhibit 5.1)
24.1* Powers of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------
* Previously filed
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Account and Reserve is included in this
Registration Statement beginning on Page II-9.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE> 84
(2) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(3) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 85
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Fairfax,
State of Virginia, on April 26, 1999.
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By: /s/ MATTHEW P. LAWLOR
---------------------------------------
Name: Matthew P. Lawlor Title:
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MATTHEW P. LAWLOR Chief Executive Officer and Chairman (Principal April 26, 1999
- -------------------------------------------------------- Executive Officer)
Matthew P. Lawlor
/s/ GEORGE E. NORTHUP* Senior Vice President, Chief Financial Officer April 26, 1999
- -------------------------------------------------------- (Principal Financial and Accounting Officer)
George E. Northup
/s/ THOMAS S. JOHNSON* Director April 26, 1999
- --------------------------------------------------------
Thomas S. Johnson
/s/ JOSEPH J. SPALLUTO* Director April 26, 1999
- --------------------------------------------------------
Joseph J. Spalluto
/s/ DAVID A. O'CONNOR* Director April 26, 1999
- --------------------------------------------------------
David A. O'Connor
/s/ BARRY F. FINGERHUT* Director April 26, 1999
- --------------------------------------------------------
Barry F. Fingerhut
/s/ GEORGE M. MIDDLEMAS* Director April 26, 1999
- --------------------------------------------------------
George M. Middlemas
/s/ MICHAEL K. LEE* Director April 26, 1999
- --------------------------------------------------------
Michael K. Lee
/s/ MICHAEL H. HEATH* Director April 26, 1999
- --------------------------------------------------------
Michael H. Heath
*By: /s/ MATTHEW P. LAWLOR
- --------------------------------------------------------
Matthew P. Lawlor
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 86
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS, ON
FINANCIAL STATEMENT SCHEDULE
We have audited the financial statements of Online Resources & Communications
Corporation as of December 31, 1997 and 1998, and for each of the three years in
the period ended December 31, 1998, and have issued our report thereon dated
February 26, 1999 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statements schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Vienna, Virginia
February 26, 1999
<PAGE> 87
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT AND RESERVE
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
CLASSIFICATION PERIOD ADDITIONS DEDUCTIONS PERIOD
- -------------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996............................ $ -- $ 26,000 $ -- $ 26,000
Year ended December 31, 1997............................ $ 26,000 $ 53,553 -- $ 79,553
Year ended December 31, 1998............................ $ 79,553 -- $28,118 $ 51,435
Inventory Reserve:
Year ended December 31, 1996............................ $324,897 $ 77,741 -- $402,638
Year ended December 31, 1997............................ $402,638 $496,721 -- $899,359
Year ended December 31, 1998............................ $899,359 -- $83,542 $815,817
</TABLE>
<PAGE> 88
Graphic - p 27
Circular graphic illustrating Online's financial electronic commerce
network which depicts the connectivity of clients, retail customers and
financial service providers, as well as the integration of data among such
parties.
Graphic - p 31
Graphic depicting how Online integrates data and links financial
institutions, financial service providers and retail customers of financial
institutions.
Graphic p 32
Graphic depicting flow chart of Online's patented ATM network-based process
by illustrating the steps involved when a retail customer uses our services.
Prospectus Cover Page
- -------------------
Graphic displaying a map of the United States with a list of representative
clients.
<PAGE> 1
EXHIBIT 1.1
[FORM OF UNDERWRITING AGREEMENT]
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Shares of Common Stock
Underwriting Agreement
, 1999
J.P. MORGAN SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.
KEEFE, BRUYETTE & WOODS
As Representatives of several underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
Online Resources & Communications Corporation, a Delaware
corporation (the "Company"), proposes to issue and sell to the several
Underwriters listed in Schedule I hereto (the "Underwriters"), for whom you are
acting as representatives (the "Representatives") an aggregate of shares (the
"Underwritten Shares") of common stock, par value $.0001 per share, of the
Company (the "Common Stock") and, for the sole purpose of covering
over-allotments in connection with the sale of the Underwritten Shares, at the
option of the Underwriters, up to an additional shares (the "Option Shares" and,
together with the Underwritten Shares, the "Shares") of Common Stock.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares. The registration
statement as amended at the time when it shall become effective including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the prospectus in the
form first used to confirm sales of Shares is referred to in this Agreement as
the "Prospectus". If the Company has filed an abbreviated registration statement
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
The Company hereby agrees with the Underwriters as follows:
<PAGE> 2
-2-
1. The Company agrees to issue and sell the Underwritten
Shares to the several Underwriters as hereinafter provided, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase,
severally and not jointly, from the Company the respective number of
Underwritten Shares set forth opposite such Underwriter's name in Schedule I
hereto at a purchase price per share of $ (the "Purchase Price").
In addition, the Company agrees to issue and sell the Option
Shares to the several Underwriters as hereinafter provided, and the Underwriters
on the basis of the representations and warranties herein contained, but subject
to the conditions hereinafter stated, shall have the option to purchase,
severally and not jointly, from the Company up to an aggregate of Option Shares
at the Purchase Price, for the sole purpose of covering over-allotments (if any)
in the sale of Underwritten Shares by the several Underwriters.
If any Option Shares are to be purchased, the number of Option
Shares to be purchased by each Underwriter shall be the number of Option Shares
which bears the same ratio to the aggregate number of Option Shares being
purchased as the number of Underwritten Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number increased as set forth in
Section 9 hereof) bears to the aggregate number of Underwritten Shares being
purchased from the Company by the several Underwriters, subject, however, to
such adjustments to eliminate any fractional Shares as the Representatives in
their sole discretion shall make.
The Underwriters may exercise the option to purchase the
Option Shares at any time (but not more than once) on or before the thirtieth
day following the date of this Agreement, by written notice from the
Representatives to the Company. Such notice shall set forth the aggregate number
of Option Shares as to which the option is being exercised and the date and time
when the Option Shares are to be delivered and paid for which may be the same
date and time as the Closing Date (as hereinafter defined) but shall not be
earlier than the Closing Date nor later than the tenth full Business Day (as
hereinafter defined) after the date of such notice (unless such time and date
are postponed in accordance with the provisions of Section 9 hereof). Any such
notice shall be given at least two Business Days prior to the date and time of
delivery specified therein.
2. The Company understands that the Underwriters intend (i) to
make a public offering of the Shares as soon after (A) the Registration
Statement has become effective and (B) the parties hereto have executed and
delivered this Agreement, as in the judgment of the Representatives is advisable
and (ii) initially to offer the Shares upon the terms set forth in the
Prospectus.
3. Payment for the Shares shall be made by wire transfer in
immediately available funds to the account specified by the Company to the
Representatives in the case of
<PAGE> 3
-3-
the Underwritten Shares, on , 1999, or at such other time on the
same or such other date, not later than the fifth Business Day thereafter, as
the Representatives and the Company may agree upon in writing or, in the case of
the Option Shares, on the date and time specified by the Representatives in the
written notice of the Underwriters' election to purchase such Option Shares. The
time and date of such payment for the Underwritten Shares is referred to herein
as the "Closing Date" and the time and date for such payment for the Option
Shares, if other than the Closing Date, are herein referred to as the
"Additional Closing Date". As used herein, the term "Business Day" means any day
other than a day on which banks are permitted or required to be closed in New
York City.
Payment for the Shares to be purchased on the Closing Date or
the Additional Closing Date, as the case may be, shall be made against delivery
to the Representatives for the respective accounts of the several Underwriters
of the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company. The certificates for
the Shares will be made available for inspection and packaging by the
Representatives at the office of J.P. Morgan Securities Inc. set forth above not
later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date or the Additional Closing Date, as the case may be.
4. The Company represents and warrants to each Underwriter
that:
(a) no order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission, and each
preliminary prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant
to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by such Underwriter through the Representatives
expressly for use therein;
(b) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to the knowledge of the Company,
threatened by the Commission; and the Registration Statement and
Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) comply, or will
comply, as the case may be, in all material respects with the
Securities Act and do not and will not, as
<PAGE> 4
-4-
of the applicable effective date as to the Registration Statement and
any amendment thereto and as of the date of the Prospectus and any
amendment or supplement thereto, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
the Prospectus, as amended or supplemented, if applicable, at the
Closing Date or Additional Closing Date, as the case may be, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; except that
the foregoing representations and warranties shall not apply to
statements or omissions in the Registration Statement or the Prospectus
made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through the Representatives expressly for use therein;
(c) the financial statements, and the related notes thereto,
included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the dates indicated
and the results of its operations and changes in their consolidated
cash flows for the periods specified; and said financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis, and the supporting schedules
included in the Registration Statement present fairly the information
required to be stated therein;
(d) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company,
or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general
affairs, business, prospects, management, financial position,
stockholders' equity or results of operations of the Company (a
"Material Adverse Change") otherwise than as set forth or contemplated
in the Prospectus; and except as set forth or contemplated in the
Prospectus, the Company has not entered into any transaction or
agreement (whether or not in the ordinary course of business) material
to the Company;
(e) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in
the Prospectus, and has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, other than
where the failure to be so qualified or in good standing would not have
a material adverse effect on the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operations of the Company (a "Material Adverse Effect");
<PAGE> 5
-5-
(f) the Company has no subsidiaries;
(g) this Agreement has been duly authorized, executed and
delivered by the Company;
(h) the Company has an authorized capitalization as set forth
in the Prospectus and such authorized capital stock conforms as to
legal matters to the description thereof set forth in the Prospectus,
and all of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully-paid and
non-assessable and are not subject to any pre-emptive or similar
rights; and, except as described in or expressly contemplated by the
Prospectus, there are no outstanding rights (including, without
limitation, pre-emptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in the Company, or any contract,
commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any capital stock of the Company, any such
convertible or exchangeable securities or any such rights, warrants or
options;
(i) the Shares have been duly authorized, and, when issued and
delivered to and paid for by the Underwriters in accordance with the
terms of this Agreement, will be duly issued and will be fully paid and
non-assessable and will conform to the descriptions thereof in the
Prospectus; and the issuance of the Shares is not subject to any
preemptive or similar rights;
(j) the Company is not, or with the giving of notice or lapse
of time or both would not be, in violation of or in default under, its
certificate of incorporation (the "Certificate of Incorporation") or
by-laws (the "By-Laws") or any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a
party or by which it or any of its properties is bound, except for
violations and defaults which individually and in the aggregate are not
material to the Company; the issue and sale of the Shares and the
performance by the Company of its obligations under this Agreement and
the consummation of the transactions contemplated herein will not
conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of
the property or assets of the Company is subject, nor will any such
action result in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company or any applicable law or
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties; and no consent, approval, authorization, order, license,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
<PAGE> 6
-6-
consummation by the Company of the transactions contemplated by this
Agreement, except such consents, approvals, authorizations, orders,
licenses, registrations or qualifications as have been obtained under
the Securities Act and as may be required under state securities or
Blue Sky Laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(k) other than as set forth or contemplated in the Prospectus,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its properties or to which
the Company is or may be a party or to which any property of the
Company is or may be the subject which, if determined adversely to the
Company, could individually or in the aggregate have, or reasonably be
expected to have, a Material Adverse Effect, and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others; and there are no
statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required;
(l) the Company has good and marketable title in fee simple to
all items of real property and good and marketable title to all
personal property owned by it, in each case free and clear of all
liens, encumbrances and defects except such as are described or
referred to in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made or
proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by it
under valid, existing and enforceable leases with such exceptions as
are not material and do not interfere with the use made or proposed to
be made of such property and buildings by the Company;
(m) no relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required by the Securities Act to be described in the
Registration Statement and the Prospectus which is not so described;
(n) no person has the right to require the Company to register
any securities for offering and sale under the Securities Act by reason
of the filing of the Registration Statement with the Commission or the
issue and sale of the Shares;
(o) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or
an entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
<PAGE> 7
-7-
(p) Ernst & Young LLP ("Ernst & Young") who have certified
certain financial statements of the Company, are independent public
accountants as required by the Securities Act;
(q) the Company has filed all federal, state, local and
foreign tax returns which have been required to be filed and have paid
all taxes shown thereon and all assessments received by them or any of
them to the extent that such taxes have become due and are not being
contested in good faith; and, except as disclosed in the Registration
Statement and the Prospectus, there is no tax deficiency which has been
or might reasonably be expected to be asserted or threatened against
the Company;
(r) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the
price of the Common Stock;
(s) the Company owns, possesses or has obtained all licenses,
permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with,
all federal, state, local and other governmental authorities (including
foreign regulatory agencies), all self-regulatory organizations and all
courts and other tribunals, domestic or foreign, necessary to own or
lease, as the case may be, and to operate its properties and to carry
on its business as conducted as of the date hereof, and Company has not
received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization, except as described in the
Registration Statement and the Prospectus; and the Company is in
compliance with all laws and regulations relating to the conduct of its
business as conducted as of the date hereof;
(t) there are no existing or, to the best knowledge of the
Company, threatened labor disputes with or slowdowns, strikes or work
stoppages involving the employees of the Company which are likely to
have a Material Adverse Effect;
(u) the Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or
other approvals required of them under applicable Environmental Laws to
conduct its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a Material Adverse Effect;
<PAGE> 8
-8-
(v) in the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company, in the course of
which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly
or in the aggregate, have a Material Adverse Effect;
(w) each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") that is maintained, administered or contributed to
by the Company or any of its affiliates for employees or former
employees of the Company and its affiliates has been maintained in
compliance with its terms and the requirements of any applicable
statutes, orders, rules and regulations, including but not limited to
ERISA and the Internal Revenue Code of 1986, as amended ("Code"). No
prohibited transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code has occurred with respect to any such plan
excluding transactions effected pursuant to a statutory or
administrative exemption. For each such plan which is subject to the
funding rules of Section 412 of the Code or Section 302 of ERISA no
"accumulated funding deficiency" as defined in Section 412 of the Code
has been incurred, whether or not waived, and the fair market value of
the assets of each such plan (excluding for these purposes accrued but
unpaid contributions) exceeded the present value of all benefits
accrued under such plan determined using reasonable actuarial
assumptions;
(x) the statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable;
(y) except for compensation to be received by the Underwriters
under this Agreement, the Company does not know of any outstanding
claims for services, either in the nature of a finder's fee or
origination fee, with respect to any of the transactions contemplated
hereby;
(z) the Company owns, is licensed to use or otherwise
possesses adequate rights to use the patents, patent rights, licenses,
inventions, trademarks, service marks, trade names, copyrights and
know-how, including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures (collectively, the "Intellectual Property"), reasonably
necessary to carry on the business conducted by it, except to the
extent that the failure to own, license to use or otherwise possess
adequate rights to use such Intellectual Property would not have a
Ma-
<PAGE> 9
-9-
terial Adverse Effect, and, except as described in the Registration
Statement and the Prospectus, the Company has no knowledge of
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property, except for notices the content of which
if accurate would not have a Material Adverse Effect;
(aa) The Company has reviewed its operations and any third
parties with which the Company has a material relationship to evaluate
the extent to which the business or operations of the Company will be
affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year
2000 Problem will have a Material Adverse Effect or result in any
material loss or interference with the Company's business or
operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000; and
(bb) The Company carries insurance in such amounts and
covering such risks as is adequate for the conduct of the Company's
business and the value of its properties.
5. The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its best efforts to cause the Registration
Statement to become effective at the earliest possible time and, if
required, to file the final Prospectus with the Commission within the
time periods specified by Rule 424(b) and Rule 430A under the
Securities Act and to furnish copies of the Prospectus to the
Underwriters in New York City prior to 10:00 a.m., New York City time,
on the Business Day next succeeding the date of this Agreement in such
quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the
Representatives four (4) signed copies of the Registration Statement
(as originally filed) and each amendment thereto, in each case
including exhibits, and to each other Underwriter a conformed copy of
the Registration Statement (as originally filed) and each amendment
thereto, in each case without exhibits and, during the period mentioned
in paragraph (e) below, to each of the Underwriters as many copies of
the Prospectus (including all amendments and supplements thereto) as
the Representatives may reasonably request;
<PAGE> 10
-10-
(c) before filing any amendment or supplement to the
Registration Statement or the Prospectus, whether before or after the
time the Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for
review and not to file any such proposed amendment or supplement to
which the Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm
such advice in writing (i) when the Registration Statement has become
effective, (ii) when any amendment to the Registration Statement has
been filed or becomes effective, (iii) when any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof, (iv) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus or the initiation or threatening of any proceeding for
that purpose, (vi) of the occurrence of any event, within the period
referenced in paragraph (e) below, as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, and (vii) of
the receipt by the Company of any notification with respect to any
suspension of the qualification of the Shares for offer and sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; and to use its best efforts to prevent the issuance of
any such stop order, or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus, or of any order
suspending any such qualification of the shares, or notification of any
such order thereof and, if issued, to obtain as soon as possible the
withdrawal thereof;
(e) if, during such period of time after the first date of the
public offering of the Shares as in the opinion of counsel for the
Underwriters a prospectus relating to the Shares is required by law to
be delivered in connection with sales by the Underwriters or any
dealer, any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with law, forthwith to
prepare and furnish, at the expense of the Company, to the Underwriters
and to the dealers (whose names and addresses the Representatives will
furnish to the Company) to which Shares may have been sold by the
Representatives on behalf of the Underwriters and to any other dealers
upon request, such amendments or supplements to the Prospectus as may
be necessary so that the statements in the Prospec-
<PAGE> 11
-11-
tus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with law;
(f) to endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution
of the Shares; provided that the Company shall not be required to file
a general consent to service of process in any jurisdiction;
(g) to make generally available to its security holders and to
the Representatives as soon as practicable an earnings statement
covering a period of at least twelve months beginning with the first
fiscal quarter of the Company occurring after the effective date of the
Registration Statement, which shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Commission promulgated
thereunder;
(h) so long as the Shares are outstanding, to furnish to the
Representatives copies of all reports or other communications
(financial or other) furnished to holders of the Shares, and copies of
any reports and financial statements furnished to or filed with the
Commission or any national securities exchange;
(i) for a period of 180 days after the date of the initial
public offering of the Shares not to (i) offer, pledge, announce the
intention to sell, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock, or any securities
of the Company which are substantially similar to the Common Stock, or
any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap, option, future, forward or
other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock or any
securities of the Company which are substantially similar to the Common
Stock, including, but not limited to, any security convertible into or
exercisable or exchangeable for Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or
otherwise, without the prior written consent of J.P. Morgan Securities
Inc., other than the Shares to be sold hereunder and any shares of
Common Stock of the Company issued upon the exercise of options granted
under existing employee stock option plans;
(j) to use the net proceeds received by the Company from the
sale of the Shares pursuant to this Agreement in the manner specified
in the Prospectus under the caption "Use of Proceeds";
<PAGE> 12
-12-
(k) to use its best efforts to list for quotation the Shares
on the National Market System of The Nasdaq Stock Market, Inc. (the
"Nasdaq National Market");
(l) to file with the Commission such reports as may be
required by Rule 463 under the Securities Act; and
(m) whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all costs and expenses incident to the performance of
its obligations hereunder, including without limiting the generality of
the foregoing, all costs and expenses (i) incident to the preparation,
issuance, execution and delivery of the Shares, (ii) incident to the
preparation, printing and filing under the Securities Act of the
Registration Statement, the Prospectus and any preliminary prospectus
(including in each case all exhibits, amendments and supplements
thereto), (iii) incurred in connection with the registration or
qualification of the Shares under the laws of such jurisdictions as the
Representatives may designate (including fees of counsel for the
Underwriters and its disbursements), (iv) in connection with the
listing of the Shares on the Nasdaq National Market, (v) related to the
filing with, and clearance of the offering by, the National Association
of Securities Dealers, Inc., (vi) in connection with the printing
(including word processing and duplication costs) and delivery of this
Agreement, the Preliminary and Supplemental Blue Sky Memoranda and the
furnishing to the Underwriters and dealers of copies of the
Registration Statement and the Prospectus, including mailing and
shipping, as herein provided, (vii) any expenses incurred by the
Company in connection with a "road show" presentation to potential
investors, (viii) the cost of preparing stock certificates and (ix) the
cost and charges of any transfer agent and any registrar.
6. The several obligations of the Underwriters hereunder to
purchase the Shares on the Closing Date or the Additional Closing Date, as the
case may be, are subject to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) the Registration Statement shall have become effective (or
if a post-effective amendment is required to be filed under the
Securities Act, such post-effective amendment shall have become
effective) not later than 5:00 P.M., New York City time, on the date
hereof; and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission; the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time
period prescribed for such filing by the rules and regulations under
the Securities Act and in accordance with Section 5(a) hereof; and all
re-
<PAGE> 13
-13-
quests for additional information shall have been complied with to the
satisfaction of the Representatives;
(b) the representations and warranties of the Company
contained herein are true and correct on and as of the Closing Date or
the Additional Closing Date, as the case may be, as if made on and as
of the Closing Date or the Additional Closing Date, as the case may be,
and the Company shall have complied with all agreements and all
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing Date or the Additional Closing Date, as the case
may be;
(c) subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or the Additional Closing Date, as the
case may be, there shall not have occurred any downgrading, nor shall
any notice have been given of (i) any downgrading, (ii) any intended or
potential downgrading or (iii) any review or possible change that does
not indicate an improvement, in the rating accorded any securities of
or guaranteed by the Company by any "nationally recognized statistical
rating organization", as such term is defined for purposes of Rule
436(g)(2) under the Securities Act;
(d) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the
capital stock or long-term debt of the Company or any Material Adverse
Change, or any development involving a prospective Material Adverse
Change, otherwise than as set forth or contemplated in the Prospectus,
the effect of which in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares on the Closing Date or the Additional Closing
Date, as the case may be, on the terms and in the manner contemplated
in the Prospectus; and the Company has not sustained since the date of
the latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus;
(e) the Representatives shall have received on and as of the
Closing Date or the Additional Closing Date, as the case may be, a
certificate of an executive officer of the Company, with specific
knowledge about the Company's financial matters, satisfactory to the
Representatives to the effect set forth in subsections (a) through (d)
(with respect to the respective representations, warranties, agreements
and conditions of the Company) of this Section and to the further
effect that there has not occurred any Material Adverse Change, or any
development involving a prospective Material Adverse Change from that
set forth or contemplated in the Registration Statement;
<PAGE> 14
-14-
(f) Patton Boggs LLP(1), counsel for the Company, shall have
furnished to the Representatives their written opinion, dated the
Closing Date or the Additional Closing Date, as the case may be, in
form and substance satisfactory to the Representatives, to the effect
that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with power and
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be
so qualified or in good standing would not have a Material
Adverse Effect;
(iii) the Company has no subsidiaries;
(iv) other than as set forth or contemplated in the
Prospectus, there are no legal or governmental investigations,
actions, suits or proceedings pending or, to the best of such
counsel's knowledge, threatened against or affecting the
Company or any of its properties or to which the Company or is
or may be a party or to which any property of the Company is
or may be the subject which, if determined adversely to the
Company, could individually or in the aggregate have, or
reasonably be expected to have, a Material Adverse Effect; to
the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others; and such counsel does not know of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(v) this Agreement has been duly authorized, executed
and delivered by the Company;
- ----------
(1) To be divided between Patton Boggs LLP and Michaels, Wishner & Bonner
P.C. as appropriate.
<PAGE> 15
-15-
(vi) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(vii) the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be sold by
the Company have been duly authorized and are validly issued,
fully paid and non-assessable;
(viii) the Shares to be issued and sold by the
Company hereunder have been duly authorized, and when
delivered to and paid for the Underwriters in accordance with
the terms of this Agreement, will be validly issued, fully
paid and non-assessable and the issuance of the Shares is not
subject to any preemptive or similar rights;
(ix) all holders of securities of the Company having
rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration
Statement by the Company have waived such rights or such
rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement;
(x) the statements in the Prospectus under
"Description of Capital Stock" and in the Registration
Statement in Items 14 and 15, insofar as such statements
constitute a summary of the terms of the Common Stock, legal
matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such terms,
legal matters, documents or proceedings;
(xi) such counsel is of the opinion that the
Registration Statement and the Prospectus and any amendments
and supplements thereto (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and believes that
(other than the financial statements and related schedules
therein, as to which such counsel need express no belief) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective did 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, and
that the Prospectus, as amended or supplemented, if
applicable, does not contain any untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
<PAGE> 16
-16-
(xii) the Company is not, or with the giving of
notice or lapse of time or both would not be, in violation of
or in default under, its Certificate of Incorporation or
By-Laws or any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such
counsel to which the Company is a party or by which it or any
of its properties is bound, except for violations and defaults
which individually and in the aggregate are not material to
the Company; the issue and sale of the Shares being delivered
on the Closing Date or the Additional Closing Date, as the
case may be, and the performance by the Company of its
obligations under this Agreement and the consummation of the
transactions contemplated herein will not conflict with or
result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known
to such counsel to which the Company is a party or by which
the Company is bound or to which any of the property or assets
of the Company is subject, nor will any such action result in
any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company or any applicable
law or statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the
Company or any of its properties;
(xiii) no consent, approval, authorization, order,
license, registration or qualification of or with any court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation of the other transactions
contemplated by this Agreement, except such consents,
approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act
and as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Shares
by the Underwriters;
(xiv) the Company is not and, after giving effect to
the offering and sale of the Shares, will not be an
"investment company" or entity "controlled" by an "investment
company", as such terms are defined in the Investment Company
Act;
(xv) the Company owns, possesses or has obtained all
licenses, permits, certificates, consents, orders, approvals
and other authorizations from, and has made all declarations
and filings with, all federal, state, local and other
governmental authorities (including foreign regulatory
agencies), all self-regulatory organizations and all courts
and other tribunals, domestic or foreign, necessary to own or
lease, as the case may be, and to operate its properties and
to carry on its business as conducted as of the date hereof,
and the Company
<PAGE> 17
-17-
has not received any actual notice of any proceeding relating
to revocation or modification of any such license, permit,
certificate, consent, order, approval or other authorization,
except as described in the Registration Statement and the
Prospectus; and the Company is in compliance with all laws and
regulations relating to the conduct of its business as
conducted as of the date of the Prospectus;
(xvi) the Company has good and marketable title in
fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and
clear of all liens, encumbrances and defects except such as
are described or referred to in the Prospectus or such as do
not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings
held under lease by the Company are held by it under valid,
existing and enforceable leases with such exceptions as are
not material and do not interfere with the use made or
proposed to be made of such property and buildings by the
Company; and
(xvii) the Company is in compliance with all
Environmental Laws, except, in each case, where noncompliance,
individually or in the aggregate, would not have a Material
Adverse Effect; there are no legal or governmental proceedings
pending or, to the knowledge of such counsel, threatened
against or affecting the Company under any Environmental Law
which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and the State of New York and the General Corporation Law
of the State of Delaware, to the extent such counsel deems proper and
to the extent specified in such opinion, if at all, upon an opinion or
opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel reasonably acceptable to the
Underwriters' counsel, familiar with the applicable laws; (B) as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and certificates or
other written statements of officials of jurisdictions having custody
of documents respecting the corporate existence or good standing of the
Company. The opinion of such counsel for the Company shall state that
the opinion of any such other counsel upon which they relied is in form
satisfactory to such counsel and, in such counsel's opinion, the
Underwriters and they are justified in relying thereon. With respect to
the matters to be covered in subparagraph (x) above counsel may state
their opinion and belief is based upon their participation in the
preparation of the Registration Statement and the
<PAGE> 18
-18-
Prospectus and any amendment or supplement thereto and review and
discussion of the contents thereof but is without independent check or
verification except as specified.
The opinion of Patton Boggs, LLP described above shall be
rendered to the Underwriters at the request of the Company and shall so
state therein.
(g) [ ], special intellectual property counsel
for the Company, shall have furnished to the Representatives their
written opinion, dated the Closing Date or the Additional Closing Date,
as the case may be, to the effect that the Company owns the entire
right, title and interest in and to any and all Intellectual Property
used in the Company's business or licensed by the Company for use by
others; any such items licensed to the Company by other parties have
been licensed pursuant to a valid and enforceable license agreement and
such use is in conformity with the license agreement; and to the best
of such Counsel's knowledge, other than set forth or contemplated in
the Prospectus, there are no pending or threatened proceedings or
litigation affecting, challenging or with respect to the validity or
otherwise of such patents, trademarks, trade names or copyrights, or
any license for use of such items (whether by or to the Company);
(h) on the effective date of the Registration Statement and
the effective date of the most recently filed post-effective amendment
to the Registration Statement and also on the Closing Date or
Additional Closing Date, as the case may be, Ernst & Young shall have
furnished to you letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, containing
statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus;
(i) the Representatives shall have received on and as of the
Closing Date or Additional Closing Date, as the case may be, an opinion
of Cahill Gordon & Reindel, counsel to the Underwriters, with respect
to the due authorization and valid issuance of the Shares, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(j) the Shares to be delivered on the Closing Date or
Additional Closing Date, as the case may be, shall have been approved
for listing on the Nasdaq National Market, subject to official notice
of issuance;
<PAGE> 19
-19-
(k) on or prior to the Closing Date or Additional Closing
Date, as the case may be, the Company shall have furnished to the
Representatives such further certificates and documents as the
Representatives shall reasonably request; and
(l) the "lock-up" agreements, each substantially in the form
of Exhibit A hereto, of certain stockholders, officers and directors of
the Company identified by the Representatives relating to sales and
certain other dispositions of shares of Common Stock or certain other
securities, delivered to you on or before the date hereof, shall be in
full force and effect on the Closing Date or Additional Closing Date,
as the case may be.
7. The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages and liabilities
(including, without limitation, the legal fees and other expenses incurred in
connection with any suit, action or proceeding or any claim asserted) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through the Representatives expressly for use therein.
Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person who controls the Company within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only with reference to information relating to such Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use in the Registration Statement, the Prospectus,
any amendment or supplement thereto, or any preliminary prospectus.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to the preceding
paragraphs of this Section 7, such person (the "Indemnified Person") shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request of
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person
<PAGE> 20
-20-
may designate in such proceeding and shall pay the fees and expenses of such
counsel related to such proceeding. In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Person unless (i)
the Indemnifying Person and the Indemnified Person shall have mutually agreed to
the contrary, (ii) the Indemnifying Person has failed within a reasonable time
to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Underwriters and such control persons
of Underwriters shall be designated in writing by J.P. Morgan Securities Inc.
and any such separate firm for the Company, its directors, its officers who sign
the Registration Statement and such control persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the Indemnifying Person agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person
shall not have reimbursed the Indemnified Person in accordance with such request
prior to the date of such settlement. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the
subject matter of such proceeding.
If the indemnification provided for in the first three
paragraphs of this Section 7 is unavailable to an Indemnified Person or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Person under such paragraph, in lieu of
indemnifying such Indemnified Person thereunder, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the
<PAGE> 21
-21-
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other hand shall be deemed to be in the same respective proportions as
the net proceeds from the offering (before deducting expenses) received by the
Company and the total underwriting discounts and the commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate public offering price of the Shares. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purposes) or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section ll(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares set forth opposite their names in Schedule I hereto,
and not joint.
The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
<PAGE> 22
-22-
The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any other person controlling
the Company and (iii) acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement
(or the obligations of the several Underwriters with respect to the Option
Shares) may be terminated in the absolute discretion of the Representatives, by
notice given to the Company, if after the execution and delivery of this
Agreement and prior to the Closing Date (or, in the case of the Option Shares,
prior to the Additional Closing Date) (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange or the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of or guaranteed by the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities, or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in the judgment of the Representatives, is material and
adverse and which, in the judgment of the Representatives, makes it
impracticable to market the Shares being delivered at the Closing Date or the
Additional Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pur-
<PAGE> 23
-23-
suant to Section 1 be increased pursuant to this Section 9 by an amount in
excess of one-ninth of such number of Shares without the written consent of such
Underwriter. If on the Closing Date or the Additional Closing Date, as the case
may be, any Underwriter or Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares with respect to which such default occurs is more
than one-tenth of the aggregate number of Shares to be purchased on such date,
and arrangements satisfactory to the Representatives and the Company for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement (or the obligations of the several Underwriters to purchase the Option
Shares, as the case may be) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date (or, in the case of
the Option Shares, the Additional Closing Date), but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. If this Agreement shall be terminated by the Underwriters,
or any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement or any condition of the Underwriters' obligations cannot be
fulfilled, the Company agrees to reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and expenses of its counsel)
reasonably incurred by the Underwriter in connection with this Agreement or the
offering contemplated hereunder.
11. This Agreement shall inure to the benefit of and be
binding upon the Company, the Underwriters, any controlling persons referred to
herein and their respective successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person, firm or corporation any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. No purchaser
of Shares from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by
the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of
the Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260
<PAGE> 24
-24-
(telefax:______); Attention: Syndicate Department. Notices to the Company shall
be given to it at 7600 Colshire Drive, McLean, Virginia 22102 (telefax: (703)
394-5107); Attention: Chief Financial Officer.
13. This Agreement may be signed in counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
<PAGE> 25
-25-
If the foregoing is in accordance with your understanding,
please sign and return four counterparts hereof.
Very truly yours,
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By:
-----------------------------------
Name:
Title:
<PAGE> 26
-26-
Accepted: , 1999
J.P. MORGAN SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.
KEEFE, BRUYETTE & WOODS
Acting severally on behalf of themselves and
the several Underwriters named in Schedule I
hereto
By: J.P. MORGAN SECURITIES INC.
By:
--------------------------------------------
Title:
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares
Underwriter To Be Purchased
- ----------- ---------------
<S> <C>
J.P. Morgan Securities Inc.............................................
U.S. Bancorp Piper Jaffrey Inc.........................................
Keefe, Bruyette & Woods................................................
.......................................................................
-----
Total
=====
</TABLE>
<PAGE> 28
Exhibit A
LOCK-UP AGREEMENT
, 1999
J.P. MORGAN SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.
KEEFE, BRUYETTE & WOODS
As Representatives of the several
Underwriters named in Schedule I to
the Underwriting Agreement referred to below
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Re: Online Resources & Communications Corporation - Initial Public Offering
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of
the several Underwriters, propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Online Resources & Communications Corporation, a
Delaware corporation (the "Company"), providing for the initial public offering
(the "Public Offering") by the several Underwriters named in Schedule I to the
Underwriting Agreement (the "Underwriters"), of Common Stock, $.0001 par value
(the "Common Stock"), of the Company. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Underwriting
Agreement.
In consideration of the Underwriters' agreement to purchase
and make the Public Offering of the Common Stock, and for other good and
valuable consideration receipt of which is hereby acknowledged, the undersigned
hereby agrees that, without the prior written consent of J.P. Morgan Securities
Inc. on behalf of the Underwriters, the undersigned will not, during the period
ending 180 days after the date of the prospectus relating to the Public Offering
(the "Prospectus"), (1) offer, pledge, announce the intention to sell, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly,
<PAGE> 29
-29-
any shares of Common Stock of the Company, or any securities of the Company
which are substantially similar to the Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock (including, but
not limited to, Common Stock which may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the Securities and
Exchange Commission and securities which may be issued upon exercise of a stock
option or warrant) or (2) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the Common Stock or any securities of the Company which are
substantially similar to the Common Stock, including, but not limited to, any
security convertible into or exercisable or exchangeable for Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. In addition, the undersigned agrees that, without the prior written
consent of J.P. Morgan Securities Inc. on behalf of the Underwriters, it will
not, during the period ending 180 days after the date of the Prospectus, make
any demand for or exercise any right with respect to, the registration of any
shares of Common Stock or any substantially similar securities of the Company,
including but not limited to, any security convertible into or exercisable or
exchangeable for Common Stock.
In furtherance of the foregoing, the Company and any duly
appointed transfer agent for the registration or transfer of the securities
described herein are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Lock-Up Agreement.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into this Lock-up Agreement.
All authority herein conferred or agreed to be conferred and any obligations of
the undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.
The undersigned understands that, if the Underwriting
Agreement does not become effective, or if the Underwriting Agreement (other
than the provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Common Stock to be sold
thereunder, the undersigned shall be released from all obligations under this
Lock-Up Agreement.
The undersigned understands that the Underwriters are entering
into the Underwriting Agreement and proceeding with the Public Offering in
reliance upon this Lock-Up Agreement.
<PAGE> 30
-30-
THIS LOCK-UP AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
Very truly yours,
[ ]
By:
-----------------------------------
Name:
Title:
Accepted as of the date
first set forth above:
J.P. MORGAN SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.
KEEFE, BRUYETTE & WOODS
Acting severally on behalf of themselves and
the several Underwriters named in Schedule I
to the Underwriting Agreement
By: J.P. MORGAN SECURITIES INC.
By:
--------------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
(ORIGINALLY INCORPORATED FEBRUARY 22, 1989 UNDER THE NAME
ONLINE RESOURCES, LTD.)
FIRST: The name of the Corporation is Online Resources and
Communications Corporation.
SECOND: The address of the Corporation's registered office in Delaware
is 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The
registered agent at this address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of capital stock of all classes
which the company shall have authority to Issue is Thirty Eight Million
(38,000,000) shares of which thirty five million (35,000,000) shares, of a par
value of 1/100th of (one cent) per share shall be a class designated "Common
Stock" and three million (3,000,000) shares of a par value of $.01 per share,
shall be of a class designated Series Preferred Stock and, of that class of
Series Preferred Stock, one million (1,000,000) shares of a par value of one
cent ($.01) per share, shall be designated as Series A Convertible Preferred
Stock.
The Board of Directors is expressly authorized, from time to time, (1)
to affix the number of shares of one or more series of Series Preferred Stock,
(2) to determine the designation of any such series, (3) to determine or alter,
without limitation or restriction, the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Series
Preferred Stock and (4) within the limits or restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not
below the number of shares then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series.
The designations, preferences, privileges and powers and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the Series A Convertible Preferred Stock (hereafter "Series
A Preferred Stock") shall be as follows:
A. Voting and Dividend Rights of the Series A Preferred Stock.
1. Voting. Except as may be otherwise provided by law or by the
Certificate of Incorporation of the Corporation, the Series A Preferred Stock
shall vote together with all other classes and series of stock of the
Corporation as a single class on all actions to be taken by the stockholders of
the Corporation. In addition, to the extent required by the General Corporation
<PAGE> 2
Law of the State of Delaware, the Series A Preferred Stock shall vote
separately as its own series. Each share of Series A Preferred Stock shall
entitle the respective holder thereof (i) when voted in conjunction with all
shares of the Corporation's voting stock, to such number of votes per share on
each such action as shall equal the number of shares of Common Stock (including
fractions of a share) into which each share of such Series A Preferred Stock is
convertible (as calculated in accordance with paragraph C of this Article
FOURTH) (such number of shares being referred to as the "Conversion Shares") at
the record date for the determination of stockholders entitled to vote on such
matters or, if no such record date is established, at the date such vote is
taken or on the dates any written consent of stockholders is solicited and (ii)
to one vote per share when voted solely in conjunction with other shares of its
series.
2. Dividends. The holders of the Series A Preferred Stock shall each
be entitled to receive dividends at the same rate as such dividends are
declared with respect to shares of the Common Stock. In connection with
dividends declared with respect to the Common Stock, each share of Series A
Preferred Stock shall be deemed to represent the Conversion Shares at the
record date for the determination of stockholders entitled to receive such
dividends. In addition, dividends shall be declared separately on shares of the
Series A Preferred Stock at such time and at such rate as the Board of
Directors may, from time to time, determine.
B. Liquidation Preferences of Series A Preferred Stock.
1. Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the shares of Series A
Preferred Stock shall be entitled, before any distribution or payment is made
upon the Common Stock, to be paid, with respect to each share of Series A
Preferred Stock, an amount equal to the sum of $1.00 plus all dividends, if
any, declared but unpaid on such share, computed to the date payment thereof is
made available (such aggregate amount to be paid with respect to all shares of
Series A Preferred Stock being referred to as the "Series A Liquidation
Payment").
2. If upon such liquidation, dissolution or winding up, the assets to
be distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit payment of the Series A Liquidation Payment, then the
entire assets of the Corporation to be so distributed shall be distributed
ratably among the holders of the Series A Preferred Stock.
3. After payment in full of the Series A Liquidation Payment, the
remaining net assets of the Corporation (the "Remaining Assets") shall be
distributed ratably among the holders of the Common Stock.
4. Written notice of such liquidation, dissolution or winding up,
stating a payment date (the "Liquidation Payment Date"), the amount of the
Series A Liquidation Payment and the Remaining Assets and the place where said
liquidation payments shall be payable, shall be given by mail, postage prepaid,
facsimile, same day or overnight delivery, or by telex to non-U.S. residents,
not less than twenty (20) days prior to the payment date stated therein, to the
holders of record of the Series A Preferred Stock, such notice to be addressed
to each such holder at its address as shown by the records of the Corporation.
2
<PAGE> 3
C. Conversion of Series A Preferred Stock.
The holders of shares of the Series A Preferred Stock shall have the following
conversion rights:
1. Right to Convert. Subject to the terms and conditions of this
paragraph C, the holder of any share or shares of Series A Preferred Stock
shall have the right, at its option, at any time (except that upon any
liquidation of the Corporation, the right of conversion shall terminate at the
close of business on the Liquidation Payment Date) to convert any such shares
of Series A Preferred Stock into such number of fully paid and nonassessable
shares of Common Stock as is obtained by multiplying the number of shares of
Series A Preferred Stock so to be converted by One Dollar ($1.00) and dividing
the product thereof by the Series A Conversion Price. For purposes hereof, the
Series A Conversion Price shall be One Dollar ($1.00), or such other amount
resulting from the adjustments made from time to time in accordance with the
provisions of paragraph C(4). The foregoing rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder elects
to convert a stated number of shares of Series A Preferred Stock into Common
Stock and by surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holders of the Series A Preferred Stock) at any time during its usual
business hours on the date set forth in such notice, together with a statement
of the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock shall be issued.
2. Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt of the written notice referred to in paragraph C(1) and surrender
of the certificate or certificates for the share or shares of Series A
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, a certificate or certificates
for the number of shares of Common Stock issuable upon the conversion of such
share or shares. To the extent permitted by law, such conversion shall be
deemed to have been effected as of the close of business on the first date on
which such written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
share or shares of Series A Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
3. Dividends; Partial Conversion. At the time of each conversion, the
Corporation shall pay in cash an amount equal to all dividends declared and
unpaid on the shares of Series A Preferred Stock being surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in paragraph C(2). In case the number of shares of Series A Preferred
Stock represented by the certificate or certificates surrendered pursuant to
paragraph C(2) exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series A Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted.
3
<PAGE> 4
4. Subdivision or Combination of Common Stock. In case the Corporation
shall at any time subdivide (by any stock split, stock dividend or otherwise)
its outstanding shares of Common Stock into a greater number of shares, the
Series A Conversion Price in effect immediately prior to such subdivision shall
be proportionately reduced and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the Series A
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
5. Reorganization or Reclassification. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as
a condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series A
Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Series A Preferred Stock, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the number of shares
of such Common Stock immediately theretofore receivable upon such conversion
had such reorganization or reclassification not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of such holder to the and that the provisions hereof (including
without limitation provisions for adjustments of the Series A Conversion Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
6. Notice of Adjustment. Upon any adjustment of the Series A
Conversion Price, the Corporation shall give written notice thereof, by first
class mail, postage prepaid, facsimile, same day or overnight delivery, or by
telex to non-U.S. residents, addressed to each holder of shares of the Series A
Preferred Stock, at the address of such holder as shown on the books of the
Corporation, which notice shall state the price resulting from such adjustment,
setting forth in reasonable detail the method upon which such calculation is
based.
7. Other Notices. In case at any time:
(i) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution
to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of
all or substantially all its assets to, another entity or entities; or
4
<PAGE> 5
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, facsimile, same day or overnight delivery, or by
telex to non-U.S. residents, addressed to each holder of any shares of Series A
Preferred Stock and Common Stock at the address of such holder as shown on the
books of the Corporation, (a) at least twenty (20) days prior written notice of
the date on which the books of the corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights 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, at least twenty (20) days prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto and such notice in accordance
with the foregoing clause (b) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the
case may be.
8. Stock to be Reserved. The Corporation shall at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issuance upon the conversion of the Series A Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of the Series A Preferred Stock. All
shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof and, without limiting the generality
of the foregoing, the Corporation will from time to time take all such action
as may be requisite to assure that the par value per share of the Common Stock
is at all times equal to or less than the Series A Conversion Price in effect
at the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
shall not take any action which results in any adjustment of the Series A
Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of such Series A Preferred Stock
would exceed the total number of shares of Common Stock then authorized by the
Certificate of Incorporation.
9. No Reissuance of Preferred Stock. Shares of Series A Preferred
Stock which are converted into shares of Common Stock as provided herein shall
not be reissued.
10. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any
5
<PAGE> 6
tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the holder of the
Series A Preferred Stock which is being converted.
11. Closing of Books. The Corporation shall at no time close its
transfer books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series A Preferred Stock in any manner which interferes with the timely
conversion of such Series A Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
12. No Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of one share of Common Stock as determined in good faith by the
Board of Directors.
13. Definition of Common Stock. As used in this paragraph C, the term
"Common Stock" shall mean and include the Corporation's authorized Common
Stock, par value one hundredth of one cent ($.0001) per share, as constituted
on the date of filing of this Certificate of Amendment, and shall also include
any capital stock of any class of the Corporation thereafter authorized which
shall not be limited to a fixed sum or percentage of par value in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of
Common Stock receivable upon conversion of shares of Series A Preferred Stock
shall include any shares designated as Common Stock of the Corporation on the
date of filing of this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in paragraph C.
14. Mandatory Conversion. Upon the occurrence of an Event of
Conversion (as defined below), all shares of Series A Preferred Stock then
outstanding shall, by virtue and simultaneously with the occurrence of the
Event of Conversion and without any action on the part of the holder thereof,
be deemed automatically converted into fully paid and non-accessible shares of
Common Stock in the manner provided in this paragraph C. The term Event of
Conversion means the first sale to the public of shares of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, from which the aggregate price of the shares sold is at least
$30,000,000 (or such lesser amount that the holders of Series C Convertible
Preferred Stock designated under a Corrected Certificate of Designation of
Preferences Powers. Privileges and Rights filed with the State of Delaware
Secretary of State on June 13, 1997, as the same may be amended from time to
time, thereafter approve) and the shares of Common Stock are listed for trading
either on a nationally recognized exchange reasonably acceptable to the holders
of more than 50% of the outstanding shares of Series C Convertible Preferred
Stock or the NASDAQ National Market System.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
6
<PAGE> 7
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by
this Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation.
B. Unless and except to the extent that the Bylaws of the Corporation
shall so require, the election of directors of the Corporation need not
be by written ballot.
C. No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized
directorships (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented
to the Board for adoption).
E. The holders of the Common Stock shall have no preemptive rights to
subscribe for any shares of any class of stock of the Corporation
whether now or hereafter authorized.
SIXTH:
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the Whole Board. The Directors shall be divided into
three classes, as nearly equal in numbers as the then total number of
directors constituting the entire Board permits with the term of
office of one class expiring each year. At the annual meeting of
stockholders in 1999 directors of the first class shall be elected to
hold office for a term expiring at the next succeeding annual meeting,
directors of the second class shall be elected to hold office for a
term expiring at the second succeeding annual meeting, and directors
of the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Notwithstanding the foregoing,
and except as otherwise required by law, whenever the holders of any
one or more series of Preferred Stock shall have the right, voting
separately as a class, to elect one or more directors of the
Corporation, the terms of the director or directors elected by such
holders shall expire at the next succeeding annual meeting of
stockholders. At each annual meeting of stockholders following such
initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual
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meeting of stockholders after their election with each Director to
hold office until his or her successor shall have been duly elected
and qualified.
B. Subject to the rights of holders of any series of
Preferred Stock outstanding, the newly created directorships resulting
from any increase in the authorized number of Directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may
be filled only by a majority vote of the Directors then in office,
though less than a quorum, and Directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No
decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election
of Directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the
manner provided in the Bylaws of the Corporation.
D. Notwithstanding any other provisions of this Certificate
of Incorporation or the Bylaws of the Corporation, any Director, or
the entire Board of Directors, may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of
at least 80 percent of the voting power of all of the then-outstanding
shares of capital stock of the Corporation entitled to vote generally
in the election of Directors, voting together as a single class.
Notwithstanding the foregoing, and except as otherwise required by
law, whenever the holders of any one or more series of Preferred Stock
shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the provisions of section D of this
Article shall not apply with respect to the director or directors
elected by such holders of Preferred Stock.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or
this Certificate of Incorporation, and except as otherwise expressly
provided in this Article EIGHTH:
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1. any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with: (i)
any Interested Stockholder (as hereinafter
defined); or (ii) any other corporation (whether
or not itself an Interested Stockholder) which
is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction
or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the
Corporation or any Subsidiary having an aggregate
Fair Market Value (as hereinafter defined)
equaling or exceeding 25% or more of the combined
assets of the Corporation and its Subsidiaries;
or
3. the issuance or transfer by the Corporation or
any Subsidiary (in one transaction or a series of
transactions) of any securities of the
Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or
other property (or a combination thereof) having
an aggregate Fair Market Value (as hereinafter
defined) equaling or exceeding 25% of the
combined Fair Market Value of the outstanding
common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer
pursuant to an employee benefit plan of the
Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation
proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of
the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or
into or otherwise involving an Interested
Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share
of the outstanding shares of any class of equity
or convertible securities of the Corporation or
any Subsidiary which is directly or indirectly
owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of
the voting power of the then-outstanding shares of stock of the
Corporation entitled to vote in the election of Directors (the "Voting
Stock") (after giving effect to the provisions of Article FOURTH),
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<PAGE> 10
voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law or by any other
provisions of this Certificate of Incorporation or any Preferred Stock
Designation or in any agreement with any national securities exchange
or otherwise.
The term "Business Combination" as used in this Article
EIGHTH shall mean any transaction which is referred to in any one or
more of paragraphs 1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall
not be applicable to any particular Business Combination, and such
Business Combination shall require only the affirmative vote of the
majority of the outstanding shares of capital stock entitled to vote
after giving effect to the provisions of Article FOURTH, or such vote
(if any), as is required by law or by this Certificate of
Incorporation, if, in the case of any Business Combination that does
not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as
stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the
following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by the holders of Common Stock
in such Business Combination shall at least be equal
to the higher of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date"); or (ii) in
the transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock
on the Announcement Date or on the date on which
the Interested Stockholder became an Interested
Stockholder (such latter
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date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
b. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by holders of shares of any
class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the
following (it being intended that the requirements of
this subparagraph (b) shall be required to be met with
respect to every such class of outstanding Voting
Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class
of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
for any shares of such class of Voting Stock
acquired by it: (i) within the two-year period
immediately prior to the Announcement Date; or
(ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) (if applicable) the highest preferential amount
per share to which the holders of shares of such
class of Voting Stock are entitled in the event
of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock
(including Common Stock) shall be in cash or in the
same form as the Interested Stockholder has previously
paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of
consideration, the form of consideration to be
received per share by holders of shares of such class
of Voting Stock shall be either cash or the form used
to acquire the largest number of shares of such class
of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be
subject to appropriate adjustment in the event of any
stock dividend, stock split, combination of shares or
similar event.
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d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation
of such Business Combination: (1) except as approved
by a majority of the Disinterested Directors (as
hereinafter defined), there shall have been no failure
to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative)
on any outstanding stock having preference over the
Common Stock as to dividends or liquidation; (2) there
shall have been: (i) no reduction in the annual rate
of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common
Stock), except as approved by a majority of the
Disinterested Directors; and (ii) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares of the Common Stock,
unless the failure to so increase such annual rate is
approved by a majority of the Disinterested Directors,
and (3) neither such Interested Stockholder or any of
its Affiliates shall have become the beneficial owner
of any additional shares of Voting Stock except as
part of the transaction which results in such
Interested Stockholder becoming an Interested
Stockholder.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the
Corporation, whether in anticipation of or in
connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder
(or any subsequent provisions replacing such Act, and
the rules or regulations thereunder) shall be mailed
to stockholders of the Corporation at least 30 days
prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or
subsequent provisions).
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C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a
group acting in concert, a corporation, a
partnership, an association, a joint venture, a
pool, a joint stock company, a trust, an
unincorporated organization or similar company, a
syndicate or any other group formed for the
purpose of acquiring, holding or disposing of
securities or any other entity.
2. "Interested Stockholder" shall mean any person
(other than the Corporation or any Holding
Company or Subsidiary thereof) who or which:
a. is the beneficial owner, directly or
indirectly, of more than 10% of the voting
power of the outstanding Voting Stock; or
b. is an Affiliate of the Corporation and at
any time within the two-year period
immediately prior to the date in question
was the beneficial owner, directly or
indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock;
or
c. is an assignee of or has otherwise succeeded
to any shares of Voting Stock which were at
any time within the two-year period
immediately prior to the date in question
beneficially owned by any Interested
Stockholder, if such assignment or
succession shall have occurred in the course
of a transaction or series of transactions
not involving a public offering within the
meaning of the Securities Act of 1933, as
amended.
3. For purposes of this Article EIGHTH, "beneficial
ownership" shall be determined in the manner
provided in Section C of Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in
effect on the date of filing of this Certificate
of Incorporation.
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5. "Subsidiary" means any corporation of which a
majority of any class of equity security is
owned, directly or indirectly, by the
Corporation; provided, however, that for the
purposes of the definition of Interested
Stockholder set forth in Paragraph 2 of this
Section C, the term "Subsidiary" shall mean only
a corporation of which a majority of each class
of equity security is owned, directly or
indirectly, by the Corporation.
6. "Disinterested Director" means any member of the
Board of Directors who is unaffiliated with the
Interested Stockholder and was a member of the
Board of Directors prior to the time that the
Interested Stockholder became an Interested
Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of
Directors or who is elected and who, in either
event, is unaffiliated with the Interested
Stockholder and in connection with his or her
initial assumption of office is recommended for
appointment or election by a majority of
Disinterested Directors then on the Board of
Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing
sales price of the stock during the 30-day
period immediately preceding the date in
question of a share of such stock on the
National Association of Securities Dealers
Automated Quotation System or any system
then in use, or, if such stock is admitted
to trading on a principal United States
securities exchange registered under the
Securities Exchange Act of 1934, as amended,
Fair Market Value shall be the highest sale
price reported during the 30-day period
preceding the date in question, or, if no
such quotations are available, the Fair
Market Value on the date in question of a
share of such stock as determined by the
Board of Directors in good faith, in each
case with respect to any class of stock,
appropriately adjusted for any dividend or
distribution in shares of such stock or any
stock split or reclassification of
outstanding shares of such stock into a
greater number of shares of such stock or
any combination or reclassification of
outstanding shares of such stock into a
smaller number of shares of such stock; and
b. in the case of property other than cash or
stock, the Fair Market Value of such
property on the date in question as
determined by the Board of Directors in good
faith.
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8. Reference to "Highest Per Share Price" shall in
each case with respect to any class of stock
reflect an appropriate adjustment for any
dividend or distribution in shares of such stock
or any stock split or reclassification of
outstanding shares of such stock into a greater
number of shares of such stock or any combination
or reclassification of outstanding shares of such
stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which
the Corporation survives, the phrase
"consideration other than cash to be received" as
used in Subparagraphs (a) and (b) of Paragraph 2
of Section B of this Article EIGHTH shall include
the shares of Common Stock and/or the shares of
any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this
Article EIGHTH, on the basis of information known to them after
reasonable inquiry: (a) whether a person is an Interested
Stockholder; (b) the number of shares of Voting Stock beneficially
owned by any person; (c) whether a person is an Affiliate or
Associate of another; and (d) whether the assets which are the
subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the
Corporation or any Subsidiary in any Business Combination has an
aggregate Fair Market Value equaling or exceeding 25% of the combined
Fair Market Value of the Common Stock of the Corporation and its
Subsidiaries. A majority of the Disinterested Directors shall have
the further power to interpret all of the terms and provisions of
this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of
the holders of any particular class or series of the Voting Stock
required by law, this Certificate of Incorporation or any Preferred
Stock Designation, the affirmative vote of the holders of at least 80
percent of the voting power of all of the then-outstanding shares of
the Voting Stock (after giving effect to the provisions of Article
FOURTH), voting together as a single class, shall be required to
alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due
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consideration to all relevant factors, including, without limitation, those
factors that Directors of any subsidiary of the Corporation may consider in
evaluating any action that may result in a change or potential change in the
control of the subsidiary, and the social and economic effect of acceptance of
such offer: on the Corporation's present and future customers and employees and
those of its Subsidiaries (as defined in Article EIGHTH hereof); on the
communities in which the Corporation and its Subsidiaries operate or are
located; and on the ability of the Corporation to fulfill its corporate
objective under applicable laws and regulations.
TENTH:
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is
or was a Director or an Officer of the Corporation or is or was
serving at the request of the Corporation as a Director, Officer,
employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as
a Director, Officer, employee or agent or in any other capacity while
serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in
Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter and "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law
requires, an advancement of expenses incurred by an indemnitee in his
or her capacity as a Director or Officer (and not in any other
capacity in which service was or is rendered by such indemnitee,
including, without limitation, services to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined
by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is
not entitled to be indemnified for such expenses under this Section
or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of
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this Article TENTH shall be contract rights and such rights shall
continue as to an indemnitee who has ceased to be a Director,
Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not
paid in full by the Corporation within sixty days after a written
claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable
period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such
suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of
prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not
in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any
suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification
set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard
of conduct or, in the case of such a suit brought by the indemnitee,
be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses
hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article TENTH or otherwise
shall be on the Corporation.
D. The rights to indemnification and to the advancement of
expenses conferred in this Article TENTH shall not be exclusive of
any other right which any person may have or hereafter acquire under
any statute, the Corporation's Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or Disinterested Directors or
otherwise.E. The Corporation may maintain insurance, at its expense,
to protect itself and any Director, Officer, employee or agent of the
Corporation or subsidiary or Affiliate or another corporation,
partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
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<PAGE> 18
F. The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification and
to the advancement of expenses to any employee or agent of the
Corporation to the fullest extent of the provisions of this Article
TENTH with respect to the indemnification and advancement of expenses
of Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a Director, except for liability: (i) for any breach of
the Director's duty of loyalty to the Corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
TWELFTH: The provisions set forth in this Article and in Articles
5(C), 5(D), 5(E), 6, 7, 8, 10 and 11 herein may not be repealed or amended in
any respect, and no article imposing cumulative voting in the election of
directors may be added, unless such action is approved by the affirmative vote
of the holders of not less than eighty percent (80%) of the outstanding shares
of Common Stock of this Corporation, subject to the provisions of any series of
Preferred Stock which may at the time be outstanding; provided, however, that
if there is a related person (as defined in Article 8) such amendment shall
also require the affirmative vote of at least 50% of the outstanding shares of
Common Stock held by stockholders other than the related person.
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IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
has been adopted pursuant to Section 245 of the General Corporation Law of the
State of Delaware ("G.C.L."), integrates and does further amend the provisions
of the Corporation's Certificate of Incorporation, has been approved by the
Board of Directors and the stockholders of the Corporation pursuant to Sections
242 and 228, with prompt notice of the action of the stockholders having been
provided pursuant to Section 228 (d) of the G.C.L., and has been executed this
_____ day of _____, 1999 by its authorized officer.
Online Communications & Resources Corporation
By:
--------------------------------------
Title:
--------------------------------------
19
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EXHIBIT 3.2
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
AMENDED AND RESTATED BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as may be designated by resolution of the Board of
Directors.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given, not less than ten (10) nor more
than sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (meaning, here and hereinafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law or the
Corporation's Certificate of Incorporation. Where a separate vote by a class or
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classes is required, a majority of the shares of such class or classes present
in person or represented by proxy shall constitute a quorum entitled to take
action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present in person or by proxy constituting a quorum, then except as
otherwise required by law, those present in person or by proxy at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such regulation of the manner of voting and the conduct of discussion as seem to
him or her in order. The date and time of the opening and closing of the polls
for each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting by the chairman.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before
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the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder and, (iv) any material interest of such stockholder in
such business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 6(b). The Officer of the
Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he or she should so determine, he or she shall so declare
to the meeting and any such business so determined to be not properly brought
before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only: (i) by or at the direction of the Board of Directors or, (ii)
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of
the Corporation not less than ninety (90) days prior to the date of the
meeting; provided, however, that in the event that less than one hundred (100)
days' notice or prior disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such stockholder's notice shall set forth: (i) as to each person whom
such stockholder proposes to nominate for election or re-election as a
Director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (ii) as to the stockholder giving the notice (x) the
name and address, as they appear on the Corporation's books, of such
stockholder and (y) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder. At the request of the
Board of Directors any person nominated by the Board of Directors for election
as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the provisions
of this Section 6(c). The Officer of the Corporation or other person presiding
at the meeting shall, if the facts so warrant, determine that a nomination
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was not made in accordance with such provisions and, if he or she shall so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote on the subject
matter.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall
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presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be under the
direction of its Board of Directors. The number of Directors who shall
constitute the Whole Board shall be such number as the Board of Directors shall
from time to time have designated. The Board of Directors shall annually elect a
Chairman of the Board from among its members who shall, when present, preside at
its meetings.
The Directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided, with respect to the
time for which they severally hold office, into three classes. At the annual
meeting of stockholders in 1999 directors of the first class shall be elected to
hold office for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting, and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. Each Director shall hold office until his or her successor shall have
been duly elected and qualified. At each annual meeting of stockholders,
Directors elected to succeed those Directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each Director to hold office until his
or her successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
Preferred Stock, and unless the Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the Directors then in office, though
less than a quorum, and Directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such Director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board shall shorten the term of any
incumbent Director.
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Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the Directors then in office (rounded up to the nearest whole number),
by the Chairman of the Board or the President and shall be held at such place,
on such date, and at such time as they, or he or she, shall fix. Notice of the
place, date, and time of each such special meeting shall be given each Director
by whom it is not waived not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein, in the Certificate of Incorporation or
required by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
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Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(4) To remove any Officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
Officer upon any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for Directors, Officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of
the Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
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ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for these committees and any others provided
for herein, elect a Director or Directors to serve as the member or members,
designating, if it desires, other Directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw,
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting
of stockholders next ensuing.
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ARTICLE IV - OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable
after the annual meeting of stockholders shall choose a Chairman of the Board,
a Chief Executive Officer, a President, one or more Vice Presidents, a
Secretary, one or more Assistant Secretaries and a Chief Financial Officer
and/or Treasurer and one or more Assistant Treasurers, and from time to time
may choose such other officers as it may deem proper including a Chief
Operational Officer. The Chairman of the Board shall be chosen from among the
Directors. Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the
next annual election of Officers and until their respective successors are
chosen but any Officer may be removed from office at any time by the
affirmative vote of a majority of the authorized number of Directors then
constituting the Board of Directors. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any regular or
special meeting.
(c) All Officers chosen by the Board of Directors shall have
such powers and duties as generally pertain to their respective Offices,
subject to the specific provisions of this ARTICLE IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
The Chairman of the Board, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, unless the Board has designated
another person, when present, shall preside at all meetings of the stockholders
of the Corporation. The Chairman of the Board shall perform all duties and have
all powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. President and Chief Executive Officer.
The President and Chief Executive Officer shall have general
responsibility for the management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the offices of President and Chief Executive Officer or which are
delegated to him or her by the Board of Directors. Subject to the direction of
the Board of Directors, the President and Chief Executive Officer shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision of all of
the other Officers (other than the Chairman of the Board), employees and agents
of the Corporation. The President and Chief
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Executive Officer need not be the same individual. If they are not the same, the
Chief Executive Officer shall have general supervision of the President.
Section 4. Vice President.
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President. A Vice President or Vice Presidents may be
designated as Executive Vice President or Senior Vice President.
Section 5. Secretary.
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
Section 6. Chief Financial Officer/Treasurer.
The Chief Financial Officer/Treasurer shall be the Comptroller of the
Corporation and shall have the responsibility for maintaining the financial
records of the Corporation. He or she shall make such disbursements of the funds
of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Chief Financial Officer/Treasurer shall also perform such other
duties as the Board of Directors may from time to time prescribe. Subject to the
direction of the Board of Directors, the Chief Financial Officer/Treasurer shall
have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more Assistant Secretaries
and such other Officers who shall have such powers and shall perform such duties
as are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other
Corporations.
Unless otherwise directed by the Board of Directors, the President or
any Officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
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otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the Chairman of the Board or the President, and
by the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, Director, Officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, Director,
Officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, Director, Officer, employee or agent.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business nor
the purpose of any meeting need be specified in such a waiver.
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ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative vote of the
holders of at least 80% of the voting power of all the then-outstanding
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shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of __________, 1999, the date of
adoption by the Board of Directors of Online Resources & Communications
Corporation.
14
<PAGE> 1
EXHIBIT 4.1
NUMBER
COMMON STOCK COMMON STOCK
PAR VALUE $.0001 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 68273E 10 6
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.0001 PAR VALUE
PER SHARE OF ONLINE RESOURCES & COMMUNICATIONS CORPORATION
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS THEREOF, ONLINE RESOURCES & COMMUNICATIONS CORPORATION has
caused this certificate to be executed by the facsimile signatures of its duly
authorized officers and has caused a facsimile of its corporate seal to be
hereunto affixed.
Dated: [SEAL]
President Secretary
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By
-----------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation or Bylaws.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - __________ custodian __________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
-----------------------
(State)
</TABLE>
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF TRANSFEREE
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _________________________________________Attorney to transfer the said
stock on the books of the within-named Corporation with full power of
substitution in the premises.
DATED ________________
________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS
WARRANT AND ANY OF SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH TRANSACTION UNDER THE
ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE ACT AND OTHER
APPLICABLE SECURITIES LAWS.
SERIES A
COMMON STOCK WARRANT
WARRANT TO PURCHASE SHARES OF STOCK
OF ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Date of Issuance:
THIS CERTIFIES that, for value received _______________, or registered
assigns, (the "holder") is entitled to purchase, subject to the provisions of
this warrant, from Online Resources & Communications Corporation, a Delaware
corporation (the "Company"), at the price hereinafter set forth, that number of
shares of the one one hundredth cent ($0.0001) par value Common Stock of the
Company as determined in accordance with the provisions of Article VI hereof.
This warrant is hereinafter referred to as the "Warrant" and the shares of
Preferred Stock issuable pursuant to the terms hereof are hereinafter sometimes
referred to as "Warrant Shares."
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Act": the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"Common Stock": the Company's authorized shares of Common
Stock, one one hundredth cent ($.0001) par value per share, as such
shares existed on the date of issuance of this Warrant.
"Commission": the Securities and Exchange Commission, or any
other federal agency then administering the Act.
1
<PAGE> 2
"Company": Online Resources & Communications Corporation, a
Delaware corporation, located at 7927 Jones Branch Drive, McLean,
Virginia 22102 and any other corporation assuming or required to assume
this Warrant pursuant to Article VIII.
"Person": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political
subdivision, instrumentality or agency thereof.
"Purchase Price": the purchase price for any Warrant Share
purchasable under this Warrant.
"Warrant Office": see Section 3.1.
"Warrant Shares": the shares of Common Stock purchasable by
the holder of this Warrant upon the exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1 Method of Exercise. To exercise this Warrant in whole or in part at
anytime and from time to time, prior to its expiration as determined in Article
IX hereof, the holder hereof shall deliver to the Company, at the Warrant Office
designated pursuant to Section 3.1: (a) a written notice, in substantially the
form of the Subscription Notice attached hereto as Exhibit 2.1, of such holder's
election to exercise this Warrant, which notice shall specify the number of
shares of Common Stock to be purchased; (b) a check payable to the order of the
Company in an amount equal to the Purchase Price as set forth in Section 5.1
hereof for the number of shares of Common Stock being purchased; and (c) this
Warrant. The Company shall, as promptly as practicable and in any event within
fourteen (14) days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with said notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in said
notice. The stock certificate or certificates so delivered shall be in
denominations of shares as may be specified in said notice and shall be issued
in the name of the holder or such other name as shall be designated in said
notice. At the time of delivery of the certificate or certificates, appropriate
notation will be made on this Warrant designating the number of shares purchased
and this Warrant shall then be returned to the holder if this Warrant has been
exercised in part. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of stock
certificates, except that, in case stock certificates shall be registered in a
name or names other than the name of the holder of this Warrant, funds
sufficient to pay all stock transfer taxes which shall be payable upon the
issuance of stock certificates shall be paid by the holder hereof at the time of
delivering the notice of exercise mentioned above or promptly upon receipt of a
written request of the Company for payment.
2
<PAGE> 3
2.2 Shares to be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
2.3 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock.
2.4 Legend on Warrant Shares. Each certificate for shares initially
issued upon exercise of this Warrant, unless at the time of exercise such shares
are registered under the Act, shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any state. They may not be
sold, transferred, assigned, pledged, hypothecated,
encumbered, or otherwise disposed of except pursuant to an
effective registration statement relating to such transaction
under the Act and all other applicable securities laws or
pursuant to an exemption from the registration provisions of
the Act and other applicable securities laws.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear a legend substantially
similar to the foregoing, unless, in the opinion of counsel to the Company, the
securities represented thereby need no longer be subject to the restrictions on
transferability. The provisions of Article IV shall be binding upon all
subsequent holders of this Warrant.
2.5 Acknowledgment of Continuing Obligation. The Company will, at the
time of any exercise of this Warrant in whole or in part, upon request of the
holder hereof, acknowledge in writing its continuing obligation to such holder
in respect of any rights to which the holder shall continue to be entitled after
exercise in accordance with this Warrant; provided, however, that the failure of
the holder to make any such request shall not affect the continuing obligation
of the Company to the holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION OR COMBINATION OF WARRANTS
3.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's location set forth in Article I, and may subsequently be such
other office of the Company or of any transfer agent of the Common Stock in the
continental United States as to which written notice has previously been given
to all holders of Warrants.
3.2 Ownership of Warrant. The Company may deem and treat the Person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all
3
<PAGE> 4
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer as provided in this
Article III.
3.3 Transfer of Warrant. The Company agrees to maintain at the Warrant
Office books for the registration of permitted transfers of this Warrant.
Subject to the provisions of Article IV, this Warrant and all rights hereunder
are transferable, in whole or in part, on the books at that office, upon
surrender of this Warrant at that office, together with a written assignment of
this Warrant duly executed by the holder hereof or his duly authorized agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making
of the transfer. Subject to Article IV, upon surrender and payment, the Company
shall execute and deliver a new Warrant in the name of the assignee, note
thereon the number of Warrant Shares theretofore purchased under this Warrant,
and this Warrant shall promptly be cancelled and a notation of that cancellation
made on the books of the Warrant Office. A Warrant may be exercised by a new
holder for the purchase of shares of Preferred Stock without having a new
warrant issued.
3.4 Division or Combination of Warrants. This Warrant may not be
divided or combined with any other Warrant or warrants.
3.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
ARTICLE IV
RESTRICTIONS ON TRANSFER
4.1 Restrictions on Transfer. Notwithstanding any provisions contained
in this Warrant to the contrary, this Warrant shall not be exercisable or
transferable except upon the conditions specified in this Article IV, which
conditions are intended, among other things, to insure compliance with the
provisions of the Act in respect of the exercise or transfer of the Warrant. The
holder of this Warrant, by acceptance hereof, agrees that it will not transfer
this Warrant prior to delivery to the Company of any required opinion of the
holder's counsel (as the opinion and counsel are described in Section 4.2).
4.2 Opinion of Counsel. In connection with any transfer of this
Warrant, the following provisions shall apply:
(a) If, in the opinion of counsel acceptable to the Company, a
proposed transfer of this Warrant may be effected without registration of this
Warrant under the Act, the holder of this Warrant shall be entitled to transfer
this Warrant in accordance with the proposed method of disposition; provided,
however, that if the method of disposition would, in the opinion of such
counsel, require that the Company take any action or execute and file with the
Commission or deliver to the holder or any other person any form or document in
order to establish the entitlement of the holder to take advantage of such
method of disposition, the Company agrees, at the cost of the holder, to
promptly take any necessary action or execute and file or deliver any necessary
form or document. Notwithstanding the foregoing, in no event will the Company be
obligated to effect a registration under the Act
4
<PAGE> 5
so as to permit the proposed transfer of this Warrant nor take any action which
will result in more than one transfer of this Warrant within each calendar year.
(b) If, in the opinion of such counsel, the proposed transfer
of this Warrant may not be effected without registration of this Warrant under
the Act, the holder of this Warrant shall not be entitled to transfer this
Warrant until registration is effective.
ARTICLE V
PURCHASE PRICE
5.1 Determination of Purchase Price. The Purchase Price for any Warrant
Share purchasable hereunder shall be equal to $2.50 per share; provided,
however, if the Company shall divide its outstanding shares of Common Stock by
stock split, stock dividend or otherwise, the Purchase Price shall
proportionately decrease and if the Company shall combine its outstanding shares
of Common Stock by stock combination, reverse split or otherwise, the Purchase
Price shall proportionately increase.
5.2 Notice to Holder. Upon request, the Company will provide the holder
hereof with written notice of the current Purchase Price existing under this
Warrant.
ARTICLE VI
NUMBER OF WARRANT SHARES
The initial number of Warrant Shares issuable hereunder shall be______;
provided, however, if the Company shall divide its outstanding shares of Common
Stock by stock split, stock dividend or otherwise, the number of Warrant Shares
then issuable hereunder shall proportionately increase and if the Company shall
combine its outstanding shares of Common Stock by stock combination, reverse
split or otherwise, the number of Warrant Shares then issuable hereunder shall
proportionately decrease.
ARTICLE VII
RECLASSIFICATION, REORGANIZATION OR MERGER
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation or which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), the
Company shall cause effective provision to be made so that the holder hereof
shall have the right thereafter by exercising this Warrant to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization or other change, consolidation or
merger, by a holder of the number of shares of Common Stock which might have
been purchased upon exercise of this Warrant immediately prior to such
reclassification, change, consolidation or merger. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments, herein provided, of the Purchase Price and the
number of Warrant Shares purchasable and receivable upon the exercise of this
Warrant. The foregoing provisions of this Article VII shall similarly apply to
successive reclassification, capital reorganizations and changes of shares of
Common Stock and to successive consolidations and mergers.
5
<PAGE> 6
ARTICLE VIII
DISTRIBUTIONS, LIQUIDATION OR DISSOLUTION
8.1 Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Article IX hereof, make any
distribution of its assets to holders of its capital stock as a partial
liquidation distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends
under the laws of the State of Delaware, then the holder, upon the exercise of
this Warrant prior to any such distribution but after the date of record for the
determination of those holders of capital stock entitled to such distribution of
assets, shall be entitled to receive, in addition to the shares of Common Stock
issuable on such exercise, upon such distribution the amount of such assets (or
at the option of the Company a sum equal to the value thereof at the time of
such distribution to holders of capital stock as such value is determined by the
Board of Directors of the Company in good faith), which would have been payable
to the holder had it been the holder of record of such shares of capital stock
on the record date for the determination of those holders of capital stock
entitled to such distribution.
8.2 Dissolution or Liquidation. In case the Company shall, at any time
prior to the Expiration Date set forth in Article IX hereof, dissolve, liquidate
or wind up its affairs, the holder shall be entitled, upon the exercise of this
Warrant and prior to any such distribution in dissolution of liquidation, to
receive on such exercise, in lieu of the shares of Common Stock which the holder
would have been entitled to receive, the same kind and amount of assets as would
have been distributed or paid to the holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
holder been the holder of record of such shares of Common Stock on the record
date for the determination of those holders of Common Stock entitled to receive
any such liquidation distribution.
ARTICLE IX
EXPIRATION
This Warrant shall terminate at the earliest of (i) 5:00 p.m. Eastern
time on March 31, 2000, (ii) the effective date of any merger or consolidation
of the Company in a transaction in which the shares issued and issuable to
stockholders of the Company, including those persons who are entitled to become
stockholders upon conversion and exercise of any securities of the Company,
represent less than fifty percent of the total shares issued and issuable by the
surviving corporation or its ultimate parent corporation in such merger or
consolidation or (iii) the date upon which the Company transfers substantially
all of its assets incidental to sale or reorganization of the Company. The
Company shall give, by first class mail, postage prepaid, addressed to the
holder, at the address of the holder as shown on the books of the Company at
least twenty (20) days prior written notice of (i) the date on which the books
of the Company shall close for determining rights to vote in respect of any
merger, consolidation or transfer of assets which would result in the expiration
of this Warrant and (ii) in reference to a merger, consolidation, or transfer of
assets resulting in expiration of this Warrant, the date on which the holders of
Common Stock shall be entitled to exchange their shares for securities or
property resulting from such merger, consolidation or transfer of assets.
6
<PAGE> 7
ARTICLE X
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that it will reserve and set apart and
have at all times, free from pre-emptive rights, a number of shares of Common
Stock or other securities or property deliverable upon the exercise of this
Warrant sufficient to enable it at any time to fulfill all its obligations
hereunder.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Warrant contains the entire agreement
between the holder hereof and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
11.2 Waiver and Amendment. This Warrant is one of several Series A
Common Stock Warrants. Any term or provision of this Warrant may be waived at
any time and any term or provision of this Warrant may be amended or
supplemented at any time by agreement of the holders of those Series A Common
Stock Warrants representing more than fifty percent (50%) of all Warrant Shares
then issuable upon exercise of all outstanding Series A Common Stock Warrants
and the Company, except that any waiver of any term or condition, or any
amendment or supplementation, of this Warrant must be in writing and except that
no change in the number of shares issuable upon exercise, the rights in
liquidation or distribution, the purchase price upon exercise and the provisions
of this Section 11.2 shall be effective without the written consent of each
Warrant holder affected thereby. A waiver of any breach or failure to enforce
any of the terms or conditions of this Warrant shall not in any way affect,
limit or waive a party's rights hereunder at any time to enforce strict
compliance thereafter with any term or condition of this Warrant.
11.3 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
11.4 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
11.5 Notice. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be delivered, including by a
nationally recognized overnight courier service, or sent by certified or
registered mail, to each such holder at the last address shown on the books of
the Company maintained at the Warrant Office for the registration of, and the
registration of transfer of, the Warrant or at any more recent address of which
any holder hereof shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
shall be delivered, including by a nationally recognized overnight courier
service, at, or sent by certified or
7
<PAGE> 8
registered mail to, the Warrant Office, attention: President, or such other
address within the United States of America as shall have been furnished by the
Company to the holder hereof.
11.6 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notice other than as herein
expressly provided in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase Warrant Shares, and no enumeration herein of the rights or
privileges of the holder hereof, shall give rise to any liability of such holder
for the purchase price of any Warrant Shares or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
11.7 Loss, Destruction, Etc. of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of the
Warrant, and in the case of any such loss, theft or destruction, upon delivery
of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of the Warrant, the Company will make and deliver a new
Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Warrant. Any Warrant issued under the provisions of this Section 11.7 in lieu of
any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated
Warrant, shall constitute an original contractual obligation on the part of the
Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its Chairman and CEO and its corporate seal to be impressed hereon
and attested by its Secretary.
THE COMPANY:
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By:
------------------------
, Chairman and CEO
Attest:
- ----------------------
, Secretary
[Corporate Seal]
8
<PAGE> 9
EXHIBIT 2.1
WARRANT
SUBSCRIPTION NOTICE
Dated:___________
The undersigned hereby irrevocably elects to exercise its right to
purchase shares of the Common Stock, $.0001 par value per share, of Online
Resources & Communications Corporation, such right being pursuant to a Warrant
October 21, 1998, and as issued to the undersigned by Online Resources &
Communications Corporation, and remits herewith the sum of $_______________ in
payment for same in accordance with the Purchase Price specified in such
Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
----------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------
Signature
--------------------
Shares Heretofore Purchased
Under Warrant
- --------------------
<PAGE> 1
EXHIBIT 4.3
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT AND ANY OF SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH TRANSACTION UNDER
THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE ACT AND OTHER
APPLICABLE SECURITIES LAWS.
COMMON STOCK WARRANT
WARRANT TO PURCHASE SHARES OF STOCK
OF ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Date of Issuance:
THIS CERTIFIES that, for value received, , , or registered assigns,
(the "holder") is entitled to purchase, subject to the provisions of this
warrant, from Online Resources & Communications Corporation, a Delaware
corporation (the "Company"), at the price hereinafter set forth, that number of
shares of the one one hundredth cent ($0.0001) par value Common Stock of the
Company as determined in accordance with the provisions of Article VI hereof.
This warrant is hereinafter referred to as the "Warrant" and the shares of
Preferred Stock issuable pursuant to the terms hereof are hereinafter sometimes
referred to as "Warrant Shares."
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Act": the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the
time.
"Common Stock": the Company's authorized shares of Common Stock,
one one hundredth cent ($.0001) par value per share, as such shares
existed on the date of issuance of this Warrant.
"Commission": the Securities and Exchange Commission, or any
other federal agency then administering the Act.
"Company": Online Resources & Communications Corporation, a
Delaware corporation, located at 7927 Jones Branch Drive, McLean,
Virginia 22102 and any
<PAGE> 2
other corporation assuming or required to assume this Warrant
pursuant to Article VIII.
"Person": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political
subdivision, instrumentality or agency thereof.
"Purchase Price": the purchase price for any Warrant Share
purchasable under this Warrant.
"Warrant Office": see Section 3.1.
"Warrant Shares": the shares of Common Stock purchasable by the
holder of this Warrant upon the exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1 Method of Exercise. To exercise this Warrant in whole or in part
at anytime and from time to time, prior to its expiration as determined in
Article IX hereof, the holder hereof shall deliver to the Company, at the
Warrant Office designated pursuant to Section 3.1: (a) a written notice, in
substantially the form of the Subscription Notice attached hereto as Exhibit
2.1, of such holder's election to exercise this Warrant, which notice shall
specify the number of shares of Common Stock to be purchased; (b) a check
payable to the order of the Company in an amount equal to the Purchase Price as
set forth in Section 5.1 hereof for the number of shares of Common Stock being
purchased; and (c) this Warrant. The Company shall, as promptly as practicable
and in any event within fourteen (14) days thereafter, execute and deliver or
cause to be executed and delivered, in accordance with said notice, a
certificate or certificates representing the aggregate number of shares of
Common Stock specified in said notice. The stock certificate or certificates so
delivered shall be in denominations of shares as may be specified in said
notice and shall be issued in the name of the holder or such other name as
shall be designated in said notice. At the time of delivery of the certificate
or certificates, appropriate notation will be made on this Warrant designating
the number of shares purchased and this Warrant shall then be returned to the
holder if this Warrant has been exercised in part. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
issuance and delivery of stock certificates, except that, in case stock
certificates shall be registered in a name or names other than the name of the
holder of this Warrant, funds sufficient to pay all stock transfer taxes which
shall be payable upon the issuance of stock certificates shall be paid by the
holder hereof at the time of delivering the notice of exercise mentioned above
or promptly upon receipt of a written request of the Company for payment.
2.2 Shares to be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
2.3 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock.
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<PAGE> 3
2.4 Legend on Warrant Shares. Each certificate for shares initially
issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Act, shall bear a legend substantially similar
to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any state. They may not be
sold, transferred, assigned, pledged, hypothecated, encumbered,
or otherwise disposed of except pursuant to an effective
registration statement relating to such transaction under the
Act and all other applicable securities laws or pursuant to an
exemption from the registration provisions of the Act and other
applicable securities laws.
Any certificate issued at any time in exchange or substitution for
any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear a legend
substantially similar to the foregoing, unless, in the opinion of counsel to
the Company, the securities represented thereby need no longer be subject to
the restrictions on transferability. The provisions of Article IV shall be
binding upon all subsequent holders of this Warrant.
2.5 Acknowledgment of Continuing Obligation. The Company will, at the
time of any exercise of this Warrant in whole or in part, upon request of the
holder hereof, acknowledge in writing its continuing obligation to such holder
in respect of any rights to which the holder shall continue to be entitled
after exercise in accordance with this Warrant; provided, however, that the
failure of the holder to make any such request shall not affect the continuing
obligation of the Company to the holder in respect of such rights.
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<PAGE> 4
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION OR COMBINATION OF WARRANTS
3.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's location set forth in Article I, and may subsequently be such
other office of the Company or of any transfer agent of the Common Stock in the
continental United States as to which written notice has previously been given
to all holders of Warrants.
3.2 Ownership of Warrant. The Company may deem and treat the Person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of this Warrant for registration of
transfer as provided in this Article III.
3.3 Transfer of Warrant. The Company agrees to maintain at the
Warrant Office books for the registration of permitted transfers of this
Warrant. Subject to the provisions of Article IV, this Warrant and all rights
hereunder are transferable, in whole or in part, on the books at that office,
upon surrender of this Warrant at that office, together with a written
assignment of this Warrant duly executed by the holder hereof or his duly
authorized agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of the transfer. Subject to Article IV, upon surrender
and payment, the Company shall execute and deliver a new Warrant in the name of
the assignee, note thereon the number of Warrant Shares theretofore purchased
under this Warrant, and this Warrant shall promptly be cancelled and a notation
of that cancellation made on the books of the Warrant Office. A Warrant may be
exercised by a new holder for the purchase of shares of Preferred Stock without
having a new warrant issued.
3.4 Division or Combination of Warrants. This Warrant may not be
divided or combined with any other Warrant or warrants.
3.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
ARTICLE IV
RESTRICTIONS ON TRANSFER
4.1 Restrictions on Transfer. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be
exercisable or transferable except upon the conditions specified in this
Article IV, which conditions are intended, among other things, to insure
compliance with the provisions of the Act in respect of the exercise or
transfer of the Warrant. The holder of this Warrant, by acceptance hereof,
agrees that it will not transfer this Warrant prior to delivery to the Company
of any required opinion of the holder's counsel (as the opinion and counsel are
described in Section 4.2).
4.2 Opinion of Counsel. In connection with any transfer of this
Warrant, the following provisions shall apply:
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<PAGE> 5
(a) If, in the opinion of counsel acceptable to the Company,
a proposed transfer of this Warrant may be effected without registration of
this Warrant under the Act, the holder of this Warrant shall be entitled to
transfer this Warrant in accordance with the proposed method of disposition;
provided, however, that if the method of disposition would, in the opinion of
such counsel, require that the Company take any action or execute and file with
the Commission or deliver to the holder or any other person any form or
document in order to establish the entitlement of the holder to take advantage
of such method of disposition, the Company agrees, at the cost of the holder,
to promptly take any necessary action or execute and file or deliver any
necessary form or document. Notwithstanding the foregoing, in no event will the
Company be obligated to effect a registration under the Act so as to permit the
proposed transfer of this Warrant nor take any action which will result in more
than one transfer of this Warrant within each calendar year.
(b) If, in the opinion of such counsel, the proposed transfer
of this Warrant may not be effected without registration of this Warrant under
the Act, the holder of this Warrant shall not be entitled to transfer this
Warrant until registration is effective.
ARTICLE V
PURCHASE PRICE
5.1 Determination of Purchase Price. The Purchase Price for any
Warrant Share purchasable hereunder shall be equal to $2.75 per share;
provided, however, if the Company shall divide its outstanding shares of Common
Stock by stock split, stock dividend or otherwise, the Purchase Price shall
proportionately decrease and if the Company shall combine its outstanding
shares of Common Stock by stock combination, reverse split or otherwise, the
Purchase Price shall proportionately increase.
5.2 Notice to Holder. Upon request, the Company will provide the
holder hereof with written notice of the current Purchase Price existing under
this Warrant.
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<PAGE> 6
ARTICLE VI
NUMBER OF WARRANT SHARES
The initial number of Warrant Shares issuable hereunder shall be
________; provided, however, if the Company shall divide its outstanding shares
of Common Stock by stock split, stock dividend or otherwise, the number of
Warrant Shares then issuable hereunder shall proportionately increase and if
the Company shall combine its outstanding shares of Common Stock by stock
combination, reverse split or otherwise, the number of Warrant Shares then
issuable hereunder shall proportionately decrease.
ARTICLE VII
RECLASSIFICATION, REORGANIZATION OR MERGER
In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation or which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), the
Company shall cause effective provision to be made so that the holder hereof
shall have the right thereafter by exercising this Warrant to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization or other change, consolidation or
merger, by a holder of the number of shares of Common Stock which might have
been purchased upon exercise of this Warrant immediately prior to such
reclassification, change, consolidation or merger. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments, herein provided, of the Purchase Price and the
number of Warrant Shares purchasable and receivable upon the exercise of this
Warrant. The foregoing provisions of this Article VII shall similarly apply to
successive reclassification, capital reorganizations and changes of shares of
Common Stock and to successive consolidations and mergers.
ARTICLE VIII
DISTRIBUTIONS, LIQUIDATION OR DISSOLUTION
8.1 Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Article IX hereof, make any
distribution of its assets to holders of its capital stock as a partial
liquidation distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends
under the laws of the State of Delaware, then the holder, upon the exercise of
this Warrant prior to any such distribution but after the date of record for
the determination of those holders of capital stock entitled to such
distribution of assets, shall be entitled to receive, in addition to the shares
of Common Stock issuable on such exercise, upon such distribution the amount of
such assets (or at the option of the
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<PAGE> 7
Company a sum equal to the value thereof at the time of such distribution to
holders of capital stock as such value is determined by the Board of Directors
of the Company in good faith), which would have been payable to the holder had
it been the holder of record of such shares of capital stock on the record date
for the determination of those holders of capital stock entitled to such
distribution.
8.2 Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Article IX hereof, dissolve,
liquidate or wind up its affairs, the holder shall be entitled, upon the
exercise of this Warrant and prior to any such distribution in dissolution of
liquidation, to receive on such exercise, in lieu of the shares of Common Stock
which the holder would have been entitled to receive, the same kind and amount
of assets as would have been distributed or paid to the holder upon any such
dissolution, liquidation or winding up, with respect to such shares of Common
Stock had the holder been the holder of record of such shares of Common Stock
on the record date for the determination of those holders of Common Stock
entitled to receive any such liquidation distribution.
ARTICLE IX
EXPIRATION
This Warrant shall terminate at the earliest of (i) 5:00 p.m. Eastern
time on December 31, 2000, (ii) the effective date of any merger or
consolidation of the Company in a transaction in which the shares issued and
issuable to stockholders of the Company, including those persons who are
entitled to become stockholders upon conversion and exercise of any securities
of the Company, represent less than fifty percent of the total shares issued
and issuable by the surviving corporation or its ultimate parent corporation in
such merger or consolidation or (iii) the date upon which the Company transfers
substantially all of its assets incidental to sale or reorganization of the
Company. The Company shall give, by first class mail, postage prepaid,
addressed to the holder, at the address of the holder as shown on the books of
the Company at least twenty (20) days prior written notice of (i) the date on
which the books of the Company shall close for determining rights to vote in
respect of any merger, consolidation or transfer of assets which would result
in the expiration of this Warrant and (ii) in reference to a merger,
consolidation, or transfer of assets resulting in expiration of this Warrant,
the date on which the holders of Common Stock shall be entitled to exchange
their shares for securities or property resulting from such merger,
consolidation or transfer of assets.
ARTICLE X
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that it will reserve and set apart
and have at all times, free from pre-emptive rights, a number of shares of
Common Stock or other securities or property deliverable upon the exercise of
this Warrant sufficient to enable it at any time to fulfill all its obligations
hereunder.
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ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Warrant contains the entire agreement
between the holder hereof and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
11.2 Waiver and Amendment. This Warrant is one of several Common
Stock Warrants. Any term or provision of this Warrant may be waived at any time
and any term or provision of this Warrant may be amended or supplemented at any
time by agreement of the holders of those Common Stock Warrants representing
more than fifty percent (50%) of all Warrant Shares then issuable upon exercise
of all outstanding Common Stock Warrants and the Company, except that any
waiver of any term or condition, or any amendment or supplementation, of this
Warrant must be in writing and except that no change in the number of shares
issuable upon exercise, the rights in liquidation or distribution, the purchase
price upon exercise and the provisions of this Section 11.2 shall be effective
without the written consent of each Warrant holder affected thereby. A waiver
of any breach or failure to enforce any of the terms or conditions of this
Warrant shall not in any way affect, limit or waive a party's rights hereunder
at any time to enforce strict compliance thereafter with any term or condition
of this Warrant.
11.3 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
11.4 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
11.5 Notice. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be delivered, including by a
nationally recognized overnight courier service, or sent by certified or
registered mail, to each such holder at the last address shown on the books of
the Company maintained at the Warrant Office for the registration of, and the
registration of transfer of, the Warrant or at any more recent address of which
any holder hereof shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
shall be delivered, including by a nationally recognized overnight courier
service, at, or sent by certified or registered mail to, the Warrant Office,
attention: President, or such other address within the United States of America
as shall have been furnished by the Company to the holder hereof.
11.6 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notice other than as herein
expressly provided in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase Warrant Shares, and no enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price of any Warrant Shares or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
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11.7 Loss, Destruction, Etc. of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
the Warrant, and in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of the Warrant, the Company will make and deliver a new
Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Warrant. Any Warrant issued under the provisions of this Section 11.7 in lieu
of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any
mutilated Warrant, shall constitute an original contractual obligation on the
part of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its Chairman and CEO and its corporate seal to be impressed
hereon and attested by its Secretary.
THE COMPANY:
ONLINE RESOURCES &
COMMUNICATIONS CORPORATION
By:
-------------------------------
Chairman and CEO
Attest:
- ---------------------
Secretary
[Corporate Seal]
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EXHIBIT 2.1
WARRANT
SUBSCRIPTION NOTICE
Dated:________________
The undersigned hereby irrevocably elects to exercise its right to
purchase shares of the Common Stock, $.0001 par value per share, of Online
Resources & Communications Corporation, such right being pursuant to a Warrant
dated ___________________________________, 1996, and as issued to the
undersigned by Online Resources & Communications Corporation, and remits
herewith the sum of $_______________ in payment for same in accordance with the
Purchase Price specified in such Warrant. INSTRUCTIONS FOR REGISTRATION OF
STOCK
Name
-----------------------------------------------------
(Please typewrite or print in block letters)
Address
--------------------------------------------------
Signature
-------------------------
Shares Heretofore Purchased
Under Warrant
- ---------------------
<PAGE> 1
EXHIBIT 4.4
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT AND ANY OF SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH TRANSACTION UNDER
THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE ACT AND OTHER
APPLICABLE SECURITIES LAWS.
COMMON STOCK WARRANT
WARRANT TO PURCHASE SHARES OF STOCK
OF ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Date of Issuance:
THIS CERTIFIES that, for value received, ______________, or registered
assigns (the "Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from Online Resources & Communications Corporation, a Delaware
corporation (the "Company"), at the price hereinafter set forth, that number of
shares of the one hundredth cent ($0.0001) par value Common Stock of the Company
as determined in accordance with the provisions of Article VI hereof. This
Warrant is hereinafter referred to as the "Warrant" and the shares of Common
Stock, par value $0.0001 per share issuable pursuant to the terms hereof are
hereinafter sometimes referred to as "Warrant Shares". This Warrant is issued
pursuant to the terms of that certain Note and Warrant Purchase Agreement, dated
as of May 8, 1996, by and among the Company and the Investors named therein (the
"Agreement").
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Act": the Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect at the time.
"Common Stock": the Company's authorized shares of Common Stock, par
value $.0001 per share.
<PAGE> 2
"Commission": the Securities and Exchange Commission, or any other
federal agency then administering the Act.
"Company": Online Resources & Communications Corporation, a Delaware
corporation, located at 7927 Jones Branch Drive, McLean, Virginia 22102 and any
other corporation assuming or required to assume this Warrant pursuant to
Article VIII.
"Conversion Price": the Conversion Price as defined in the Notes.
"Notes": the 10% Convertible Senior Secured Notes due June 30, 1999
issued under the Agreement.
"Person": any individual, corporation, partnership, trust, limited
liability company, unincorporated organization and any government, and any
political subdivision, instrumentality or agency thereof.
"Purchase Price": the purchase price for any Warrant Share purchasable
under this Warrant.
"Warrant Office": see Section 3.1.
"Warrant Shares": the shares of Common Stock purchasable by the holder
of this Warrant upon the exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1 Method of Exercise., To exercise this Warrant in whole or in part
at anytime and from time to time, prior to its expiration as determined in
Article IX hereof, the Holder hereof shall deliver to the Company, at the
Warrant Office designated pursuant to Section 3.1: (a) a written notice, in
substantially the form of the Subscription Notice attached hereto as Exhibit
2.1, of such Holder's election to exercise this Warrant, which notice shall
specify the number of shares of Common Stock to be purchased; (b) (i) a check
payable to the order of the Company in an amount equal to the Purchase Price as
set forth in Section 5.1 hereof for the number of shares of Common Stock being
purchased; (ii) instructions to the Company to withhold from the Warrant Shares
which otherwise would be issued to the Holder as a result of such exercise of
this Warrant, shares of Common Stock (valued at their fair market value on the
date of exercise) in satisfaction of all or part of the Purchase Price with
respect to such Warrant Shares to be purchased pursuant to such written notice
or (iii) an amount of Notes equal in principal amount to the Purchase Price with
respect to such Warrant Shares to be purchased pursuant to such written notice
and (c) this Warrant. The Company shall, as promptly as practicable and in any
event within fourteen (14) days thereafter, execute and deliver or cause to be
executed and delivered, in accordance with said notice, a certificate or
certificates representing the aggregate
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number of shares of Common Stock specified in said notice. The stock certificate
or certificates so delivered shall be in denominations of shares as may be
specified in said notice and shall be issued in the name of the Holder or such
other name as shall be designated in said notice. At the time of delivery of the
certificate or certificates, appropriate notation will be made on this Warrant
designating the number of shares purchased and this Warrant shall then be
returned to the Holder if this Warrant has been exercised in part. The Company
shall pay all expenses, taxes and other charges payable in connection with the
preparation, issuance and delivery of stock certificates, except that, in case
stock certificates shall be registered in a name or names other than the name of
the Holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable upon the issuance of stock certificates shall be paid by
the Holder hereof at the time of delivering the notice of exercise mentioned
above or promptly upon receipt of a written request of the Company for payment.
As used in this Section 2.1, "Fair Market Value" shall mean the average of the
high and low sales prices of the Common Stock on the National Association of
Security Dealers Automated Quotation System ("NASDAQ") or the closing price
quoted on any exchange on which the Common Stock is listed, whichever is
applicable, as reported in the Eastern Edition of The Wall Street Journal, on
the date of exercise (or if no shares are traded on that date, the weighted
average of the means between the high and low sales prices of the Common Stock
on the nearest date before and after such date on which such shares were
traded). If the Common Stock is not traded on NASDAQ or on any exchange, the
Fair Market Value shall be determined in good faith by the Board of Directors of
the Company, on the one hand, and the Holder, on the other.
2.2 Shares to be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
2.3 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock. Upon payment of the exercise price with
respect to any fractional shares, the Company shall pay to the Holder the cash
equivalent of such fractional shares, based on the fair market value of such
shares as reasonably determined by the Board of Directors of the Company.
2.4 Legend In Warrant Shares. Each certificate for shares of Common
Stock initially issued upon exercise of this Warrant, unless at the time of
exercise such shares are registered under the Act, shall bear a legend
substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
the securities laws of any state. They may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of
except pursuant to an effective registration statement relating to such
transaction under the Act and all other applicable securities laws or
pursuant to an exemption from the registration provisions of the Act
and other applicable securities laws.
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Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear a legend substantially
similar to the foregoing, unless, in the opinion of counsel reasonably
satisfactory to the Company, the securities represented thereby need no longer
be subject to the restrictions on transferability. The provisions of Article IV
shall be binding upon all subsequent holders of this Warrant.
2.5 Acknowledgment of Continuing Obligation, The Company will, at the
time of any exercise of this Warrant in whole or in part, upon request of the
Holder hereof, acknowledge in writing its continuing obligation to such Holder
in respect of any rights to which the Holder shall continue to be entitled after
exercise in accordance with this Warrant; provided, however, that the failure of
the Holder to make any such request shall not affect the continuing obligation
of the Company to the Holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION OR COMBINATION OF WARRANTS
3.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's location set forth in Article I, and may subsequently be such
other office of the Company or of any transfer agent of the Common Stock in the
continental United States as to which written notice has previously been given
to all holders of Warrants.
3.2 Ownership of Warrant, The Company may deem and treat the Person in
whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article III.
3.3 Transfer of Warrant. The Company agrees to maintain at the Warrant
Office books for the registration of permitted transfers of this Warrant.
Subject to the provisions of Article IV, this Warrant and all rights hereunder
are transferable, in whole or in part, on the books at that office, upon
surrender of this Warrant at that office, together with a written assignment of
this Warrant duly executed by the holder hereof or his duly authorized agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making
of the transfer. Subject to Article IV, upon surrender and payment, the Company
shall execute and deliver a new Warrant in the name of the assignee, note
thereon the number of Warrant Shares theretofore purchased under this Warrant,
and this Warrant shall promptly be cancelled and a notation of that cancellation
made on the books of the Warrant Office. A Warrant may be exercised by a new
holder for the purchase of shares of Common Stock without having a new warrant
issued.
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<PAGE> 5
3.4 Division of Warrants. This Warrant may not be divided.
3.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
ARTICLE IV
RESTRICTIONS ON TRANSFER
4.1 Restrictions on Transfer. Notwithstanding any provisions contained
in this Warrant to the contrary, this Warrant shall not be exercisable or
transferable except upon the conditions specified in this Article IV, which
conditions are intended, among other things, to insure compliance with the
provisions of the Act in respect of the exercise or transfer of the Warrant. The
Holder of this Warrant, by acceptance hereof, agrees that it will not transfer
this Warrant prior to delivery to the Company of any required opinion of the
Holder's counsel (as the opinion and counsel are described in Section 4.2).
4.2 Opinion of Counsel. In connection with any transfer of this
Warrant, the following provisions shall apply:
(a) If, in the opinion of counsel reasonably acceptable to the Company,
a proposed transfer of this Warrant may be effected without registration of this
Warrant under the Act, the Holder of this Warrant shall be entitled to transfer
this Warrant in accordance with the proposed method of disposition; provided,
however, that if the method of disposition would, in the opinion of such
counsel, require that the Company take any action or execute and file with the
Commission or deliver to the Holder or any other person any form or document in
order to establish the entitlement of the Holder to take advantage of such
method of disposition, the Company agrees, at the cost of the Holder, to
promptly take any necessary action or execute and file or deliver any necessary
form or document. Notwithstanding the foregoing, in no event will the Company be
obligated to effect a registration under the Act so as to permit the proposed
transfer of this Warrant.
(b) If, in the opinion of such counsel, the proposed transfer of this
Warrant may not be effected without registration of this Warrant under the Act,
the holder of this Warrant shall not be entitled to transfer this Warrant until
registration is effective.
ARTICLE V
PURCHASE PRICE
5.1 Determination of Purchase Price. The Purchase Price for any Warrant
Share purchasable hereunder shall be equal to $2.50 per share; provided,
however, if the Company shall divide its outstanding shares of Common Stock by
stock split, stock dividend or otherwise, the Purchase Price shall
proportionately decrease and if the Company shall combine its outstanding
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<PAGE> 6
shares of Common Stock by stock combination, reverse split or otherwise, the
Purchase Price shall proportionately increase. Notwithstanding the provisions of
this Section 5. 1, in the event that the Company does not raise on or after May
1, 1996 and prior to July 1, 1997 an aggregate of Five Million Dollars
($5,000,000), net of sales fees and commissions, from an initial public
offering, sale or other placement of shares of the Common Stock or other capital
stock of Company, the Purchase Price shall be adjusted to equal the lesser of
(i) regardless of whether any Notes are outstanding, that amount which would
then constitute the Conversion Price under the Notes assuming for such purposes,
if necessary, Notes are outstanding, or (ii) the amount which would then
constitute the Purchase Price hereunder without reference to any Purchase Price
established under (i) hereof.
5.2 Notice to Holder. Upon any adjustment to the Purchase Price
required hereunder, the Company will provide the Holder hereof with written
notice of the current Purchase Price existing under this Warrant.
ARTICLE VI
NUMBER OF WARRANT SHARES
The number of Warrant Shares issuable hereunder shall be ___________;
provided, however, if the Company shall divide its outstanding shares of Common
Stock by stock split, stock dividend or otherwise, the number of Warrant Shares
then issuable hereunder shall proportionately increase and if the Company shall
combine its outstanding shares of Common Stock by stock combination, reverse
split or otherwise, the number of Warrant Shares then issuable hereunder shall
proportionately decrease.
ARTICLE VII
RECLASSIFICATION, REORGANIZATION OR MERGER
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation or which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), the
Company shall cause effective provision to be made so that the Holder hereof
shall have the right thereafter by exercising this Warrant to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization or other change, consolidation or
merger, as such holder would have been entitled to receive had such holder
exercised this Warrant immediately prior to such reclassification, change,
consolidation or merger. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments, herein provided, of the Purchase Price 'and the number of Warrant
Shares purchasable and receivable upon the
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<PAGE> 7
exercise of this Warrant. The foregoing provisions of this Article VII shall
similarly apply to successive reclassification, capital reorganizations and
changes of shares of Common Stock and to successive consolidations and mergers.
ARTICLE VIII
DISTRIBUTIONS, LIQUIDATION OR DISSOLUTION
8.1 Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Article IX hereof, make any
distribution of its assets to holders of its capital stock as a partial
liquidation distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends
under the laws of the State of Delaware, then the Holder, upon the exercise of
this Warrant prior to any such distribution but after the date of record for the
determination of those holders of capital stock entitled to such distribution of
assets, shall be entitled to receive, in addition to the shares of Common Stock
issuable on such exercise, upon such distribution the amount of such assets (or
at the option of the Company a sum equal to the value thereof at the time of
such distribution to holders of capital stock as such value is determined by the
Board of Directors of the Company in good faith), which would have been payable
to the holder had it been the holder of record of such shares of capital stock
on the record date for the determination of those holders of capital stock
entitled to such distribution.
8.2 Dissolution or Liquidation. In case the Company shall, at any time
prior to the Expiration Date set forth in Article IX hereof, dissolve, liquidate
or wind up its affairs, the Holder shall be entitled, upon the exercise of this
Warrant and prior to any such distribution in dissolution of liquidation, to
receive on such exercise, in lieu of the shares of Common Stock which the Holder
would have been entitled to receive, the same kind and amount of assets as would
have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
holder been the Holder of record of such shares of Common Stock on the record
date for the determination of those holders of Common Stock entitled to receive
any such liquidation distribution.
ARTICLE IX
EXPIRATION
This Warrant shall terminate at 5:00 p.m. Eastern time on April 30,
2001. The Company shall give, by first class mail, postage prepaid, addressed to
the Holder, at the address of the Holder as shown on the books of the Company at
least twenty (20) days prior written notice of (i) the date on which the books
of the Company shall close for determining rights to vote in respect of any
merger, consolidation or transfer of assets which would result in the expiration
of this Warrant and (ii) in reference to a merger, consolidation, or transfer of
assets of the Company, the date on which the holders of Common Stock shall be
entitled to exchange their shares for securities or property resulting from such
merger, consolidation or transfer of assets.
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<PAGE> 8
ARTICLE X
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that it will reserve and set apart and
have at all times, free from preemptive rights, a number of shares of Common
Stock or other securities or property deliverable upon the exercise of this
Warrant sufficient to enable it at any time to fulfill all its obligations
hereunder.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Warrant contains the entire agreement
between the holder hereof and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
11.2 Waiver and Amendment, This Warrant is one of several Common Stock
Warrants issued pursuant to that certain Note and Warrant Purchase Agreement,
dated as of May 8, 1996, by and among the Company and the Investors party
thereto (the "Common Stock Warrants"). Any term or provision of this Warrant may
be waived at any time and any term or provision of this Warrant may be amended
or supplemented at any time by agreement of the holders of those Common Stock
Warrants representing more than fifty percent (50%) of all Warrant Shares then
issuable upon exercise of all such outstanding Common Stock Warrants and the
Company, except that any waiver of any term or condition, or any amendment or
supplementation, of this Warrant must be in writing and except that no change in
the number of shares issuable upon exercise, the rights in liquidation or
distribution, the purchase price upon exercise and the provisions of this
Section 11.2 shall be effective without the written consent of each Warrant
holder affected thereby. A waiver of any breach or failure to enforce any of the
terms or conditions of this Warrant shall not in any way affect, limit or waive
a party's rights hereunder at any time to enforce strict compliance thereafter
with any term or condition of this Warrant.
11.3 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
11.4 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
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<PAGE> 9
11.5 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder hereof shall be delivered, including by a
nationally recognized overnight courier service, or sent by certified or
registered mail, to such Holder at the last address shown on the books of the
Company maintained at the Warrant Office for the registration of, and the
registration of transfer of, the Warrant or at any more recent address of which
any holder hereof shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
shall be delivered, including by a nationally recognized overnight courier
service, at, or sent by certified or registered mail to, the Warrant Office,
attention: President, or such other address within the United States of America
as shall have been furnished by the Company to the Holder hereof.
11.6 Limitation of Liability: Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notice other than as herein
expressly provided in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase Warrant Shares, and no enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of such Holder
for the purchase price of any Warrant Shares or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
11.7 Loss, Destruction, Etc, of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, mutilation or
destruction of the Warrant, and in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company, or in the event of such
mutilation, upon surrender and cancellation of the Warrant, the Company will
make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 11.7 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its Chairman and CEO and its corporate said to be impressed hereon
and attested by its Secretary.
THE COMPANY:
ONLINE RESOURCES &
COMMUNICATIONS CORPORATION
By:
------------------------------------
Chairman and CEO
Attest:
- --------------------------
Secretary
[Corporate Seal]
<PAGE> 11
EXHIBIT 2.1
WARRANT
SUBSCRIPTION NOTICE
Dated ___________
The undersigned hereby irrevocably elects to exercise its right to
purchase __________ shares of the Common Stock, $.0001 par value per share, of
Online Resources & Communications Corporation, such right being pursuant to a
Warrant dated ________________________, 1996, and as issued to the undersigned
by Online Resources & Communications Corporation, and remits herewith the sum of
$ ___________________ in payment for same in accordance with the Purchase Price
specified in such Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-----------------------------------------------------
(Please typewrite or print in block letters)
Address
---------------------------------------------------
Signature
---------------------------------------
Shares Heretofore Purchased
Under Warrant
- --------------------------------
<PAGE> 1
EXHIBIT 4.5
Warrant - C
THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS
OF ANY STATE. THIS WARRANT AND ANY OF SUCH SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH
TRANSACTION UNDER THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE ACT
AND OTHER APPLICABLE SECURITIES LAWS.
WARRANT CERTIFICATE
WARRANTS TO PURCHASE SHARES OF STOCK
OF ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Date of Issuance:
THIS CERTIFIES that, for value received,
or registered assigns (the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant Certificate (the "Warrant"), from Online Resources &
Communications Corporation, a Delaware corporation (the "Company"), at the price
hereinafter set forth, that number of shares of the one hundredth cent ($0.0001)
par value Common Stock of the Company as determined in accordance with the
provisions of Article VI hereof. This Warrant is hereinafter referred to as the
"Warrant" and the shares of Common Stock, par value $0.0001 per share issuable
pursuant to the terms hereof are hereinafter sometimes referred to as "Warrant
Shares". This Warrant is issued pursuant to the terms of that certain Series C
Convertible Preferred Stock and Warrant Purchase Agreement, dated as of May 30,
1997, by and among the Company and the Investors named therein (the
"Agreement").
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Act": the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"Common Stock": the Company's authorized shares of Common
Stock, par value $.0001 per share.
<PAGE> 2
"Commission": the Securities and Exchange Commission, or any
other federal agency then administering the Act.
"Company": Online Resources & Communications Corporation, a
Delaware corporation, having a principal office located at 7927 Jones
Branch Drive, McLean, Virginia 22102 and any other corporation assuming
or required to assume this Warrant pursuant to Article VIII.
"Exercise Price": the purchase price for any Warrant Share
purchasable under this Warrant.
"Person": any individual, corporation, partnership, trust,
limited liability company, unincorporated organization and any
government, and any political subdivision, instrumentality or agency
thereof.
"Warrant Office": as defined in Section 3.1.
"Warrant Shares": the shares of Common Stock purchasable by
the holder of this Warrant upon the exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1. Standard Method. The purchase right represented by this Warrant
may be exercised by the Holder hereof, in whole or in part and from time to
time, by the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit 2-1 duly executed) at the Warrant Office and by the
payment to the Company, by certified or bank check or by wire transfer, of an
amount equal to the then applicable Exercise Price per share multiplied by the
number of Warrant Shares then being purchased The person or persons in whose
name(s) any certificate(s) representing Warrant Shares shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised and the then Exercise Price is paid. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the Holder as soon as possible and
in any event within thirty days of receipt of such notice and payment of the
then applicable Exercise Price and, unless this Warrant has been fully exercised
or expired, a new Warrant representing the portion of the Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the Holder as soon as possible and in any event within such
thirty-day period.
2.2 Net Issue Exercise.
(a) In lieu of exercising this Warrant, the Holder may elect
to receive shares equal to the value of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the Warrant Office together with
notice of such election in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
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<PAGE> 3
X= Y(A-B)
------
A
Where
X = the number of Warrant Shares to be issued to Holder.
Y = the number of Warrant Shares purchasable under this Warrant.
A = the fair market value of one share of Common Stock.
B = the then current Exercise Price.
(b) For purposes of this Section, fair market value of one
share of the Company's Common Stock shall be based on the average of the closing
per share bid and asked prices of the Company's Common Stock quoted in the
Over-The-Counter Market Summary or the closing price quoted on Nasdaq or any
exchange on which the Common Stock is listed, whichever is applicable, as
published in the Eastern Edition of The Wall Street Journal for the ten trading
days prior to the date of determination of fair market value. If the Common
Stock is not traded Over-The-Counter or on Nasdaq or an exchange, the fair
market value of the Company's Common Stock shall be the price per share which
the Company could obtain from a willing buyer for shares sold by the Company
from authorized but unissued shares, as such price shall be agreed by the
Company and the Holder, and if they fail to agree within 15 days after the
exercise of this Warrant, as determined by arbitration. Such arbitration shall
be conducted in Washington, D.C. in accordance with the commercial arbitration
rules of the American Arbitration Association and the costs of arbitration shall
be shared equally by the parties. The arbitrator shall be a person selected by
the Company and the Holder who shall have experience in valuing companies
similar to the Company. If the Company and the Holder are unable to agree on a
single arbitrator, each shall select an arbitrator and the two arbitrators so
selected shall select a third arbitrator. The determination of the arbitrator(s)
shall be binding on the Company and the holder.
2.3 Shares to be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be duly authorized and
validly issued, fully paid and nonassessable.
2.4 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock. Upon payment of the exercise price with
respect to any fractional shares, the Company shall pay to the Holder the cash
equivalent of such fractional shares, based on the fair market value of such
shares as reasonably determined pursuant to Section 2.2 above.
2.5 Legend on Warrant Shares. Each certificate for shares of Common
Stock initially issued upon exercise of this Warrant, unless at the time of
exercise such shares are registered under the Act, shall bear a legend
substantially similar to the following, in addition to any other legends
required to be placed on such share certificate pursuant to any other agreements
by which the Company is bound.
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<PAGE> 4
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
the securities laws of any state. They may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of
except pursuant to an effective registration statement relating to such
transaction under the Act and all other applicable securities laws or
pursuant to an exemption from the registration provisions of the Act
and other applicable securities laws.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear a legend substantially
similar to the foregoing, unless, in the opinion of counsel reasonably
satisfactory to the Company, the securities represented thereby need no longer
be subject to the restrictions on transferability. The provisions of Article IV
shall be binding upon all subsequent holders of this Warrant.
2.6 Acknowledgment of Continuing Obligation. The Company will, at the
time of any exercise of this Warrant in whole or in part, upon request of the
Holder hereof, acknowledge in writing its continuing obligation to such Holder
in respect of any rights to which the Holder shall continue to be entitled after
exercise in accordance with this Warrant; provided, however, that the failure of
the Holder to make any such request shall not affect the continuing obligation
of the Company to the Holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION OR COMBINATION OF WARRANTS
3.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's location set forth in Article I, and may subsequently be such
other office of the Company or of any transfer agent of the Common Stock in the
continental United States as to which written notice has previously been given
to all holders of Warrants.
3.2 Ownership of Warrant. The Company may deem and treat the Person in
whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article III.
3.3 Transfer of Warrant. The Company agrees to maintain at the Warrant
Office books for the registration of permitted transfers of this Warrant.
Subject to the provisions of Article IV, this Warrant and all rights hereunder
are transferable, in whole or in part, on the books at that office, upon
surrender of this Warrant at that office, together with a written assignment of
this Warrant duly executed by the holder hereof or his duly authorized agent or
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<PAGE> 5
attorney and funds sufficient to pay any transfer taxes payable upon the making
of the transfer. Subject to Article IV, upon surrender and payment, the Company
shall execute and deliver a new Warrant in the name of the assignee, note
thereon the number of Warrant Shares theretofore purchased under this Warrant,
and this Warrant shall promptly be cancelled and a notation of that cancellation
made on the books of the Warrant Office. A Warrant may be exercised by a new
holder for the purchase of shares of Common Stock without having a new warrant
issued.
3.4 Division of Warrants. This Warrant may not be divided.
3.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
ARTICLE IV
RESTRICTIONS ON TRANSFER
4.1 Restrictions on Transfer. Notwithstanding any provisions contained
in this Warrant to the contrary, this Warrant shall not be exercisable or
transferable except upon the conditions specified in this Article IV, which
conditions are intended, among other things, to insure compliance with the
provisions of the Act in respect of the exercise or transfer of the Warrant, and
subject to the restrictions on transfer set forth in that certain Stockholders'
Agreement to which the Holder hereof is a party. The Holder of this Warrant, by
acceptance hereof, agrees that it will not transfer this Warrant prior to
delivery to the Company of any required opinion of the Holder's counsel (as the
opinion and counsel are described in Section 4.2).
4.2 Opinion of Counsel. In connection with any transfer of this
Warrant, the following provisions shall apply:
(a) If, in the opinion of counsel reasonably acceptable to the Company,
a proposed transfer of this Warrant may be effected without registration of this
Warrant under the Act, the Holder of this Warrant shall be entitled to transfer
this Warrant in accordance with the proposed method of disposition; provided,
however, that if the method of disposition would, in the opinion of such
counsel, require that the Company take any action or execute and file with the
Commission or deliver to the Holder or any other person any form or document in
order to establish the entitlement of the Holder to take advantage of such
method of disposition, the Company agrees, at the cost of the Holder, to
promptly take any necessary action or execute and file or deliver any necessary
form or document. Notwithstanding the foregoing, in no event will the Company be
obligated to effect a registration under the Act so as to permit the proposed
transfer of this Warrant.
(b) If, in the opinion of such counsel, the proposed transfer of this
Warrant may not be effected without registration of this Warrant under the Act,
the holder of this Warrant shall not be entitled to transfer this Warrant until
registration is effective.
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<PAGE> 6
ARTICLE V
EXERCISE PRICE
5.1 Determination of Exercise Price. The Exercise Price for any Warrant
Share purchasable hereunder shall be equal to $3.00 per share; provided,
however, if the Company shall divide its outstanding shares of Common Stock by
stock split, stock dividend or otherwise, the Exercise Price shall
proportionately decrease and if the Company shall combine its outstanding shares
of Common Stock by stock combination, reverse split or otherwise, the Exercise
Price shall proportionately increase.
5.2 Notice to Holder. Upon any adjustment to the Exercise Price
required hereunder, the Company will promptly provide the Holder hereof with
written notice of the current Exercise Price existing under this Warrant and the
Exercise Price as adjusted.
ARTICLE VI
NUMBER OF WARRANT SHARES
The number of Warrant Shares issuable hereunder shall be_______;
provided, however, if the Company shall divide its outstanding shares of Common
Stock by stock split, stock dividend or otherwise, the number of Warrant Shares
then issuable hereunder shall proportionately increase and if the Company shall
combine its outstanding shares of Common Stock by stock combination, reverse
split or otherwise, the number of Warrant Shares then issuable hereunder shall
proportionately decrease.
ARTICLE VII
RECLASSIFICATION, REORGANIZATION OR MERGER
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation or which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), the
Company shall cause effective provision to be made so that the Holder hereof
shall have the right thereafter by exercising this Warrant to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization or other change, consolidation or
merger, as such holder would have been entitled to receive had such holder
exercised this Warrant immediately prior to such reclassification, change,
consolidation or merger. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments, herein provided, of the Exercise Price and the number of Warrant
Shares purchasable and receivable upon the exercise of this Warrant. The
foregoing provisions of this Article VII shall similarly apply to successive
reclassification, capital reorganizations and changes of shares of Common Stock
and to successive consolidations and mergers.
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<PAGE> 7
ARTICLE VIII
DISTRIBUTIONS, LIQUIDATION OR DISSOLUTION
8.1 Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Article IX hereof, make any
distribution of its assets to holders of its capital stock as a partial
liquidation distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends
under the laws of the State of Delaware, then the Holder, upon the exercise of
this Warrant prior to any such distribution but after the date of record for the
determination of those holders of capital stock entitled to such distribution of
assets, shall be entitled to receive, in addition to the shares of Common Stock
issuable on such exercise, upon such distribution the amount of such assets,
which would have been payable to the holder had it been the holder of record of
such shares of capital stock on the record date for the determination of those
holders of capital stock entitled to such distribution.
8.2 Dissolution or Liquidation. In case the Company shall, at any time
prior to the Expiration Date set forth in Article IX hereof, dissolve, liquidate
or wind up its affairs, the Holder shall be entitled, upon the exercise of this
Warrant and prior to any such distribution in dissolution of liquidation, to
receive on such exercise, in lieu of the shares of Common Stock which the Holder
would have been entitled to receive, the same kind and amount of assets as would
have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
holder been the Holder of record of such shares of Common Stock on the record
date for the determination of those holders of Common Stock entitled to receive
any such liquidation distribution.
ARTICLE IX
EXPIRATION
This Warrant shall terminate at the earliest of (i) 5:00 p.m. Eastern
time on June 1, 2002, (ii) the effective date of any merger of the Company with
another company in which, following such merger, the Company's stockholders do
not hold shares representing more than fifty percent (50%) of the votes in the
company surviving the merger, or (iii) the date of any liquidation or
dissolution of the Company. The Company shall give, by first class mail, postage
prepaid, addressed to the Holder, at the address of the Holder as shown on the
books of the Company at least twenty (20) days prior written notice of (i) the
date on which the books of the Company shall close for determining rights to
vote in respect of any merger, consolidation or transfer of assets which would
result in the expiration of this Warrant and (ii) in reference to a merger,
consolidation, or transfer of assets of the Company, the last date on which the
holders of Common Stock shall be entitled to exchange their shares for
securities or property resulting from such merger, consolidation or transfer of
assets.
ARTICLE X
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that it will reserve and set apart and
have at all times, free from preemptive rights, a number of shares of Common
Stock or other securities or property deliverable upon the exercise of this
Warrant sufficient to enable it at any time to fulfill all its obligations
hereunder.
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<PAGE> 8
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Warrant contains the entire agreement
between the holder hereof and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
11.2 Waiver and Amendment. This Warrant is one of a series of Warrants
issued pursuant to the Agreement (the "Common Stock Warrants"). Any term or
provision of this Warrant may be waived at any time and any term or provision of
this Warrant may be amended or supplemented at any time by agreement of the
holders of those Common Stock Warrants representing more than fifty percent
(50%) of all Warrant Shares then issuable upon exercise of all such outstanding
Common Stock Warrants and the Company, except that any waiver of any term or
condition, or any amendment or supplementation, of this Warrant must be in
writing and except that no change in the number of shares issuable upon
exercise, the rights in liquidation or distribution, or the purchase price upon
exercise and the provisions of this Section 11.2 shall be effective without the
written consent of each Warrant holder affected thereby. A waiver of any breach
or failure to enforce any of the terms or conditions of this Warrant shall not
in any way affect, limit or waive a party's rights hereunder at any time to
enforce strict compliance thereafter with any term or condition of this Warrant.
11.3 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
11.4 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
11.5 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder hereof shall be delivered, including by a
nationally recognized overnight courier service, or sent by certified or
registered mail, to such Holder at the last address shown on the books of the
Company maintained at the Warrant Office for the registration of, and the
registration of transfer of, the Warrant or at any more recent address of which
any holder hereof shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
shall be delivered, including by a nationally recognized overnight courier
service, at, or sent by certified or registered mail to, the Warrant Office,
attention: President, or such other address within the United States of America
as shall have been furnished by the Company to the Holder hereof.
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<PAGE> 9
11.6 Limitation of Liability: Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notice other than as herein
expressly provided in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase Warrant Shares, and no enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of such Holder
for the purchase price of any Warrant Shares or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
11.7 Loss, Destruction, Etc, of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, mutilation or
destruction of the Warrant, and in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company, or in the event of such
mutilation, upon surrender and cancellation of the Warrant, the Company will
make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 11.7 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its Chairman and CEO and its corporate said to be impressed hereon
and attested by its Secretary.
THE COMPANY:
ONLINE RESOURCES &
COMMUNICATIONS CORPORATION
By:
------------------------------
Chairman and CEO
Attest:
- -----------------------
Secretary
[Corporate Seal]
9
<PAGE> 10
EXHIBIT 2.1
WARRANT
SUBSCRIPTION NOTICE
Dated__________
The undersigned hereby irrevocably elects to exercise its right to
purchase _____________ shares of the Common Stock, $.0001 par value per share,
of Online Resources & Communications Corporation, such right being pursuant to a
Warrant dated ______________, 1997, and as issued to the undersigned by Online
Resources & Communications Corporation, and either remits herewith the sum of
$______________________ in payment for same in accordance with the Exercise
Price specified in such Warrant or in lieu thereof by exercise of the Net Issue
Exercise set forth in Section 2.2 of such Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-------------------------------------------------
(Please typewrite or print in block letters)
Address
----------------------------------------------
Signature
-----------------------------------
Shares Heretofore Purchased
Under Warrant
- ----------------------------
<PAGE> 1
EXHIBIT 4.6
Warrant No. ______
THIS WARRANT (AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES
STATUTE, OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE THEREUNDER AS
EVIDENCED BY AN OPINION OF COUNSEL OR NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, IN EITHER CASE IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
ARE SUBJECT TO THAT CERTAIN WARRANT PURCHASE AGREEMENT DATED MAY 28, 1997 BY AND
BETWEEN ONLINE RESOURCES & COMMUNICATIONS CORPORATION AND DOMINION FUND IV, A
DELAWARE LIMITED PARTNERSHIP.
Shares Issuable Upon Exercise: 10,500 shares of the Series C
Convertible Preferred Stock of Online
Resources & Communications Corporation,
subject to adjustment as set forth below
WARRANT TO PURCHASE
SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK
Expires: June 3, 2002
THIS CERTIFIES THAT, for value received, Dominion Fund IV, a Delaware
Limited Partnership ("Dominion"), is entitled to subscribe for and purchase up
to 10,500 shares (the "Shares") of the fully paid and nonassessable Series C
Convertible Preferred Stock of Online Resources & Communications Corporation, a
Delaware corporation (the "Company"), for an exercise price of $100 per Share
(the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth.
As used herein, the term "Shares" shall mean the Company's presently
authorized Series C Convertible Preferred Stock, or in the event of a mandatory
conversion pursuant to Section 4(q) of the Company's Certificate of Designation
of Preferences, Powers, Privileges and Rights of Series C Convertible Preferred
Stock (the "Charter"), shall mean that number of shares of Common Stock as are
issuable on the conversion of the Shares pursuant to the provisions of the
Charter and the term "Grant Date" shall mean May 28, 1997.
1. Term. Subject to the provisions of this Warrant and applicable
provisions of that certain Warrant Purchase Agreement between Dominion Fund IV,
a Delaware Limited
<PAGE> 2
Partnership, and the Company dated May 28, 1997, the purchase right represented
by this Warrant is exercisable, in whole or in part, at any time and from time
to time after the date hereof and prior to the earlier of (A) the fifth
anniversary of the Grant Date and (B) the second anniversary of the closing of a
firm commitment underwritten public offering of equity securities of the Company
registered with the Securities and Exchange Commission (other than on Form S-4
or S-8 or their equivalents) and involving gross proceeds of $30,000,000 or
more.
2. Method of Exercise.
2.1. Standard Method. The purchase right represented by this
Warrant may be exercised by the holder hereof, in whole or in part and from time
to time, by either, at the election of the holder hereof, (a) the surrender of
this Warrant (with the notice of exercise form attached hereto as Exhibit A-1
duly executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check or by wire transfer, of an amount equal to
the then applicable Warrant Price per share multiplied by the number of Shares
then being purchased or (b) if in connection with a registered public offering
of the Company's securities (provided that such offering includes the shares
issuable upon the conversion of the Shares (the "Conversion Shares") and that
the holder shall have elected to participate therein pursuant to the exercise of
the registration rights referred to in Section 8.2 hereof), the surrender of
this Warrant (with the notice of exercise form attached hereto as Exhibit A-2
duly executed and a notice of conversion for the Conversion Shares being sold in
such offering) at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company and any underwriter, in the
case of an underwritten registered public offering, for payment to the Company
either by certified or bank check or by wire transfer or from the proceeds of
the sale of Shares to be sold by the holder in such public offering of an amount
equal to the then applicable Warrant Price per Share multiplied by the number of
Shares then being purchased. The person or persons in whose name(s) any
certificate(s) representing Shares shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised and the then applicable Warrant Price paid. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within thirty days of receipt of such notice and
payment of the then applicable Warrant Price and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
2.2 Net Issue Exercise.
(a) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
Holder a number of shares of the Company's Series C Convertible Preferred Stock
computed using the following formula:
2
<PAGE> 3
X= Y(A-B)
------
A
Where
X = the number of Warrant Shares to be issued to Holder.
Y = the number of Warrant Shares purchasable under this Warrant.
A = the fair market value of one Share of Common Stock.
B = the then current Exercise Price
(b) For purposes of this Section, fair market value of one
share of the Company's Series C Convertible Preferred Stock Stock shall be based
on the average of the closing per share bid and asked prices of the Company's
Common Stock quoted in the Over-The-Counter Market Summary or the closing price
quoted on Nasdaq or any exchange on which the Common Stock is listed, whichever
is applicable, as published in the Eastern Edition of The Wall Street Journal
for the ten trading days prior to the date of determination of fair market value
multiplied by the number of shares of Common Stock into which each share of
Series C Convertible Preferred Stock is then convertible (or if there has been a
mandatory conversion of the Shares into Common Stock pursuant to the Charter,
the number of Shares of Common Stock of the Company into which each Share has
been converted). If the Common Stock is not traded Over-The-Counter or on Nasdaq
or an exchange, the fair market value of the Company's Series C Convertible
Preferred Stock shall be the price per share which the Company could obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares, as such price shall be agreed by the Company and the Holder, and if they
fail to agree within 15 days after the exercise of this Warrant, as determined
by arbitration. Such arbitration shall be conducted in Boston, Massachusetts in
accordance with the commercial arbitration rules of the American Arbitration
Association and the costs of arbitration shall be shared equally by the parties.
The arbitrator shall be a person selected by the Company and the holder who
shall have experience in valuing companies similar to the Company. If the
Company and the holder are unable to agree on a single arbitrator, each shall
select an arbitrator and the two arbitrators so selected shall select a third
arbitrator. The determination of the arbitrator(s) shall be binding on the
Company and the holder.
2.3 Automatic Exercise. (a) If the Company has publicly traded stock as
of the expiration date of this Warrant, if the fair market value of one share of
the Company's Series C Convertible Preferred Stock (determined in the same
manner as is set forth in Section 2.2(b)) is as of the expiration date greater
than the Warrant Price, as adjusted, this Warrant shall be deemed automatically
exercised pursuant to Section 2.2 above (even if not surrendered) immediately
prior to its expiration. For purposes of automatic exercise, the fair market
value of one share of the Company's Series C Convertible Preferred Stock shall
be determined pursuant to Section 2.2(b) above.
(b) To the extent this Warrant or any portion thereof is
deemed automatically exercised pursuant to this Section 2.3, the Company agrees
to promptly notify the holder
3
<PAGE> 4
hereof of the number of shares of the Company's Series C Convertible Preferred
Stock, if any, the holder is entitled to receive by reason of such automatic
exercise.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant, and all
Conversion Shares that may be issued upon the conversion of the Shares, will,
upon issuance, be fully paid and nonassessable, and free from all taxes, liens
and charges with respect to the issue thereof. During the period within which
the rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of Shares to
provide for the exercise of the unexercised rights represented by this Warrant
and a sufficient number of Conversion Shares to provide for the conversion of
the Shares issuable upon the exercise of this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
4.1 Reclassification or Merger. Subject to Section 1, in case
of any reclassification, change or conversion of securities of the class
issuable upon exercise of this Warrant (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any merger of the Company
with or into another corporation (other than a merger with another corporation
in which the Company is a continuing corporation and which does not result in
any reclassification or change of outstanding securities issuable upon exercise
of this Warrant), or in case of any sale of all or substantially all of the
assets of the Company, the Company, or such successor or purchasing corporation,
as the case may be, shall execute a new Warrant (in form and substance
satisfactory to the holder of this Warrant) providing that the holder of this
Warrant shall have the right to exercise such new Warrant and upon such exercise
to receive, in lieu of each share of Series C Convertible Preferred Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of one share of Series C
Convertible Preferred Stock. Such new Warrant shall provide for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Paragraph 4. The provisions of this Section 4.1 shall similarly
apply to successive reclassifications, changes, mergers and transfers.
4.2 Subdivisions or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Series C Convertible Preferred Stock or, following a mandatory
conversion under the Company's Charter, its Common Stock, the Warrant Price
shall be proportionately adjusted.
4.3 Stock Dividends. If the Company at any time while this
warrant is outstanding and unexpired shall pay a dividend payable in shares of
Series C Convertible Preferred Stock or, following a mandatory conversion under
the Company's Charter, Common Stock (except any distribution specifically
provided for in the foregoing Sections 4.1 and 4.2), then the Warrant Price
shall be adjusted, from and after the date of
4
<PAGE> 5
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (a) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution (assuming the conversion, exchange or
exercise of all securities convertible into, exchangeable for or exercisable for
Common Stock), and (b) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (assuming the conversion, exchange or exercise of all securities
convertible into, exchangeable for or exercisable for Common Stock).
4.4 [Intentionally Omitted].
4.5 No Impairment. The Company will not, by amendment of its
Charter or through any reorganization, recapitalization, 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 hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Paragraph 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
4.6 Notices of Record Date. In the event of any taking by the
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed merger or consolidation of
the Company with or into any other corporation, or any proposed sale, lease or
conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, or any
redemption of shares of any series of convertible preferred stock (as defined in
the Certificate of Incorporation of the Company), the Company shall mail to the
holder of the Warrant, at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
5. Notice of Adjustments. Whenever the Warrant Price or number of
Shares shall be adjusted pursuant to the provisions hereof, the Company shall
within 30 days of such adjustment deliver a certificate signed by its chief
financial officer to the registered holder(s) hereof setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Price after giving effect to such adjustment.
6. Fractional Shares. No fractional Shares will be issued in connection
with any exercise hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefor upon the basis of the Warrant Price then in
effect.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Preferred Stock.
5
<PAGE> 6
7.1 Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, the Shares to be issued
upon exercise hereof and the Conversion Shares are being acquired for investment
and that such holder will not offer, sell or otherwise dispose of this Warrant,
any Shares to be issued upon exercise hereof or any Conversion Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act"). This Warrant, all Shares issued upon exercise
of this Warrant and all Conversion Shares (unless registered under the Act)
shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT (AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES
STATUTE, OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE THEREUNDER. AS
EVIDENCED BY AN OPINION OF COUNSEL OR NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, IN EITHER CASE IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
ARE SUBJECT TO THAT CERTAIN WARRANT PURCHASE AGREEMENT DATED JUNE 3,1997 BY AND
BETWEEN ONLINE RESOURCES & COMMUNICATIONS CORPORATION AND DOMINION FUND IV, A
DELAWARE LIMITED PARTNERSHIP.
7.2 Disposition of Warrant, Shares and Conversion Shares. With
respect to any offer, sale or other disposition of this Warrant, any of the
Shares or any of the Conversion Shares and until registration of this Warrant,
such Shares or Conversion Shares, the holder hereof and each subsequent holder
of the Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of
counsel, if requested by the Company, reasonably acceptable to the Company, to
the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state law then in effect) of this Warrant or such Shares and indicating whether
or not under the Act certificates for this Warrant or such Shares or Conversion
Shares to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Act. Each certificate representing this Warrant or the Shares or Conversion
Shares thus transferred shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Act, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to insure compliance with the Act. Nothing herein shall restrict the
transfer of this Warrant, the Shares, the Conversion Shares or any portion
hereof by the initial holder hereof to any entity affiliated with the initial
holder, or to any partner, member or stockholder of any such entity provided
such transfer may be made in compliance with applicable federal and state
securities laws. The Company may issue stop transfer instructions to its
transfer agent in connection with the foregoing restrictions.
6
<PAGE> 7
8. Rights as Shareholder; Information.
8.1 Shareholder Rights. No holder of the Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of
Shares, Conversion Shares or any other securities of the Company which may at
any time be issuable on the exercise thereof for any purpose, nor shall anything
contained herein be construed to confer upon the holder of this Warrant, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to receive notice of meetings (except as otherwise provided
in Section 4.6 of this Warrant), or to receive dividends or subscription rights
or otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof or the Conversion Shares, as the case may
be, shall have become deliverable, as provided herein.
8.2 Financial Statements and Information. The Company shall
deliver to the registered holder hereof (i) within 120 days after the end of the
fiscal year of the Company, a consolidated balance sheet of the Company as of
the end of such year and a consolidated statement of income, retained earnings
and cash flows for such year, which year-end financial reports shall be in
reasonable detail and certified by independent public accountants of nationally
recognized standing selected by the Company and (ii) within 45 days after the
end of each fiscal quarter other than the last quarter of the fiscal year,
unaudited consolidated statements of income, retained earnings and cash flows
for such month and a consolidated balance sheet as of the end of such month. If
the Company has a class of securities registered under the Securities Exchange
Act of 1934, the provisions of this Section 8.2 shall no longer apply. In
addition, the Company shall deliver to the registered holder hereof any other
information or data provided generally to the shareholders of the Company.
8.3 Registration Rights. The Company hereby covenants and
agrees that the Conversion Shares issuable on the conversion of the shares
issuable upon the exercise of this Warrant shall have the benefit of the
registration rights set forth in the Registration Rights Agreement dated as of
May 30, 1997 among the Company and certain of the Company's shareholders.
9. Additional Rights.
9.1 Mergers. The Company will provide the holder of this
Warrant with at least the greater of (a) 20 days' notice or (b) such greater
amount of notice as Delaware law requires be given to shareholders with power to
vote at a meeting on any transaction described hereinafter of the terms and
conditions of the proposed transaction, if the Company proposes to (i) sell,
lease, exchange, convey or otherwise dispose of all or substantially all of its
property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of. Subject to the provisions of Section 1 above, in connection with
any transaction described in this Section 9.2 either (a) the sale of this
Warrant shall be arranged in connection with any such transaction on terms
satisfactory to the holder hereof or (b) the holder hereof shall receive in
7
<PAGE> 8
connection with such transaction either (i) a new Warrant (on the same terms as
set forth herein or otherwise in form and substance satisfactory to the holder
of this Warrant) exercisable for the kind and amount of shares of stock, other
securities, money and property receivable upon such transaction by a holder of
Series C Convertible Preferred Stock or (ii) the remainder of (x) securities,
money or other property receivable upon such transaction by a holder of Series C
Convertible Preferred Stock having the same number of shares of Series C
Convertible Preferred Stock as the number issuable on the exercise of this
Warrant, minus (y) the Warrant Price.
10. Representations and Warranties. This Warrant is issued and
delivered on the basis of the following:
10.1 Authorization and Delivery. This Warrant has been duly
authorized and executed by the Company and when delivered will be the valid and
binding obligation of the Company enforceable in accordance with its terms;
10.2 Shares. The Shares and the Conversion Shares have been
duly authorized and reserved for issuance by the Company and, when issued and
paid for in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable;
10.3 Rights and Privileges. The rights, preferences,
privileges and restrictions granted to or imposed upon the Shares and the
Conversion Shares and the holders thereof are as set forth herein and in the
Company's Charter, and in the Warrant Purchase Agreement, and the Registration
Rights Agreement dated May 30, 1997, and the Stockholders' Agreement dated May
30, 1997, true and complete copies of which have been delivered to the original
warrantholder; and
10.4 No Inconsistency. The execution and delivery of this
Warrant are not, and the issuance of the Warrant upon exercise of this Warrant
in accordance with the terms hereof will not be, inconsistent with the Company's
Charter or by-laws, do not and will not contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, and do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration with or the taking of any action in respect of or by, any
Federal, state or local government authority or agency or other person.
11. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
8
<PAGE> 9
12. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered by facsimile where confirmation of receipt by the receiving party's
receiver can be documented, or delivered by hand, or shall be sent by reputable
overnight courier, certified or registered mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefore on the signature page of this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger or consolidation, and all of
the obligations of the Company relating to the Shares issuable upon the exercise
of this Warrant shall be as set forth in the Company's Charter and the Company's
by-laws (each as amended from time to time) and shall survive the exercise and
termination of this Warrant and all of the covenants and agreements herein and
in such other documents and instruments of the Company shall inure to the
benefit of the successors and assigns of the holder hereof. The Company will, at
the time of the exercise of this Warrant, in whole or in part, upon request of
the holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the holder hereof in respect of any rights (including,
without limitation, any right to registration of the Conversion Shares) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof to
make any such request shall not affect the continuing obligation of the Company
to the holder hereof in respect of such rights.
14. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
15. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
16. Governing Law. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF DELAWARE.
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By:
--------------------------------
Title:
-----------------------------
Address: 7927 Jones Branch Drive
9
<PAGE> 10
EXHIBIT A-1
Notice of Exercise
To:
1. The undersigned hereby elects to purchase shares of Series C
Convertible Preferred Stock of Online Resources & Communications Corporation
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or, subject to compliance with the restrictions
on transfer set forth in Section 7 of the Warrant, in such other name or names
as are specified below:
-------------
(Name)
-------------
-------------
-------------
(Address)
3. The undersigned represents that the aforesaid shares being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
-------------
Signature
- ---------
Date
<PAGE> 11
EXHIBIT A-2
Notice of Exercise
To:
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S-1, filed _________, 19__ , the undersigned hereby elects to
purchase ______ shares of Series C Convertible Preferred Stock of the Company
(or such lesser number of shares as may be convertible into the number of shares
of Common Stock sold on behalf of the undersigned at the Closing) pursuant to
the terms of the attached Warrant and to convert such shares of Series C
Convertible Preferred Stock of the Company into shares of Common Stock of the
Company.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such ____ shares of Common Stock.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ ______ or, if less, the net proceeds
due the undersigned from the sale of shares in the aforesaid public offering. If
such net proceeds are less than the purchase price for such shares, the
undersigned agrees to deliver the difference to the Company prior to the
Closing.
-------------
Signature
- ---------
Date
<PAGE> 1
EXHIBIT 4.7
STOCK PURCHASE WARRANT
This STOCK PURCHASE WARRANT ("Warrant") is issued this 31st day of March,
1998, by ONLINE RESOURCES & COMMUNICATIONS CORPORATION, a Delaware corporation
(the "Company"), to SIRROM CAPITAL CORPORATION, a Tennessee corporation (SIRROM
CAPITAL CORPORATION and any subsequent assignee or transferee hereof are
hereinafter referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. For and in consideration of SIRROM
CAPITAL CORPORATION making a loan to the Company in an amount of SIX MILLION
and no/l00ths Dollars ($6,000,000) pursuant to the terms of a secured
promissory note of even date herewith (the "Note") and related loan agreement
of even date herewith (the "Loan Agreement"), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company hereby grants to Holder the right to purchase 250,000 shares ("Base
Amount") of the Company's common stock (the "Common Stock"), provided that in
the event that any portion of the indebtedness evidenced by the Note is
outstanding on the following dates, the Base Amount shall be increased to the
corresponding number set forth below:
<TABLE>
<CAPTION>
DATE BASE AMOUNT
-------------- -----------------
<S> <C>
March 31, 1999 325,000 shares
March 31, 2000 400,000 shares
March 31, 2001 475,000 shares
March 31, 2002 550,000 shares
March 31, 2003 625,000 shares
</TABLE>
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from the date hereof until May 31, 2003 (the
"Expiration Date").
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be Three Dollars ($3.00).
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) in whole or in part, upon
delivery of written notice of intent to exercise to the Company in the manner
at the address of the Company set forth in Section 14 hereof, together with
this
<PAGE> 2
Warrant and payment to the Company of the aggregate Exercise Price of the
Shares so purchased. The Exercise Price shall be payable, at the option of the
Holder, (i) by certified or bank check, (ii) by the surrender of the Note or
portion thereof having an outstanding principal balance equal to the aggregate
Exercise Price or (iii) by the surrender of a portion of this Warrant where the
Shares subject to the portion of this Warrant that is surrendered have a fair
market value equal to the aggregate Exercise Price. In the absence of an
established public market for the Common Stock, fair market value shall be
established by the Company's board of directors in a commercially reasonable
manner. Upon exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event within fifteen (15) days thereafter,
execute and deliver to the Holder of this Warrant a certificate or certificates
for the total number of whole Shares for which this Warrant is being exercised
in such names and denominations as are requested by such Holder. If this
Warrant shall be exercised with respect to less than all of the Shares, the
Holder shall be entitled to receive a new Warrant covering the number of Shares
in respect of which this Warrant shall not have been exercised, which new
Warrant shall in all other respects be identical to this Warrant. The Company
covenants and agrees that it will pay when due any and all state and federal
issue taxes which may be payable in respect of the issuance of this Warrant or
the issuance of any Shares upon exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act"), or
any state securities laws ("Blue Sky Laws"). This Warrant has been
acquired for investment purposes and not with a view to distribution or
resale and may not be sold or otherwise transferred without (i) an
effective registration statement for such Warrant under the Securities
Act and such applicable Blue Sky Laws, or (ii) an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the
Company and its counsel, that registration is not required under the
Securities Act or under any applicable Blue Sky Laws (the Company hereby
acknowledges that Chambliss, Bahner & Stophel, P.C. is acceptable
counsel). Transfer of the Shares shall be restricted in the same manner
and to the same extent as the Warrant and the certificates representing
such Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED
2
<PAGE> 3
UNTIL (I) A REGISTRATION STATEMENT UNDER THE
ACT AND SUCH APPLICABLE STATE SECURITIES LAWS
SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER
SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED
IN CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems necessary to
effect the compliance of the issuance of this Warrant and any shares of
Common Stock issued upon exercise hereof with applicable federal and
state securities laws.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid
and nonassessable, free from all taxes, liens, charges and preemptive
rights, if any, with respect thereto or to the issuance thereof. The
Company shall at all times reserve and keep available for issuance upon
the exercise of this Warrant such number of authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant.
(c) The Company covenants and agrees that it shall not from
and after the date hereof: (i) sell and/or issue any shares of the
Company's capital stock at a price per share less than the Exercise
Price in effect immediately prior to such sale or issuance (other than
pursuant to any options, warrants or convertible securities outstanding
on the date hereof), (ii) sell and/or issue any warrants or options for
shares of the Company's capital stock with an exercise price per share
less than the Exercise Price in effect immediately prior to such sale or
issuance, or (iii) sell and/or issue any preferred stock, convertible
debt or any other convertible securities with a conversion price of per
share less than the Exercise Price in effect immediately prior to such
sale or issuance (items (i), (ii) and (iii) of this subsection (c) are
individually and collectively referred to herein as a "Below Market
Transaction"). In the event that the Company consummates a Below Market
transaction after the date hereof, without the prior written consent of
the Holder hereof (except as provided in this Section 4 in subsection
(d) below), then the Exercise Price shall be reduced to the price
determined by dividing (y) an amount equal to the sum of (A) the total
number of shares of Common Stock outstanding immediately prior to such
Below Market Transaction, plus the number of shares of Common Stock
issuable upon conversion or exercise (as applicable) of (1) all the
outstanding shares of the Series A Preferred Stock
3
<PAGE> 4
of the Company, the Series B Preferred Stock of the Company, and the
Series C Preferred Stock of the Company, and (2) this Warrant, multiplied
by the then existing Exercise Price, and (B) the consideration, if any,
received by the Company upon such Below Market Transaction by (z) the
number of shares of Common Stock referenced in this Section 4 in
subsection (c) (y) (A) above, plus the additional shares of Common Stock
issued or sold, or deemed issued or sold in connection with such Below
Market Transaction. Notwithstanding the foregoing, if any shares of
Common Stock are issued or sold, or deemed to have been issued or sold,
in any "Financing" (as defined below) at less than the then existing
Exercise Price, the Exercise Price shall be reduced to such lower price
for which such shares of Common Stock are issued or sold or deemed to be
issued or sold. For purposes hereof, a Financing means any transaction
or related series of transactions which occurs at any time through
November 30, 1998 in which the Company issues or sells, or is deemed to
have issued or sold in accordance with this Section 4 in subsection
(c) (i) through (iii) hereof, shares of Common Stock. No adjustment of
the Exercise Price shall be made in an amount less than $.001 per share,
and 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 $.001
per share or more.
(d) Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment of Exercise Price
in the event of the issuance of Common Stock (i) upon conversion of any
shares of Series A Preferred Stock of the Company, Series B Preferred
Stock of the Company or Series C Preferred Stock of the Company at any
time outstanding; (ii) in connection with options to purchase up to
4,067,724 shares of Common Stock which have been issued to officers,
employees or directors of or consultants or advisors to the Company
pursuant to any plan, agreement or other arrangement which is approved
by the Board of Directors of the Company, (iii) in connection with
options or shares to purchase up to an additional 640,000 shares of
Common Stock which may have been issued after April 30, 1997 to
officers, employees or directors of, or consultants or advisors to, the
Company pursuant to any plan, agreement or other arrangement or other
arrangement which has been approved by the Board of Directors of the
Company or (iv) upon exercise of any warrants or conversion of any notes
issued on or before May 1, 1997 or otherwise issued in conjunction with
the issuance and sale of shares of Series C Preferred Stock of the
Company.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in
4
<PAGE> 5
part, to any person or business entity, by presentation of the Warrant to the
Company with written instructions for such transfer. Upon such presentation
for transfer, the Company shall promptly execute and deliver a new Warrant or
Warrants in the form hereof in the name of the assignee or assignees and in the
denominations specified in such instructions. The Company shall pay all
expenses incurred by it in connection with the preparation, issuance and
delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE
RIGHTS. Except as otherwise provided herein, this Warrant does not confer upon
the Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company,
then all shares of Common Stock that are subject to this Warrant shall be
deemed to be outstanding and owned by the Holder and the Holder shall be
entitled to participate in such rights offering. The Company shall not grant
any preemptive rights with respect to any of its capital stock without the
prior written consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information
delivered to the Company's Board of Directors, from the date hereof until such
time as the indebtedness evidenced by the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate Exercise Price, the aggregate number and
class of shares which such Holder would have received if this Warrant
had been exercised immediately prior to such stock split, stock
dividend, recapitalization, combination of shares, or other similar
event. If any adjustment under this Section 8(a), would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and
the number of shares subject to this Warrant shall be the next higher
number of shares, rounding all fractions upward. Whenever there shall be
an adjustment pursuant to this Section 8(a), the Company shall forthwith
notify the Holder or Holders of this Warrant of such adjustment, setting
forth in reasonable
5
<PAGE> 6
detail the event requiring the adjustment and the method by which such
adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event,
occurring after the date hereof, as a result of which shares of Common
Stock shall be changed into the same or a different number of shares of
the same or another class or classes of securities of the Company or
another entity, or the holders of Common Stock are entitled to receive
cash or other property, then the Holder exercising this Warrant shall
receive, for the aggregate Exercise Price, the aggregate number and
class of shares, cash or other property which such Holder would have
received if this Warrant had been exercised immediately prior to such
merger, consolidation, exchange of shares, separation, reorganization or
liquidation, or other similar event. If any adjustment under this
Section 8(b) would create a fractional share of Common Stock or a right
to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant to this Section
8(b), the Company shall forthwith notify the Holder or Holders of this
Warrant of such adjustment, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was
calculated.
9. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to Holder
the right and option to sell to the Company (the "Put") this Warrant for
a period of thirty (30) days immediately prior to the Expiration Date,
at a purchase price (the "Put Price") equal to the Fair Market Value (as
hereinafter defined) of the shares of Common Stock issuable to Holder
upon exercise of this Warrant.
(b) Holder may exercise the Put by delivery of written notice
(the "Put Notice") of such exercise to the Company in the manner and at
the address of the Company set forth in Section 14 hereof. The Company
shall pay to Holder, in cash or by wire transfer of immediately
available funds, the Put Price within thirty (30) days of the receipt of
the Put Notice.
(c) For purposes of this Section 9, the Fair Market Value of
the shares of Common Stock of the Company issuable pursuant to this
Warrant shall be determined as follows:
6
<PAGE> 7
(i) The Company and the Holder shall each appoint an
independent, experienced appraiser who is a member of a
recognized professional association of business appraisers. The
two appraisers shall determine the value of the shares of Common
Stock which would be issued upon the exercise of the Warrant net
of the Exercise Price, assuming that the sale would be between a
willing buyer and a willing seller, both of whom have full
knowledge of the financial and other affairs of the Company, and
neither of whom is under any compulsion to sell or to buy.
(ii) If the higher of the two appraisals is not ten
percent (10%) greater than the lower of the appraisals, the Fair
Market Value shall be the average of the two appraisals. If the
higher of the two appraisals is equal to or greater than ten
percent (10%) more than the lower of the two appraisals, then a
third appraiser shall be appointed by the two appraisers, and if
they cannot agree on a third appraiser, the American Arbitration
Association shall appoint the third appraiser. The third
appraiser, regardless of who appoints him or her, shall have the
same qualifications as the first two appraisers.
(iii) The Fair Market Value after the appointment of the
third appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be paid
one-half by the Company and one-half by the Holder.
(d) Notwithstanding the foregoing, if the Company successfully
completes a bona fide underwritten public offering of its capital stock
with net proceeds to the Company of at least $30,000,000 or such lesser
amount at which the Series C Preferred Stockholders of the Company agree
to convert to Common Stock, the Put shall terminate.
10. REGISTRATION. The Company hereby covenants and agrees that this
Warrant and/or the Shares shall have the benefit of the registration rights set
forth in that certain Registration Rights Agreement dated as of May 30, 1997
among the Company and certain of the Company's shareholders, a copy of which is
attached hereto as Exhibit A and incorporated herein by reference (the
"Registration Rights Agreement"), as if this Warrant and/or the Shares were
"Registrable Common" (as defined in Registration Rights Agreement) and/or as if
the Shares were "Preferred" (as defined in the Registration Rights Agreement)
with respect to the rights under Section 9 of the Registration Rights
Agreement.
7
<PAGE> 8
11. CERTAIN NOTICES. In case at any time the Company shall propose
to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders
of its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell of all
or substantially all of its assets to, another corporation;
(e) voluntarily or involuntarily dissolve, liquidate or wind
up of the affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or
securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant (i) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, and (ii) in the case of such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take place. Any notice
required by clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice
required by clause (ii) shall specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up, as the case may be.
12. RIGHTS OF CO-SALE.
(a) Matthew P. Lawlor ("Management Shareholder") shall not
enter into any transaction that would result in the sale by him of any
Common Stock now or hereafter owned by him, unless prior to such sale
such Management Shareholder shall give written notice (the "Co-Sale
Notice")
8
<PAGE> 9
to Holder addressed and delivered as set forth in Section 14 hereof, of
his intention to effect such sale in order that Holder may exercise its
rights under this Section 12 as hereinafter described. Such notice shall
set forth (i) the number of shares to be sold by such Management
Shareholder, (ii) the principal terms of the sale, including the price
at which the shares are intended to be sold, and (iii) an offer by such
Management Shareholder to use his best efforts to cause to be included
with the shares to be sold by him in the sale, on a share-by-share basis
and on the same terms and conditions, the Shares issuable or issued to
Holder pursuant this Warrant.
(b) If Holder has not accepted such offer in writing within a
period of ten (10) days from the date of receipt of the Co-Sale Notice,
then such Management Shareholder shall thereafter be free for a period
of ninety (90) days to sell the number of shares specified in the
Co-Sale Notice, at a price no greater than the price set forth in the
Co-Sale Notice and on otherwise no more favorable terms to such
Management Shareholder than as set forth in the Co-Sale Notice, without
any further obligation to Holder in connection with such sale. In the
event that such Management Shareholder fails to consummate such sale
within such ninety-day period, the shares specified in Co-Sale Notice
shall continue to be subject to this Section 12.
(c) If Holder accepts such offer in writing within ten-day
period, then such acceptance shall be irrevocable unless such Management
Shareholder shall be unable to cause to be included in his sale the
number of Shares of stock held by Holder and set forth in the written
acceptance. In that event, such Management Shareholder and Holder shall
participate in the sale equally, with such Management Shareholder and
Holder each selling half the total number of such shares to be sold in
the sale.
(d) Notwithstanding the foregoing, if the Company successfully
completes a bona fide underwritten public offering of its capital stock
with net proceeds to the Company of at least $30,000,000 or such lesser
amount at which the Series C Preferred Stockholders of the Company agree
to convert to Common Stock, the Put shall terminate.
13. ARTICLE AND SECTION HEADINGS. Numbered and titled article and
section headings are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Warrant.
14. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by
9
<PAGE> 10
certified mail or overnight via nationally recognized courier service (such as
Federal Express), to the other party at the address set forth below, or at such
other address as may be supplied in writing and of which receipt has been
acknowledged in writing. The date of personal delivery or telecopy or two (2)
business days after the date of mailing (or the next business day after
delivery to such courier service), as the case may be, shall be the date of
such notice, election or demand. For the purposes of this Warrant:
The Address of Lender is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Brent Ray
Telecopy No.: 615/726-1208
with a copy to: Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No.: 423/265-9574
The Address of Borrower is: Online Resources & Communications
Corporation
7600 Colshire Drive
McLean, VA 22102
Attention: George Northrup
Telecopy No.: 703/394-5107
with a copy to: Michaels, Wishner & Bonner
1140 Connecticut Avenue, Suite 900
Washington, D.C. 20003
Attention: Mark Wishner
Telecopy No.: (202) 775-0854
15. SEVERABILITY. If any provisions(s) of this Warrant or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
16. ENTIRE AGREEMENT. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
17. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No
10
<PAGE> 11
amendment or modification hereof shall be effective except in a writing
executed by each of the parties hereto.
18. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
19. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. The Company hereby
irrevocably consents to the jurisdiction of the United States District Court
for the Middle District of Tennessee and of all Tennessee state courts sitting
in Davidson County, Tennessee, for the purpose of any litigation to which
Holder may be a party and which concerns this Warrant. It is further agreed
that venue for any such action shall lie exclusively with courts sitting in
Davidson County, Tennessee, unless Holder agrees to the contrary in writing.
20. WAIVER OF TRIAL BY JURY. HOLDER AND THE COMPANY HEREBY KNOWINGLY
AND VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR
OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
WARRANT.
21. EQUITY PARTICIPATION. This Warrant is issued in connection with
the Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. section 47-24-101, et seq. and that
equity participation be permitted under said statutes and not constitute
interest on the Note. If under any circumstances whatsoever, fulfillment of any
obligation of this Warrant, the Loan Agreement, or any other agreement or
document executed in connection with the Loan Agreement, shall violate the
lawful limit of any applicable usury statute or any other applicable law with
regard to obligations of like character and amount, then the obligation to be
fulfilled shall be reduced to such lawful limit, such that in no event shall
there occur, under this Warrant, the Loan Agreement, or any other document or
instrument executed in connection with the Loan Agreement, any violation of
such lawful limit, but such obligation shall be fulfilled to the lawful limit.
If any sum is
11
<PAGE> 12
collected in excess of the lawful limit, such excess shall be applied to reduce
the principal amount of the Note.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY:
-------
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation
By: [sig]
------------------------------
Title: Chairman and CEO
---------------------------
HOLDER:
------
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: [sig]
------------------------------
Title: Treasurer
---------------------------
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Warrant to be executed as of the date first above written for the purpose of
agreeing to the terms and conditions of Section 12 hereof.
MANAGEMENT SHAREHOLDERS:
-----------------------
[sig]
--------------------------
Matthew P. Lawlor
12
<PAGE> 1
EXHIBIT 4.8
THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS
OF ANY STATE. THIS WARRANT AND ANY OF SUCH SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT RELATING TO
SUCH TRANSACTION UNDER THE ACT AND ALL OTHER APPLICABLE SECURITIES
LAWS OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF
THE ACT AND OTHER APPLICABLE SECURITIES LAWS.
WARRANT CERTIFICATE -
WARRANTS TO PURCHASE SHARES OF STOCK
OF ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Date of Issuance: ___________________
THIS CERTIFIES that, for value received, ________________, or
registered assigns (the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant Certificate (the "Warrant"), from Online Resources &
Communications Corporation, a Delaware corporation (the "Company"), at the
price hereinafter set forth, that number of shares of the one hundredth cent
($0.0001) par value Common Stock of the Company as determined in accordance
with the provisions of Article VI hereof. This Warrant is hereinafter referred
to as the "Warrant" and the shares of Common Stock, par value $0.0001 per share
issuable pursuant to the terms hereof, are hereinafter sometimes referred to as
"Warrant Shares". This Warrant is being issued as additional consideration to
the purchasers of shares of the Company's Series C Convertible Preferred Stock
pursuant to the Second Series C Convertible Preferred Stock Purchase Agreement
dated December 14, 1998, by and among the Company and the Investors thereunder
(the "Agreement").
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Act": the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the
time.
<PAGE> 2
"Agreement": the Agreement defined in the preamble to this
Warrant.
"Common Stock": the Company's authorized shares of Common Stock,
par value $.0001 per share.
"Commission": the Securities and Exchange Commission, or any
other federal agency then administering the Act.
"Company": Online Resources & Communications Corporation, a
Delaware corporation, having a principal office located at 7600
Colshire Drive, McLean, Virginia 22102 and any other corporation
assuming or required to assume this Warrant pursuant to Article VIII.
"Effective Date": the date upon which the Company first sells
shares of its Common Stock pursuant to an Initial Public Offering.
"Exercise Price": the purchase price for any Warrant Share
purchasable under this Warrant.
"Initial Public Offering": the sale of the Company's Common
Stock following the Commission's declaration of effectiveness of a
registration statement filed under the Act, provided that in
conjunction therewith the Company's shares of Common Stock are listed
on the NASDAQ National Market System or on a nationally recognized
exchange or other over the counter market system acceptable to the
holders of a majority of the outstanding shares of Series C
Convertible Preferred Stock sold under the Agreement.
"Initial Trading Period": the first 20 trading days for which
shares of Common Stock are subject to being purchased and sold
incidental to an Initial Public Offering.
"Notice": the notice defined in Article IX.
"Person": any individual, corporation, partnership, trust,
limited liability company, unincorporated organization and any
government, and any political subdivision, instrumentality or agency
thereof.
"Warrant Office": the Company's principal office as set forth
above.
"Warrant Shares": the shares of Common Stock purchasable by the
holder of this Warrant upon the exercise of this Warrant.
2
<PAGE> 3
ARTICLE II
EXERCISE OF WARRANT
2.1 Date of Initial Exercise. This Warrant shall first become
exercisable, absent an Initial Public Offering with an Effective Date
coinciding with or preceding July 12, 1999, on the earlier of July 12, 1999 or
the date of the Notice. If an Initial Public Offering occurs with an Effective
Date coinciding with or preceding July 12, 1999, this Warrant shall first
become exercisable on the third business day following the Initial Trading
Period.
2.2 Method of Exercise. Commencing on the date of exercisability
determined under Section 2.1 and prior to its expiration as determined in
Article IX hereof, this Warrant shall be exercisable in whole or in part at any
time and from time to time. In order to exercise this Warrant, the Holder
hereof shall deliver to the Company, at the Warrant Office designated pursuant
to Section 3.1: (a) a written notice, in substantially the form of the
Subscription Notice attached hereto as Exhibit 2.1, of such Holder's election
to exercise this Warrant, which notice shall specify the number of shares of
Common Stock to be purchased; (b) (i) a check payable to the order of the
Company in an amount equal to the Exercise Price as set forth in Section 5.1
hereof for the number of shares of Common Stock being purchased; or (ii)
instructions to the Company to withhold from the Warrant Shares which otherwise
would be issued to the Holder as a result of such exercise of this Warrant,
shares of Common Stock (valued at their Fair Market Value on the date of
exercise) in satisfaction of all or part of the Exercise Price with respect to
such Warrant Shares to be purchased pursuant to such written notice. The
Company shall, as promptly as practicable and in any event within two (2)
business days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with said notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in said
notice. The stock certificate or certificates so delivered shall be in
denominations of shares as may be specified in said notice and shall be issued
in the name of the Holder or such other name as shall be designated in said
notice. At the time of delivery of the certificate or certificates, appropriate
notation will be made on this Warrant designating the number of shares
purchased and this Warrant shall then be returned to the Holder if this Warrant
has been exercised in part. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, issuance and delivery of
stock certificates. As used in this Section 2.2, "Fair Market Value" shall mean
the last sales prices of the Common Stock on the National Association of
Security Dealers Automated Quotation System ("NASDAQ") or the closing price
quoted on any exchange on which the Common Stock is listed, whichever is
applicable, as reported in the Eastern Edition of The Wall Street Journal, for
the date of exercise (or if no shares are traded on that date, the last sales
price of the Common Stock on the nearest date on which such shares were
traded). If the Common Stock is not traded on NASDAQ or on any exchange, the
Fair Market Value shall be determined in good faith by the mutual agreement of
the Board of Directors of the Company and the Holder.
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2.3 Shares to be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
2.4 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock. Upon payment of the exercise price
with respect to any fractional shares, the Company shall pay to the Holder the
cash equivalent of such fractional shares, based on the Fair Market Value of
such shares as reasonably determined pursuant to Section 2.2 above.
2.5 Legend on Warrant Shares. Each certificate for shares of Common
Stock initially issued upon exercise of this Warrant, unless at the time of
exercise such shares are registered under the Act, shall bear a legend
substantially similar to the following, in addition to any other legends
required to be placed on such share certificate pursuant to any other
agreements by which the Company is bound.
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
or the securities laws of any state. They may not be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise
disposed of except pursuant to an effective registration statement
relating to such transaction under the Act and all other applicable
securities laws or pursuant to an exemption from the registration
provisions of the Act and other applicable securities laws.
Any certificate issued at any time in exchange or substitution for
any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear a legend
substantially similar to the foregoing, unless, in the opinion of counsel
reasonably satisfactory to the Company, the securities represented thereby need
no longer be subject to the restrictions on transferability. The provisions of
Article IV shall be binding upon all subsequent holders of this Warrant.
2.6 Acknowledgment of Continuing Obligation. The Company will, at the
time of any exercise of this Warrant in whole or in part, upon request of the
Holder hereof, acknowledge in writing its continuing obligation to such Holder
in respect of any rights to which the Holder shall continue to be entitled
after exercise in accordance with this Warrant; provided, however, that the
failure of the Holder to make any such request shall not affect the continuing
obligation of the Company to the Holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION OR COMBINATION OF WARRANTS
3.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's
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location set forth in Article I, and may subsequently be such other office of
the Company or of any transfer agent of the Common Stock in the continental
United States as to which written notice has previously been given to all
holders of Warrants.
3.2 Ownership of Warrant. The Company may deem and treat the Person
in whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of this Warrant for registration of
transfer as provided in this Article III.
3.3 Transfer of Warrant. The Company agrees to maintain at the
Warrant Office books for the registration of permitted transfers of this
Warrant. Subject to the provisions of Article IV, this Warrant and all rights
hereunder are transferable, in whole or in part, on the books at that office,
upon surrender of this Warrant at that office, together with a written
assignment of this Warrant duly executed by the holder hereof or his duly
authorized agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of the transfer. Subject to Article IV, upon surrender
and payment, the Company shall execute and deliver a new Warrant in the name of
the assignee, note thereon the number of Warrant Shares theretofore purchased
under this Warrant, and this Warrant shall promptly be cancelled and a notation
of that cancellation made on the books of the Warrant Office. A Warrant may be
exercised by a new holder for the purchase of shares of Common Stock without
having a new warrant issued.
3.4 Division of Warrants. This Warrant may not be divided.
3.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
ARTICLE IV
RESTRICTIONS ON TRANSFER
4.1 Restrictions on Transfer. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be
exercisable or transferable except upon the conditions specified in this
Article IV, which conditions are intended, among other things, to insure
compliance with the provisions of the Act in respect of the exercise or
transfer of the Warrant, and subject to the restrictions on transfer set forth
in that certain Stockholders' Agreement to which the Holder hereof is a party.
The Holder of this Warrant, by acceptance hereof, agrees that it will not
transfer this Warrant prior to delivery to the Company of any required opinion
of the Holder's counsel (as the opinion and counsel are described in Section
4.2).
4.2 Opinion of Counsel. In connection with any transfer of this
Warrant, the following provisions shall apply:
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(a) If, in the opinion of counsel reasonably acceptable to the
Company, a proposed transfer of this Warrant may be effected without
registration of this Warrant under the Act, the Holder of this Warrant shall be
entitled to transfer this Warrant in accordance with the proposed method of
disposition; provided, however, that if the method of disposition would, in the
opinion of such counsel, require that the Company take any action or execute
and file with the Commission or deliver to the Holder or any other person any
form or document in order to establish the entitlement of the Holder to take
advantage of such method of disposition, the Company agrees, at the cost of the
Holder, to promptly take any necessary action or execute and file or deliver
any necessary form or document. Notwithstanding the foregoing, in no event will
the Company be obligated to effect a registration under the Act so as to permit
the proposed transfer of this Warrant.
(b) If, in the opinion of such counsel, the proposed transfer of this
Warrant may not be effected without registration of this Warrant under the Act,
the holder of this Warrant shall not be entitled to transfer this Warrant until
registration is effective.
ARTICLE V
EXERCISE PRICE
5.1 Determination of Exercise Price. The Exercise Price for any
Warrant Share purchasable hereunder shall be equal to $3.00 per share;
provided, however, if the Company shall divide its outstanding shares of Common
Stock by stock split, stock dividend or otherwise, the Exercise Price shall
proportionately decrease and if the Company shall combine its outstanding
shares of Common Stock by stock combination, reverse split or otherwise, the
Exercise Price shall proportionately increase.
5.2 Notice to Holder. Upon any adjustment to the Exercise Price
required hereunder, the Company will promptly provide the Holder hereof with
written notice of the current Exercise Price existing under this Warrant and
the Exercise Price as adjusted.
ARTICLE VI
NUMBER OF WARRANT SHARES
6.1 Determination of Number of Warrant Shares. If (i) the Effective
Date does not occur by July 12, 1999, (ii) the Effective Date occurs by July
12, 1999 and the average closing price during the Initial Trading Period for a
share of Common Stock is less than $4.30 per share or (iii) this Warrant
becomes exercisable as a result of a Notice, this Warrant shall be exercisable
for _______________ Warrant Shares [30% WARRANT COVERAGE]. If the Effective
Date occurs by July 12, 1999 and
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the average closing price during the Initial Trading Period for a share of
Common Stock is at least $4.30 per share but less than $6.00 per share, this
Warrant shall be exercisable for ______________ Warrant Shares [20% WARRANT
coverage]. If the Effective Date occurs by July 12, 1998 and the average
closing price during the Initial Trading Period for a share of Common Stock is
at least $6.00 per share, this Warrant shall be deemed cancelled and no Warrant
Shares shall be issuable hereunder. For purposes of this Section 6.1, the
number of Warrant Shares and the average closing price during the Initial
Trading Period (y) shall proportionately decrease and increase, respectively,
if the Company shall combine its outstanding shares of Common Stock by stock
combination, reverse split or otherwise and (z) shall proportionately increase
and decrease, respectively, if the Company shall divide its outstanding shares
of Common Stock by stock split, stock dividend or otherwise.
6.2 Notice to Holder. If the Effective Date occurs by July 12, 1999,
the Company shall provide notice to the Holder of the number of Warrant Shares
for which this Warrant is exercisable promptly following the Initial Trading
Period.
ARTICLE VII
RECLASSIFICATION, REORGANIZATION OR MERGER
In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation or which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock or which
results in the expiration of this Warrant), the Company shall cause effective
provision to be made so that the Holder hereof shall have the right thereafter
by exercising this Warrant to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification,
capital reorganization or other change, consolidation or merger, as such holder
would have been entitled to receive had such holder exercised this Warrant
immediately prior to such reclassification, change, consolidation or merger.
Any such provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments, herein provided, of
the Exercise Price and the number of Warrant Shares purchasable and receivable
upon the exercise of this Warrant. The foregoing provisions of this Article VII
shall similarly apply to successive reclassification, capital reorganizations
and changes of shares of Common Stock and to successive consolidations and
mergers.
ARTICLE VIII
DISTRIBUTIONS, LIQUIDATION OR DISSOLUTION
8.1 Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Article IX hereof, make any
distribution of its assets to holders of its capital stock as a partial
liquidation distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends
under the laws of the State of Delaware, then the Holder, upon the exercise of
this Warrant prior to any such distribution but after the date of record for
the determination of those holders of capital stock entitled to such
distribution of assets, shall be entitled to receive, in
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addition to the shares of Common Stock issuable on such exercise, upon such
distribution the amount of such assets, which would have been payable to the
holder had it been the holder of record of such shares of capital stock on the
record date for the determination of those holders of capital stock entitled to
such distribution.
8.2 Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Article IX hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the
exercise of this Warrant and prior to any such distribution in dissolution of
liquidation, to receive on such exercise, in lieu of the shares of Common Stock
which the Holder would have been entitled to receive, the same kind and amount
of assets as would have been distributed or paid to the Holder upon any such
dissolution, liquidation or winding up, with respect to such shares of Common
Stock had the holder been the Holder of record of such shares of Common Stock
on the record date for the determination of those holders of Common Stock
entitled to receive any such liquidation distribution.
ARTICLE IX
EXPIRATION
This Warrant shall terminate at the earliest of (i) 5:00 p.m. Eastern
time on December 31, 2003, (ii) the effective date of any merger of the Company
with another company in which, following such merger, the Company's
stockholders do not hold shares representing more than fifty percent (50%) of
the votes in the company surviving the merger, (iii) the date of any
liquidation or dissolution of the Company, or (iv) the determination under
Section 6.1 that no Warrant Shares are issuable hereunder. In reference to (ii)
and (iii) above, the Company shall give, by first class mail, postage prepaid,
addressed to the Holder, at the address of the Holder as shown on the books of
the Company at least twenty (20) days prior written notice ("Notice") of (i)
the record date for determining rights to vote in respect of any merger,
consolidation or transfer of assets which would result in the expiration of
this Warrant and (ii) in reference to a merger, consolidation, or transfer of
assets of the Company, the last date on which the holders of Common Stock shall
be entitled to exchange their shares for securities or property resulting from
such merger, consolidation or transfer of assets.
ARTICLE X
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that it will reserve and set apart
and have at all times, free from preemptive rights, a number of shares of
Common Stock or other securities or property deliverable upon the exercise of
this Warrant sufficient to enable it at any time to fulfill all its obligations
hereunder.
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ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Warrant contains the entire agreement
between the holder hereof and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
11.2 Waiver and Amendment. This Warrant is one of a series of
Warrants issued to purchasers of shares of Series C Convertible Preferred Stock
under the Agreement (the "Common Stock Warrants"). Any term or provision of
this Warrant may be waived at any time and any term or provision of this
Warrant may be amended or supplemented at any time by agreement of the holders
of those Common Stock Warrants representing more than fifty percent (50%) of
all Warrant Shares then issuable upon exercise of all such outstanding Common
Stock Warrants and the Company, except that any waiver of any term or
condition, or any amendment or supplementation, of this Warrant must be in
writing and except that no change in the number of shares issuable upon
exercise, the rights in liquidation or distribution, or the purchase price upon
exercise and the provisions of this Section 11.2 shall be effective without the
written consent of each Warrant holder affected thereby. A waiver of any breach
or failure to enforce any of the terms or conditions of this Warrant shall not
in any way affect, limit or waive a party's rights hereunder at any time to
enforce strict compliance thereafter with any term or condition of this
Warrant.
11.3 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
11.4 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
11.5 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder hereof shall be delivered, including by a
nationally recognized overnight courier service, or sent by certified or
registered mail, to such Holder at the last address shown on the books of the
Company maintained at the Warrant Office for the registration of, and the
registration of transfer of, the Warrant or at any more recent address of which
any holder hereof shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
shall be delivered, including by a nationally recognized overnight courier
service, at, or sent by certified or registered mail to, the Warrant Office,
attention: President, or such other address within the United States of America
as shall have been furnished by the Company to the Holder hereof.
11.6 Limitation of Liability: Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive
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dividends or receive notice other than as herein expressly provided in respect
of meetings of stockholders for the election of directors of the Company or any
other matter whatsoever as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder hereof to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the purchase price
of any Warrant Shares or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
11.7 Loss, Destruction, Etc, of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, mutilation or
destruction of the Warrant, and in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company, or in the event of such
mutilation, upon surrender and cancellation of the Warrant, the Company will
make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 11.7 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its Chairman and CEO and its corporate said to be impressed
hereon and attested by its Secretary.
THE COMPANY:
ONLINE RESOURCES &
COMMUNICATIONS CORPORATION
By:
--------------------------------
Chairman and CEO
Attest:
- -------------------------------
Secretary
[Corporate Seal]
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EXHIBIT 2.1
WARRANT
SUBSCRIPTION NOTICE
Dated______________
The undersigned hereby irrevocably elects to exercise its right to
purchase shares of the Common Stock, $.0001 par value per share, of Online
Resources & Communications Corporation, such right being pursuant to a Warrant
dated , 1997, and as issued to the undersigned by Online Resources &
Communications Corporation, and remits herewith the sum of $ in payment for
same in accordance with the Exercise Price specified in such Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
----------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------
Signature
----------------------------------------
Shares Heretofore Purchased
Under Warrant
- ---------------------------
<PAGE> 1
EXHIBIT 4.9
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT
AND ANY OF SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT RELATING TO SUCH TRANSACTION UNDER THE ACT AND
ALL OTHER APPLICABLE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION PROVISIONS OF THE ACT AND OTHER APPLICABLE SECURITIES
LAWS.
COMMON STOCK WARRANT
WARRANT TO PURCHASE SHARES OF STOCK
OF ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Date of Issuance: ______________________
THIS CERTIFIES that, for value received, __________________, or
registered assigns (the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from Online Resources & Communications Corporation,
a Delaware corporation (the "Company"), at the price hereinafter set forth,
___________shares of the one hundredth cent ($0.0001) par value Common Stock of
the Company. This Warrant is hereinafter referred to as the "Warrant" and the
shares of Common Stock, par value $0.0001 per share issuable pursuant to the
terms hereof are hereinafter sometimes referred to as "Warrant Shares".
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Act": the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"Common Stock": the Company's authorized shares of Common Stock,
par value $.0001 per share.
"Commission": the Securities and Exchange Commission, or any other
federal agency then administering the Act.
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"Company": Online Resources & Communications Corporation, a
Delaware corporation, located at 7600 Colshire Drive, McLean, Virginia
22102 and any other corporation assuming or required to assume this
Warrant pursuant to Article VIII.
"Person": any individual, corporation, partnership, trust, limited
liability company, unincorporated organization and any government, and
any political subdivision, instrumentality or agency thereof.
"Purchase Price": the purchase price for any Warrant Share
purchasable under this Warrant.
"Warrant Office": see Section 3.1.
"Warrant Shares": the shares of Common Stock purchasable by the
holder of this Warrant upon the exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1 Method of Exercise., To exercise this Warrant in whole or in part
at anytime and from time to time, prior to its expiration as determined in
Article IX hereof, the Holder hereof shall deliver to the Company, at the
Warrant Office designated pursuant to Section 3.1: (a) a written notice, in
substantially the form of the Subscription Notice attached hereto as Exhibit
2.1, of such Holder's election to exercise this Warrant, which notice shall
specify the number of shares of Common Stock to be purchased; (b) a check
payable to the order of the Company in an amount equal to the Purchase Price as
set forth in Section 5.1 hereof for the number of shares of Common Stock being
purchased; and (c) this Warrant. The Company shall, as promptly as practicable
and in any event within fourteen (14) days thereafter, execute and deliver or
cause to be executed and delivered, in accordance with said notice, a
certificate or certificates representing the aggregate number of shares of
Common Stock specified in said notice. The stock certificate or certificates so
delivered shall be in denominations of shares as may be specified in said notice
and shall be issued in the name of the Holder or such other name as shall be
designated in said notice. At the time of delivery of the certificate or
certificates, appropriate notation will be made on this Warrant designating the
number of shares purchased and this Warrant shall then be returned to the Holder
if this Warrant has been exercised in part. The Company shall pay all expenses,
taxes and other charges payable in connection with the preparation, issuance and
delivery of stock certificates, except that, in case stock certificates shall be
registered in a name or names other than the name of the Holder of this Warrant,
funds sufficient to pay all stock transfer taxes which shall be payable upon the
issuance of stock certificates shall be paid by the Holder hereof at the time of
delivering the notice of exercise mentioned above or promptly upon receipt of a
written request of the Company for payment.
2.2 Shares to be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
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2.3 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock. Upon payment of the exercise price with
respect to any fractional shares, the Company shall pay to the Holder the cash
equivalent of such fractional shares, based on the fair market value of such
shares as reasonably determined by the Board of Directors of the Company.
2.4 Legend In Warrant Shares. Each certificate for shares of Common
Stock initially issued upon exercise of this Warrant, unless at the time of
exercise such shares are registered under the Act, shall bear a legend
substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
the securities laws of any state. They may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of
except pursuant to an effective registration statement relating to such
transaction under the Act and all other applicable securities laws or
pursuant to an exemption from the registration provisions of the Act
and other applicable securities laws.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear a legend substantially
similar to the foregoing, unless, in the opinion of counsel reasonably
satisfactory to the Company, the securities represented thereby need no longer
be subject to the restrictions on transferability. The provisions of Article IV
shall be binding upon all subsequent holders of this Warrant.
2.5 Acknowledgment of Continuing Obligation, The Company will, at the
time of any exercise of this Warrant in whole or in part, upon request of the
Holder hereof, acknowledge in writing its continuing obligation to such Holder
in respect of any rights to which the Holder shall continue to be entitled after
exercise in accordance with this Warrant; provided, however, that the failure of
the Holder to make any such request shall not affect the continuing obligation
of the Company to the Holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION OR COMBINATION OF WARRANTS
3.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's location set forth in Article I, and may subsequently be such
other office of the Company or of any transfer agent of the Common Stock in the
continental United States as to which written notice has previously been given
to all holders of Warrants.
3.2 Ownership of Warrant, The Company may deem and treat the Person
in whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article III.
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3.3 Transfer of Warrant. The Company agrees to maintain at the
Warrant Office books for the registration of permitted transfers of this
Warrant. Subject to the provisions of Article IV, this Warrant and all rights
hereunder are transferable, in whole or in part, on the books at that office,
upon surrender of this Warrant at that office, together with a written
assignment of this Warrant duly executed by the holder hereof or his duly
authorized agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of the transfer. Subject to Article IV, upon surrender
and payment, the Company shall execute and deliver a new Warrant in the name of
the assignee, note thereon the number of Warrant Shares theretofore purchased
under this Warrant, and this Warrant shall promptly be cancelled and a notation
of that cancellation made on the books of the Warrant Office. A Warrant may be
exercised by a new holder for the purchase of shares of Common Stock without
having a new warrant issued.
3.4 Division of Warrants. This Warrant may not be divided.
3.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
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ARTICLE IV
RESTRICTIONS ON TRANSFER
4.1 Restrictions on Transfer. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be exercisable
or transferable except upon the conditions specified in this Article IV, which
conditions are intended, among other things, to insure compliance with the
provisions of the Act in respect of the exercise or transfer of the Warrant. The
Holder of this Warrant, by acceptance hereof, agrees that it will not transfer
this Warrant prior to delivery to the Company of any required opinion of the
Holder's counsel (as the opinion and counsel are described in Section 4.2).
4.2 Opinion of Counsel. In connection with any transfer of this
Warrant, the following provisions shall apply:
(a) If, in the opinion of counsel reasonably acceptable to the
Company, a proposed transfer of this Warrant may be effected without
registration of this Warrant under the Act, the Holder of this Warrant shall be
entitled to transfer this Warrant in accordance with the proposed method of
disposition; provided, however, that if the method of disposition would, in the
opinion of such counsel, require that the Company take any action or execute and
file with the Commission or deliver to the Holder or any other person any form
or document in order to establish the entitlement of the Holder to take
advantage of such method of disposition, the Company agrees, at the cost of the
Holder, to promptly take any necessary action or execute and file or deliver any
necessary form or document. Notwithstanding the foregoing, in no event will the
Company be obligated to effect a registration under the Act so as to permit the
proposed transfer of this Warrant.
(b) If, in the opinion of such counsel, the proposed transfer of this
Warrant may not be effected without registration of this Warrant under the Act,
the holder of this Warrant shall not be entitled to transfer this Warrant until
registration is effective.
ARTICLE V
PURCHASE PRICE
5.1 Determination of Purchase Price. The Purchase Price for any
Warrant Share purchasable hereunder shall be equal to $2.50 per share; provided,
however, if the Company shall divide its outstanding shares of Common Stock by
stock split, stock dividend or otherwise, the Purchase Price shall
proportionately decrease and if the Company shall combine its outstanding shares
of Common Stock by stock combination, reverse split or otherwise, the Purchase
Price shall proportionately increase.
5.2 Notice to Holder. Upon any adjustment to the Purchase Price
required hereunder, the Company will provide the Holder hereof with written
notice of the current Purchase Price existing under this Warrant.
5
<PAGE> 6
ARTICLE VI
ADJUSTMENT TO NUMBER OF WARRANT SHARES
If the Company shall divide its outstanding shares of Common Stock by
stock split, stock dividend or otherwise, the number of Warrant Shares then
issuable hereunder shall proportionately increase and if the Company shall
combine its outstanding shares of Common Stock by stock combination, reverse
split or otherwise, the number of Warrant Shares then issuable hereunder shall
proportionately decrease.
ARTICLE VII
RECLASSIFICATION, REORGANIZATION OR MERGER
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation or which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), the
Company shall cause effective provision to be made so that the Holder hereof
shall have the right thereafter by exercising this Warrant to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization or other change, consolidation or
merger, as such holder would have been entitled to receive had such holder
exercised this Warrant immediately prior to such reclassification, change,
consolidation or merger. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments, herein provided, of the Purchase Price 'and the number of Warrant
Shares purchasable and receivable upon the exercise of this Warrant. The
foregoing provisions of this Article VII shall similarly apply to successive
reclassification, capital reorganizations and changes of shares of Common Stock
and to successive consolidations and mergers.
ARTICLE VIII
DISTRIBUTIONS, LIQUIDATION OR DISSOLUTION
8.1 Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Article IX hereof, make any
distribution of its assets to holders of its capital stock as a partial
liquidation distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends
under the laws of the State of Delaware, then the Holder, upon the exercise of
this Warrant prior to any such distribution but after the date of record for the
determination of those holders of capital stock entitled to such distribution of
assets, shall be entitled to receive, in addition to the shares of Common Stock
issuable on such exercise, upon such distribution the amount of such assets (or
at the option of the Company a sum equal to the value thereof at the time of
such distribution to holders of capital stock as such value is determined by the
Board of Directors of the Company in good faith), which would have been payable
to the holder had it been the holder of record of such shares of capital stock
on the record date for the determination of those holders of capital stock
entitled to such distribution.
6
<PAGE> 7
8.2 Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Article IX hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the
exercise of this Warrant and prior to any such distribution in dissolution of
liquidation, to receive on such exercise, in lieu of the shares of Common Stock
which the Holder would have been entitled to receive, the same kind and amount
of assets as would have been distributed or paid to the Holder upon any such
dissolution, liquidation or winding up, with respect to such shares of Common
Stock had the holder been the Holder of record of such shares of Common Stock on
the record date for the determination of those holders of Common Stock entitled
to receive any such liquidation distribution.
ARTICLE IX
EXPIRATION
This Warrant shall terminate at 5:00 p.m. Eastern time on April 30,
2001.
ARTICLE X
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that it will reserve and set apart and
have at all times, free from preemptive rights, a number of shares of Common
Stock or other securities or property deliverable upon the exercise of this
Warrant sufficient to enable it at any time to fulfill all its obligations
hereunder.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Warrant contains the entire agreement
between the holder hereof and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
11.2 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
11.3 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
11.4 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder hereof shall be delivered, including by a
nationally recognized overnight courier service, or sent by certified or
registered mail, to such Holder at the last address shown on the books of the
Company maintained at the Warrant Office for the registration of, and the
registration of transfer of, the Warrant or at any more recent address of which
any holder hereof shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company,
shall be delivered, including by a nationally recognized overnight courier
service, at, or sent by certified or registered mail to, the Warrant Office,
attention: President, or such other address within the United States of America
as shall have been furnished by the Company to the Holder hereof.
7
<PAGE> 8
11.5 Limitation of Liability: Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notice other than as herein
expressly provided in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase Warrant Shares, and no enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of such Holder
for the purchase price of any Warrant Shares or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
11.6 Loss, Destruction, Etc, of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, mutilation or
destruction of the Warrant, and in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company, or in the event of such
mutilation, upon surrender and cancellation of the Warrant, the Company will
make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 11.6 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its Chairman and CEO and its corporate said to be impressed hereon
and attested by its Secretary.
THE COMPANY:
ONLINE RESOURCES &
COMMUNICATIONS CORPORATION
By:
-----------------------------
Chairman and CEO
Attest:
- -----------------------------
Secretary
[Corporate Seal]
8
<PAGE> 9
EXHIBIT 2.1
WARRANT
SUBSCRIPTION NOTICE
Dated
The undersigned hereby irrevocably elects to exercise its right to
purchase _________ shares of the Common Stock, $.0001 par value per share, of
Online Resources & Communications Corporation, such right being pursuant to a
Warrant dated ____________, 199__, and as issued to the undersigned by
Online Resources & Communications Corporation, and remits herewith the sum of
$________________ in payment for same in accordance with the Purchase Price
specified in such Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------
Signature
-----------------------------------
Shares Heretofore Purchased
Under Warrant
- --------------------------------------
<PAGE> 1
EXHIBIT 4.10
ANNEX B TO THE SUBSCRIPTION AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement constitutes a part of a Subscription
Agreement (the "Subscription Agreement") relating to the sale by Online
Resources & Communications Corporation, a Delaware corporation (the "Company")
of shares (the "Shares") of the Company's Common Stock, (the "Common Stock")
$.0001 par value. The Shares are being sold in a private placement transaction
(the "Placement") which is exempt from the registration requirements for the
Securities Exchange Act of 1933, as amended (the "Securities Act"). In the
Placement, the Company is offering a minimum of 1,200,000 and a maximum of
2,800,000 Shares at a purchase price of $2.50 per share. Each purchaser of
Shares in the Placement (a "Purchaser") will execute a Subscription Agreement
substantially in the form of the Subscription Agreement of which this
Registration Rights Agreement forms a part, and each such Subscription Agreement
will provide the Purchaser with the registration rights with respect to the
Common Stock as set forth herein.
1. If the Company at any time proposes to register any of its
securities on a form which permits the inclusion of Common Stock, the Company
will, each such time and so long as the Purchaser owns Common Stock, give
written notice to the Purchaser of its intention to effect such registration and
allow the Purchaser, together with all other Purchasers who elect to do so, the
right to participate in such registration as to all or a portion of the Common
Stock as to which the Purchaser shall have requested such right in writing
within 10 days of receipt of the Company's notice. The Company may, without the
consent of the Purchaser, withdraw any registration statement filed under this
paragraph and abandon the proposed offering.
2. All expenses incurred in effecting the registration referred to in
Section 1 of this Agreement, including but not limited to, all registration and
filing fees relating to securities being sold by the Company, printing expenses,
fees and disbursements of counsel for the Company, underwriting expenses and
commissions (insofar as such commissions relate to the sale of securities by the
Company), expenses of any audits or other accounting fees and expenses incident
to such registration, expenses of complying with state securities or blue sky
laws, listing or similar fees, and costs and fees of any transfer agent shall be
borne by the Company in any such registration. The Purchaser who exercises his
registration rights shall bear his proportionate cost of SEC and NASD filing
fees and other registration fees related to the sale of Shares by such Purchaser
and the proportionate cost of counsel for Purchasers and the cost of any counsel
which such Purchaser may individually employ in connection with the
registration.
3. In the event that the Company receives requests from Purchasers to
participate in a registration in accordance with Section 1 and such registration
relates to an underwritten public offering, the right of the Purchaser and all
other Purchasers to participate in the offering is subject to limitation in
accordance with the terms of this Section 3. If the managing underwriter or
underwriters for the offering furnish a written opinion that the total amount of
Common Stock to be included in the offering would exceed the maximum amount of
Common Stock (as specified in such opinion) which can be marketed at a price
reasonably related to the then current market value of the Common Stock and
without materially and adversely affecting such offering, then the right of the
Purchaser and all other Purchasers to participate in such offering shall be
subordinate, in whole or in part, to the right of the Company to sell securities
in the offering. In the event that the opinion of the underwriters specifies
that some, but not all, Shares may reasonably be sold in the offering without
materially affecting the offering price or other terms of the offering, such
number of specified Shares as may be sold by the Purchasers shall be prorated,
as nearly as possible to the nearest 100 shares, among all Purchasers who
requested to participate in the registration based on the relative number of
Shares which each such Purchaser had originally requested be included in the
registration.
<PAGE> 2
4. In the event of any registration of any Shares pursuant to this
Agreement, the Company shall indemnify and hold harmless the Purchaser and each
underwriter (as defined in the Securities Act), each other person who
participates in the offering of Common Stock and each other person, if any, who
controls (within the meaning of the Securities Act) the Purchaser, such
underwriter or participating person against any losses, claims, damages or
liabilities, joint or several, to which the Purchaser, such underwriter,
participating person or controlling person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which the
Common Stock were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any summary prospectus
issued in connection therewith, or any amendment or supplement thereto, or (ii)
any alleged omission to state in any such document a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and shall reimburse the Purchaser, each such underwriter, participating person
or controlling person for any legal or other expenses reasonably incurred by any
such person in connection with investigating or defending any such loss, claim,
damage, liability or action: provided, however, that the Company shall not be
liable to any such person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any alleged untrue
statement or alleged omission made in such registration statement, preliminary
prospectus, prospectus or amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by such person
specifically for use in such document.
In the event of any registration of any Common Stock pursuant to this
Agreement, the Purchaser agrees to provide indemnities to and hold harmless each
underwriter (as defined in the Securities Act) and each other person, if any,
who controls (within the meaning of the Securities Act) such underwriter in a
nature similar to that set forth in the foregoing paragraph, provided, that such
indemnity shall only relate to any losses, claims, damages or liabilities which
arise out of or are based upon any untrue statement or alleged omission made in
the registration statement, preliminary prospectus, prospectus or amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by such Purchaser specifically for use therein, and
provided, further, that the aggregate amount payable by the Purchaser pursuant
to the indemnity provided for under this paragraph shall not exceed the net
proceeds received by such Purchaser from the sale of Shares.
The terms of the foregoing indemnities may be set forth more fully in
an underwriting agreement between the Company, the Purchaser and the
underwriters for the offering relating to an underwritten public offering.
6. In addition to the foregoing indemnity provisions, the Company and
the Purchaser agree to enter into an underwriting agreement with the
underwriters of any underwritten public offering containing such terms as are
reasonably customary for such agreements.
7. This Agreement constitutes a binding agreement between the Company
and the Purchaser as for the date of execution of the Subscription Agreement of
which this Agreement forms a part. The registration rights provided for in this
Agreement will become effective on the date of closing of the sale of Shares by
the Company to the Purchaser pursuant to this Subscription Agreement. The rights
herein do not constitute part of the right of all holders of the Common Stock
but constitute rights given by the Company to the Purchaser, and the Purchasers
heirs, successors or permitted assigns. The registration may not be transferred
or assigned by the Purchaser to another party without the prior written consent
of the Company.
2
<PAGE> 1
Exhibit 4.11
REGISTRATION RIGHTS AGREEMENT
Amended and Restated Registration Rights Agreement ("Agreement") dated May
30, 1997 among Online Resources & Communications Corporation, a Delaware
corporation (the "Company"), and the persons listed as Holders on the signature
pages of a counterpart of this Agreement (the "Holders").
Capitalized terms used in this Agreement and not otherwise defined are
defined in Section 11 of this Agreement.
PRELIMINARY STATEMENT
Concurrently with the execution of this Agreement, the Company and certain
investors propose to execute that certain Series C Convertible Preferred Stock
and Warrant Purchase Agreement of even date with this Agreement (the "Stock
Purchase Agreement") pursuant to which the Holders will purchase shares of
Series C Convertible Preferred Stock and Warrants of the Company. To induce the
Holders to execute the Stock Purchase Agreement at the "Initial Closing" (as
defined in the Stock Purchase Agreement), and to induce any subsequent
purchasers of Series C Preferred to execute the Stock Purchase Agreement at any
"Additional Closings" (as defined in the Stock Purchase Agreement), and in
consideration of the mutual representations and agreements set forth in this
Agreement, the Company and the other parties to this Agreement agree as follows.
AGREEMENT
SECTION 1. REQUIRED REGISTRATIONS.
1.1 The Holders of Registrable Common holding more than 50% of the
Registrable Common may, by a written notice to the Company, request that the
Company register any Registrable Common specified in the notice, under the
Securities Act on a form other than a Short Form and under other relevant
securities laws, for disposition in accordance with methods stated in the
notice. Such notice may specify an underwriter for such registration.
1.2 When it receives a registration notice under Section 1.1, the Company
shall, within three business (3) days, deliver a copy of such registration
notice to each Holder of Convertible Securities or Registrable Common who is
not a party to the registration notice, each of whom may then specify, by
written notice to the Company delivered within fifteen (15) days of receipt of
the notice from the Company, a number of shares of Registrable Common held by
it which it wishes to include in any registration pursuant to the registration
notice under Section 1.1.
1.3 When it receives a registration notice under Section 1.1, the Company
will expeditiously cause a registration statement to be filed, and use its best
efforts to cause such registration statement to become effective under the
Securities Act, for the Registrable Common specified in the registration notice
under Section 1.1 and subsequent notices under Section 1.2 in order to permit
disposition by such Holders in accordance with the methods of disposition
described in the registration notice.
<PAGE> 2
SECTION 2. REGISTRATIONS ON SHORT FORMS.
2.1 If at any time the Company is a registrant entitled to use a Short
Form to register Registrable Common, one or more Holders may, by a written
notice to the Company, request that the Company register Registrable Common
specified in the notice on a Short Form.
2.2 When it receives a Short Form registration notice under Section 2.1,
the Company shall, within three (3) business days, deliver a copy of such
registration notice to each Holder of Convertible Securities or Registrable
Common who is not a party to such registration notice, each of whom may then
specify, by written notice to the Company delivered within fifteen (15) days of
receipt of the notice from the Company, a number of shares of Registrable
Common held by it that it wishes to include in any registration pursuant to the
registration notice under Section 2.1 of this Agreement.
2.3 When it receives a notice under Section 2.1, and provided that the
reasonably anticipated price to the public of the Registrable Common proposed
to be registered by all sellers of such Registrable Common would total more
than $250,000, the Company will expeditiously cause a registration statement
to be filed, and use its best efforts to cause such registration statement to
become effective under the Securities Act on the Short Form specified in the
notice for the Registrable Common specified in the registration notice under
Section 2.1 and subsequent notices under Section 2.2. The Company shall provide
Holders a reasonable opportunity to review any such registration statement or
amendment or supplement thereto prior to filing.
SECTION 3. INCIDENTAL REGISTRATION. Each time the Company proposes to
register any of its Securities under the Securities Act, it will give at least
forty-five (45) days prior written notice of its intention to do so to each
Holder, which notice shall identify the proposed underwriter for such offering.
Each Holder may then specify, by written notice to the Company delivered within
fifteen (15) days of receipt of notice from the Company, a number of shares of
Registerable Common held by it which it wishes to include in the Company's
proposed registration. If at least 50% of the shares to be registered in such
offering are held by Holder of Registrable Common, then such Holders shall
have the right to approve the underwriter (voting as a group, based upon the
number of shares of Registrable Common held by each to be included in such
offering), which approval shall not be unreasonably withheld. Subject to the
limitations of Section 8, the Company will use its best efforts to effect the
registration under the Securities Act of Registrable Common specified by
Holders under this Section 3.
SECTION 4. LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding any
contrary provision of this Agreement:
A. the Company shall not be required to effect more than two
registrations pursuant to Section 1 (for purposes of this Section 4.A., a
registration shall not be deemed "effective" unless the registration
statement is declared effective by the Commission);
B. Section 3 shall not apply to a registration effected solely to
implement an employee benefit plan or to any other form or type of
registration which does not permit inclusion of Registrable Common pursuant
to Commission rule or practice;
PAGE 2
<PAGE> 3
C. the Company shall not be obligated to effect a registration pursuant
to Section 1 during the period starting with the date thirty days prior to the
Company's estimated date of filing of, and ending on a date six months following
the effective date of a registration pertaining to an underwritten public
offering of securities for the account of the Company, provided that the Company
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that the Company's estimates of
the date of filing of such registration statement is made in good faith;
D. if (a) there is material non-public information regarding the Company
which the Board reasonably determines not to be in the Company's best interest
to disclose and which the Company is not otherwise required to disclose, or (b)
there is a significant business opportunity available to the Company which the
Board reasonably determines not to be in the Company's best interest to
disclose, or (c) there is a significant business opportunity available to the
Company and the Board reasonably determines that the Company's ability to pursue
such opportunity would be materially and adversely affected by a registered
public offering of the Company's Securities, then the Company may postpone
filing a registration statement requested pursuant to Sections 1 or 2 for a
period not to exceed 90 days, provided that the Company may not postpone its
obligations as permitted under this Section 4.D. more than once in each 12 month
period; and
E. notwithstanding the foregoing registration rights, the Company shall
not be obligated to effect any registration under Section 1 or Section 2 of this
Agreement if, within 14 days after receipt of a request for any such
registration, the Company shall furnish the Holders with a written opinion of
legal counsel reasonably satisfactory to each of them and reasonably
satisfactory in form and substance to counsel for each of the Holders, that all
of the shares of Registrable Common requested by the Holders to be so registered
may be sold within sixty (60) days after such request in a transaction in
compliance with Rule 144 promulgated under the Securities Act (or any similar
successor exemptive rule hereinafter in effect). In rendering such opinion, such
counsel shall be entitled to rely on published figures for the average weekly
volume of trading in shares of the Common Stock during the sixty (60) days
immediately preceding the date of such opinion as reported (i) on any national
securities exchange on which such shares are listed, or (ii) through the
automated quotation system of a registered national securities association, as
the case may be.
SECTION 5. REGISTRATION PROCEDURES.
5.1 Whenever the Company is required by the provisions of this Agreement
to effect the registration of any Registrable Common under the Securities Act,
the Company will, as expeditiously as possible:
A. in the case of a registration required under Section 1, engage
the underwriters designated by the Holders giving notice under Section 1.1,
or in the case of an incidental registration under Section 3, the
underwriter specified in the notice given to the Holders and approved by
the Holders;
B. before filing each registration statement or prospectus or
amendment or supplement thereto with the Commission, furnish counsel for
the Holders of Registrable
PAGE 3
<PAGE> 4
Common included in such registration with copies of all such documents
proposed to be filed which shall be subject to the reasonable approval of such
counsel;
C. prepare and file with the Commission a registration statement with
respect to such Registrable Common and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed nine
months;
D. prepare and file with the Commission (and any exchange on which the
Company's Securities may be or are proposed to be listed and with the National
Association of Securities Dealers. Inc.) such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for such period and to
comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Registrable Common covered by such registration
statement in accordance with the intended methods of disposition set forth in
such registration statement, but only to the extent provided in this Section 5;
E. prepare and promptly file with the Commission, and notify each seller
of such Registrable Common as expeditiously as possible of the necessity for and
the filing of, such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions if, during
such periods as a prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred as the result
of which any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
F. furnish to the underwriters and each seller of such Registrable Common
such numbers of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such
underwriters or sellers may reasonably request in order to facilitate the
disposition of the Registrable Common subject to such registration statement in
accordance with such registration statement;
G. use its best efforts to register or qualify any Registrable Common
covered by such registration statement under the securities or blue sky laws of
such jurisdictions within the United States of America as the seller or the
underwriters reasonably request, and to take any other acts which a seller or
the underwriters may reasonably request under such securities or blue sky laws
to enable the consummation of the disposition in such jurisdictions of such
Registrable Common (provided, however, that the Company may not be required
under this Agreement (i) to qualify generally to do business as a foreign
corporation in any jurisdiction in which it would not otherwise be required to
qualify, or (ii) to subject itself to taxation in any such jurisdiction, or
(iii) to consent to general service of process in any such jurisdiction);
H. provide a transfer agent and registrar for all Registrable Common sold
under the registration not later than the effective date of the registration
statement;
PAGE 4
<PAGE> 5
I. cause all Registrable Common sold under the registration to be
listed on a recognized securities exchange, if any, or to become eligible
for trading on the NASDAQ National Market System;
J. enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
underwriters, if any, or the Holders of a majority of the Registrable
Common being sold reasonably request in order to expedite or facilitate the
disposition of such Registrable Common (including, without limitation,
effecting a stock split or a combination of shares);
K. make available for inspection by the sellers of Registrable
Common, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
seller or underwriter in connection with such registration statement, all
subject to such limitations as the Company reasonably deems appropriate in
order to protect the Company's confidential or proprietary information; and
L. advise each seller of Registrable Common, immediately after it
shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding
for such purpose and promptly use reasonable efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order
should be issued.
5.2 It shall be a condition precedent to the inclusion of the Registrable
Common of any Holder in a registration effected pursuant to this Agreement that
such Holder shall furnish to the Company such information regarding such Holder,
the Registrable Common of such Holder to be registered and the intended method
of disposition of such Registrable Common, and shall execute such indemnities
with respect to such information provided by such Holders, underwriting
agreements and other documents, as the Company shall reasonably request in order
to satisfy the requirements applicable to such registration.
SECTION 6. EXPENSES. The Company shall pay all expenses incurred in
effecting the registration of Registrable Common provided for in this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, listing fees, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of a single counsel for the sellers
selected by the Holders of a majority of the Registrable Common subject to such
registration (not to exceed $10,000), underwriting expenses other than
discounts and commissions, expenses of any audits incident to or required by
any such registration, and expenses of complying with the securities or blue
sky laws of any jurisdictions pursuant to Section 5.1G of this Agreement.
SECTION 7. INDEMNIFICATION.
7.1 In the event of any registration of any of its Registrable Common
under the Securities Act pursuant to this Agreement, the Company agrees, to the
extent permitted by law, to indemnify and hold harmless each seller of such
Registrable Common, each partner in, or director and officer of, each such
seller, and each other person, if any, who controls (within the meaning of the
Page 5
<PAGE> 6
Securities Act) such seller against any losses, claims, damages or liabilities,
joint or several, arising out of or based upon:
(1) any alleged untrue statement of any material fact contained in any
registration statement under which such Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any summary prospectus contained therein, or any amendment or
supplement to any such registration statement or prospectus, or
(2) any alleged omission to state in any such document a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of the Securities Act or any
state securities law or in either case any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or
compliance, except, with respect to any seller, insofar as any such loss,
claim, damage or liability is:
(a) caused by or contained in any information furnished in writing to
the Company by such seller expressly for use in connection with such
registration, or
(b) caused by such seller's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplement
thereto as required by the Securities Act or the rules or regulations
thereunder, or
(c) caused by the use of a prospectus or preliminary prospectus or any
amendment or supplement thereto by such seller after receipt of written
notice from the Company that it should no longer be used.
In connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each person who controls (within
the meaning of the Securities Act) such underwriters to the same extent as
provided above with respect to the sellers of Registrable Common and as to such
other matters as such underwriters may reasonably request or which are covered
in such underwriters' customary form of underwriters' agreement. The Company
shall reimburse legal and other expenses incurred by each person indemnified
pursuant to this Section 7.1 in connection with investigating or defending any
loss, claim, damage, liability or action indemnified against. The reimbursements
required by this Section 7.1 shall be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred. The indemnities provided pursuant to this Section 7.1 shall
survive transfer of Registrable Common by a seller.
7.2 In the event of any registration of any of its Registrable Common under
the Securities Act pursuant to this Agreement, each Holder agrees to furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any registration statement or prospectus in
connection with the registration or any amendment or supplement thereto and, to
the extent permitted by law, agrees severally and not jointly to indemnify and
hold harmless the Company, its directors and officers, each other seller of
securities in such registration, each partner in, or officer or director of,
each such seller, and each person who controls (within the meaning of the
Securities Act) the Company or such other seller against any losses, claims,
damages or liabilities, joint or several, arising out of or based upon:
Page 6
<PAGE> 7
(1) any alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any summary
prospectus contained therein, or any Securities being registered, or any
amendment or supplement thereto, or
(2) any alleged omission to state in any such document a material fact
required to be stated therein or necessary to make the statements therein
not misleading,
but only insofar as any such loss, claim, damage or liability is caused by or
contained in any information furnished in writing to the Company by the
indemnifying seller expressly for use in connection with such registration,
and excluding any such loss, claim, damage or liability which is caused by or
contained in such statements, or caused by such omissions, based upon the
authority of an expert as defined in the Securities Act (but only if the
indemnifying seller had no ground to believe, and did not believe, that the
statements made on the authority of an expert were untrue or that there was an
omission to state a material fact), and provided further, that in no event shall
the indemnification obligation of any Holder pursuant to this Section 7.2 exceed
the net proceeds received by such Holder from the sale of such Holder's
Registrable Common pursuant to the subject registration. In connection with an
underwritten offering, each seller will indemnify such underwriters, their
officers and directors and each person who controls (within the meaning of the
Securities Act) such underwriters to the same extent as provided above with
respect to the Company and other sellers. Each seller shall reimburse each
person indemnified pursuant to this Section 7.2 in connection with investigating
or defending any loss, claim, damage, liability or action indemnified against.
The indemnities provided pursuant to this Section 7.2 shall survive transfer of
Registrable Common by an indemnifying seller, and transfer of other securities
by any other indemnified seller.
7.3 Indemnification similar to that specified in Sections 7.1 and 7.2
(with such modifications as shall be appropriate) shall be given by the Company
and each Holder of any Registrable Common covered by any registration or other
qualification of Securities under any federal or state securities law or
regulation other than the Securities Act with respect to any such registration
or other qualification effected pursuant to this Agreement.
7.4 In the event the Company or any Holder receives a complaint, claim or
other notice of any loss, claim or damage, liability or action, giving rise to
claim for indemnification under this Section 7, the person claiming
indemnification shall promptly notify the person against whom indemnification
is sought (unless such person is also a party to such complaint, notice, claim
or action) of such complaint, notice, claim or action, and such indemnifying
person shall have the right to investigate and defend any such loss, claim,
damage, liability or action, provided that such indemnifying person shall not
settle any such claim or action unless (i) such settlement is approved by the
person claiming indemnification, or (ii) such settlement provides for a full,
general release from all claims against the person claiming indemnification.
The person claiming indemnification shall have the right to employ separate
counsel in any such action and to participate in the defense thereof but the
fees and expenses of such counsel shall not be at the expense of the person
against whom indemnification is sought and the indemnifying person shall not be
obligated to indemnify any person for any settlement of any claim or action
effected without the indemnifying person's consent, which consent will not be
unreasonably withheld.
PAGE 7
<PAGE> 8
SECTION 8. MARKETING RESTRICTIONS.
8.1 If:
A. a registration is to be made pursuant to a registration notice
under Section 1 or Section 2 of this Agreement, and
B. the offering proposed to be made by the Holder or Holders for
whom such registration is to be made is to be an underwritten public
offering, and
C. the managing underwriters of such public offering furnish a
written opinion that the total amount of Registrable Common to be included
in such offering would exceed the maximum number of shares of Common (as
specified in such opinion) which can be marketed at a price reasonably
related to the current market value of such Common and without otherwise
materially and adversely affecting such offering,
then the rights of the Holders, of the holders of other Securities having the
right to include Common in such registration and of the Company to participate
in such offering shall be in the following order of priority:
First: the Holders shall be entitled to participate in such offering to
the extent of such maximum number of shares of Common, or of the aggregate
number of shares of Registrable Common that all such Holders shall have
requested be registered, whichever is less, pro rata among themselves in
accordance with the total number of shares of Registrable Common held by
each such Holder; and then
Second: if such maximum number of shares of Common exceeds the aggregate
number of shares of Registrable Common that all such Holders shall have
requested be registered, the Company and all holders of other Securities
having the right to include such Securities in such registration shall be
entitled to participate in accordance with the relative priorities, if any,
that shall exist among them and the Company;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
the Company or any Holder in a transaction which would require registration
under the Securities Act for a period beginning thirty (30) days prior to the
anticipated effective date of such registration statement and continuing until
ninety (90) days after the effective date of the registration statement filed in
connection with such registration or such earlier time consented to by the
managing underwriter, but in no event shall such period exceed 120 days. In the
future, the Company shall require each person to whom the Company grants such
rights, as a condition precedent to the effectiveness of such rights, to agree
to be bound by the foregoing restriction on distribution after conclusion of the
underwritten offering.
8.2 If:
A. any Holder of Preferred or Registrable Common requests inclusion
of Registrable Common in a registration statement filed by the Company
under Section 3 of this Agreement, and
PAGE 8
<PAGE> 9
B. the offering proposed to be made is to be an underwritten public
offering, and
C. the managing underwriters of such public offering furnish a
written opinion that the total amount of securities to be included in such
offering would exceed the maximum amount of Securities (as specified in
such opinion) which can be marketed at a price reasonably related to the
then current market value of such Securities and without materially and
adversely affecting such offering,
then the rights of the Holders, of the holders of other Securities having the
right to include such Securities in such registration and of the Company to
participate in such offering shall be in the following order of priority:
First: the Company (if the Company is initiating the registration for
the sale of Securities which the Company proposes to issue in such
registration); and then
Second: the Holders shall be entitled to participate in such
offering, pro rata among themselves in accordance with the number of shares
of Registrable Common held by each such Holder: and then
Third: all other holders (including the Company, if such registration
shall have been requested by a person other than the Company) of Securities
having the right to include such Securities in such registration shall be
entitled to participate in accordance with the relative priorities, if any,
that shall exist among them;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
the Company or any Holder in a transaction which would require registration
under the Securities Act for a period beginning thirty (30) days prior to the
anticipated effective date of such registration statement and continuing until
ninety (90) days after the effective date of the registration statement filed in
connection with such registration or such earlier time consented to by the
managing underwriter, but in no event shall such period exceed 120 days.
8.3 In connection with any offering involving an underwriting of
Registrable Common pursuant to Section 3 of this Agreement, the Company shall
not be required to include any of the Registrable Common of a Holder in such
offering unless such Holder agrees to the terms of the underwriting agreed to
between the Company and the underwriter or underwriters selected by the Company,
provided that no such agreement shall add to the indemnities or affect the
priorities set forth in this Agreement.
SECTION 9. SALE OF CONVERTIBLE SECURITIES TO UNDERWRITER. Notwithstanding
anything in this Agreement to the contrary, in lieu of converting any
Convertible Securities to Common prior to or simultaneously with the filing or
the effectiveness of any registration statement filed pursuant to this
Agreement, the Holder of such Preferred may sell such Preferred to the
underwriter of the offering being registered upon the undertaking of such
underwriter to (i) convert such Preferred into Common before making any
distribution pursuant to such registration statement, and (ii) include such
Common among the Securities being offered pursuant to such registration
statement. The Company agrees to cause the Common issuable on conversion of such
Preferred to be issued within such time as will permit the underwriter to make
and complete the distribution contemplated by the
PAGE 9
<PAGE> 10
underwriting and to register the Preferred in any registration statement so
that the Holder may make the sale described in the first sentence of this
Section 9.
SECTION 10. LOCKUP AGREEMENT. Each Holder and the Company agrees in
connection with any registration of any of the Company's Securities that, upon
the request of the Company or the underwriters managing any underwritten
offering of the Company's Securities, he or it will not sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of
any Securities of the Company (other than the Securities included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time beginning thirty (30)
days prior to the anticipated effective date of such registration statement and
continuing until one hundred and eighty (180) days after the effective date of
such registration statement, but in no event shall such period exceed two
hundred and ten (210) days.
SECTION 11. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"Board" means the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission, and any
successor thereto.
"Common" means the Company's common stock, $.0001 par value per share.
"Convertible Securities" means the Preferred and any other Security of the
Company which is convertible, exercisable or exchangeable for Common.
"Holders" means the parties listed on the signature pages hereof, and any
subsequent legal or beneficial owner of Registrable Common who has become a
party to this Agreement in accordance with Section 12 hereof.
"Preferred" means, the Company's Series C Convertible Preferred Stock, par
value $.01 per share.
"Registrable Common" means at any time (i) any shares of Common then
outstanding which were issued upon conversion of Preferred; (ii) any shares of
Common then issuable upon conversion of then outstanding Preferred; (iii) any
shares of Common then outstanding which were issued as, or were issued directly
or indirectly upon the conversion or exercise of other Securities issued as, a
dividend or other distribution with respect to, or in replacement of, Preferred
or Common; (iv) any shares of Common then issuable directly or indirectly upon
the conversion or exercise of other Securities issued as a dividend or other
distribution with respect to, or in replacement of, Preferred or Common, (v)
any shares of Common then outstanding which were issued upon exercise of any
Warrant, and any shares of Common then issuable upon exercise of any Warrant,
and (vi) any other shares of Common then outstanding and owned by any Holder.
For purposes of determining the equivalent of a given amount of Registrable
Common, a person will be deemed to be the holder of Registrable Common then
issuable but not actually issued whenever such person has the then-existing
right (by conversion or otherwise) to acquire such Registrable Common, even
though such acquisition has not actually been effected.
PAGE 10
<PAGE> 11
"Securities" means any debt or equity securities of the Company, whether
now or hereafter authorized and any instrument convertible or exchangeable for
any such debt or equity securities. "Security" means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended prior to or
after the date of this Agreement, or any federal statute or statutes which
shall be enacted to take the place of such Act, together with all rules and
regulations promulgated thereunder.
"Short Form" means Form S-2 or Form S-3 under the Securities Act, and any
other form promulgated after the date of this Agreement available for use by
the Company in circumstances substantially comparable to either of those forms,
regardless of its designation.
"Warrant" means both the stock purchase warrants previously issued by the
Company to certain of the Holders which allow such Holders to purchase shares
of the Common at a specified per share price, and the stock purchase warrants
sold to the Holders as contemplated by the Stock Purchase Agreement.
SECTION 12. ASSIGNABILITY OF REGISTRATION RIGHTS. The rights set forth
in this Agreement shall accrue to each subsequent holder of Preferred or
Registrable Common who shall have executed a written consent after becoming the
holder of such Securities agreeing to be bound by the terms and conditions of
this Agreement as a party to this Agreement.
SECTION 13. TERMINATION OF REGISTRATION RIGHTS. Notwithstanding any
contrary provision of this Agreement, the rights to registration granted under
this Agreement shall terminate as to any particular share of Registrable Common
when such Registrable Common shall have been (i) effectively registered under
the Securities Act and sold by the holder thereof in accordance with such
registration, or (ii) sold to the public pursuant to Rule 144 of the
Commission, or any successor rule.
SECTION 14. NO PRIOR RIGHTS. Each of the Holders forever waives and
disclaims any and all registration or similar rights previously granted by the
Company to such Holder with respect to the Securities, other than those rights
specifically granted by the Company to the Holders in this Agreement.
SECTION 15. MISCELLANEOUS.
15.1 Amendment. Any provision of this Agreement may be amended by a
written agreement signed by all of the following:
(a) the Company, and
(b) the Holders of Preferred and Registrable Common holding more
than 50% of the Registrable Common.
Notwithstanding the foregoing, no amendment shall confer any greater
rights, or impose any additional restrictions, on any shares of Preferred as
compared to any other shares of Preferred, or any shares of Common as compared
to any other shares of Common, or any Holder as compared to
PAGE 11
<PAGE> 12
any other Holder, without the consent of the Holders of Preferred and
Registrable Common equivalent to 100% of the Registrable Common.
15.2 Entire Agreement. This Agreement represents the entire agreement
between the parties concerning the subject matter of this Agreement, and
supersedes all prior negotiations, understandings and agreements, whether
written or oral, between the parties relating to the subject matter of this
Agreement.
15.3 Successors and Assigns. This Agreement is binding upon and inures to
the benefit of the Company, its successors and assigns, and the Holders, their
successors and assigns, heirs, and legal representatives, as appropriate.
15.4 Severability. If any court or any governmental authority or agency
declares all or any part of any Section of this Agreement to be unlawful or
invalid, such unlawfulness or invalidity shall not serve to invalidate any other
Section of this Agreement, and in the event that only a portion of any Section
is so declared to be unlawful or invalid, such unlawfulness or invalidity shall
not serve to invalidate the balance of such Section.
15.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements
between Delaware residents entered into and to be performed entirely within
Delaware.
15.6 Notices. All notices required or permitted to be given pursuant to
this Agreement shall be in writing and may be delivered by hand, by facsimile,
by nationally recognized private courier, or by the U.S. postal service. Notices
delivered by mail shall be deemed delivered five (5) business days after deposit
with the U.S. postal service, first class mail, postage prepaid. Notices
delivered by hand or by facsimile shall be deemed delivered when received.
Notices given by a nationally recognized private courier shall be deemed
delivered on the first business day following deposit for next-day delivery. All
notices to the Holders shall be addressed to the Holders at their respective
address set forth beneath their name on the signature page to this Agreement or,
if no such person or address appears, at such Holder's address as shown on the
books of the Company or its transfer agent, and if to the Company, at:
Online Resources & Communication Corporation
7927 Jones Branch Road
McLean, Virginia 22102
Attention: President
or such other respective address or addresses as may be designated by notice
given in accordance with the provisions of this Section 15.6.
15.7 Counterparts. This Agreement may be executed in two or more
counterparts, each which shall be deemed an original but all of which shall
together constitute one and the same instrument.
15.8 Heading. The headings used herein are solely for the convenience of
the parties and shall not serve to modify or interpret the text of the Sections
at the beginning of which they appear.
PAGE 12
<PAGE> 13
15.9 Remedies. Each of the parties confirms that damages at law may not be
an adequate remedy for a breach or threatened breach of this Agreement, and
agrees that in the event of a breach or threatened breach of any of the
provisions hereof, the respective rights and obligations of the parties under
this Agreement shall be enforceable by specific performance, injunction or
other equitable remedy. Nothing contained in this Section 15.9 shall limit any
party's right to seek or obtain any and all remedies available to such party,
whether at law, by statute or otherwise.
PAGE 13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
The Company: ONLINE RESOURCES & COMMUNICATIONS CORPORATION
By: [sig]
-----------------------------
Its: Chairman & CEO
-----------------------------
7927 Jones Branch Drive
McLean, Virginia 22102
Holders: DOMINION FUND IV, A DELAWARE LIMITED PARTNERSHIP
By: Dominion Management IV, L.L.C.
its General Partner
By:
-----------------------------
----------------------------------
Print Name
Member
EAST RIVER VENTURES, L.P.
By:
-----------------------------
Its General Partner
By:
-----------------------------
----------------------------------
Print Name
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
The Company: ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By: [sig]
------------------------------
Its: Chairman & CEO
-----------------------------
7927 Jones Branch Drive
McLean, Virginia 22102
Holders: DOMINION FUND IV, A DELAWARE
LIMITED PARTNERSHIP
By: Dominion Management IV, L.L.C.
its General Partner
By: [sig]
------------------------------
Michael Lee
---------------------------------
Print Name
Member
EAST RIVER VENTURES, L.P.
By:
------------------------------
Its General Partner
By:
------------------------------
---------------------------------
Print Name
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed on the date first written above.
The Company: ONLINE RESOURCES & COMMUNICATIONS CORPORATION
By:
------------------------------
Its:
------------------------------
Holders: APEX INVESTMENT FUND II, L.P.
By: Apex Management Partnership,
its General Partner
By: Stellar Investment Co.,
Managing General Partner
By: [sig]
------------------------------
James A. Johnson, President
APEX INVESTMENT PARTNERS
233 SOUTH WACKER DRIVE
SUITE 9?00
CHICAGO, IL ?0?0?
---------------------------------
---------------------------------
Apex Entity Address
---------------------------------
---------------------------------
First Analysis Entity Address
PAGE 1
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.
The Company: ONLINE RESOURCES & COMMUNICATIONS CORPORATION
By:
----------------------------------
Its:
----------------------------------
Holders: EAST RIVER VENTURES, LP
---------------------------------------
By: [sig]
----------------------------------
645 MADISON AVE - 22ND FLOOR
----------------------------------
NEW YORK, NY 10022
----------------------------------
Address
PAGE 1
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
The Company: ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By:
-------------------------------------
Its:
-------------------------------------
7927 Jones Branch Drive
McLean, Virginia 22102
Holders:
21st Century Communications T-E Partners, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: EMEBE CORP.
-------------------------
By: XXXXXX
-------------------------
21st Century Communications T-E Partners, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: EMEBE CORP.
-------------------------
By: [sig]
-------------------------
21st Century Communications Foreign Partners, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: EMEBE CORP.
-------------------------
By: [sig]
-------------------------
Applewood Associates, L.P.
By: [sig]
---------------------------------
Barry Fingerhut
General Partner
<PAGE> 19
Signature Page to Registration Rights Agreement
Dated May 30, 1997
Holders: Piper Jaffrey, Inc.
By:
---------------------------
------------------------------
Print Title
Keefe, Bruyette & Woods, Inc.
By: [sig]
----------------------------
President
-------------------------------
Print Title
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed on the date first written above.
The Company: ONLINE RESOURCES & COMMUNICATIONS CORPORATION
By:
----------------------------------------
Its:
----------------------------------------
Holders: APEX INVESTMENT FUND III, L.P.
By: Apex Management III, LLC, its General Partner
By: Stellar Investment Co., Managing Member
[sig]
--------------------------------------------
By: James A. Johnson, President
APEX INVESTMENT PARTNERS
233 SOUTH WACKER DRIVE
SUITE 9500
CHICAGO, IL 60606
----------------------------------------
----------------------------------------
First Analysis Entity Address
PAGE 1
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed on the date first written above.
The Company. ONLINE RESOURCE & COMMUNICATIONS CORPORATION
By:
---------------------------------------
Its:
--------------------------------------
Holders: PEERLESS GROUP, INC.
By: [sig]
---------------------------------------
Rodney L. Armstrong, Jr.
Chairman of the Board
1216 E. Apache
------------------------------------------
Richardson, Texas 75081
------------------------------------------
Address
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.
The Company: ONLINE RESOURCES & COMMUNICATIONS CORPORATION
By:
---------------------------------------
Its:
--------------------------------------
Holders: ------------------------------------------
By:
---------------------------------------
------------------------------------------
------------------------------------------
Address
PAGE 1
<PAGE> 1
Exhibit 5.1
April 26, 1999
Online Resources & Communications Corporation
7600 Colshire Drive
McLean, Virginia 22102
Re: Online Resources & Communications Corporation Registration
Statement on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to Online Resources & Communications
Corporation, a Delaware corporation (the "Company") in connection with a
Registration Statement on Form S-1 (the "Registration Statement") pertaining to
the registration of $40,000,000 of the Company's Common Stock, $0.0001 par value
("Common Stock"), being offered by the Company (the "Initial Shares"), and up to
$6,000,000 of additional Common Stock being registered for sale pursuant to an
overallotment option (the "Option Shares").
We have examined such documents and records as we deemed appropriate,
including the following:
(i) The Company's form of Amended and Restated Certificate of
Incorporation.
(ii) The Company's form of Amended and Restated Bylaws.
(iii) Resolutions duly adopted by the Board of Directors of the
Company authorizing the filing of the Registration Statement.
In the course of our examination, we have assumed the legal capacity of
all natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity, binding effect and enforceability
thereof on such parties.
<PAGE> 2
Online Resources & Communications Corporation
April 26, 1999
Page 2
Based upon the foregoing, we are of the opinion that:
The Initial Shares and the Option Shares have been duly authorized, and
when issued subject to effectiveness of the Registration Statement and
compliance with applicable state securities laws, will be validly issued by the
Company, fully paid and nonassessable.
We express no opinion as to the laws of any jurisdiction other than the
State of Delaware and the federal laws of the United States of America. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement, to the incorporation by reference of this opinion in any abbreviated
registration statement, in connection with the offering covered by the
Registration Statement, filed pursuant to Rule 462(b) under the Securities Act
and to the reference to our firm under the caption "Legal Matters" contained in
the Prospectus included therein.
Very truly yours,
PATTON BOGGS LLP
By:/s/ Mary M. Sjoquist
-----------------------------
Mary M. Sjoquist
<PAGE> 1
EXHIBIT 10.1
LEASE AGREEMENT
BETWEEN
WEST*GROUP PROPERTIES LLC
(Landlord)
AND
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
(Tenant)
JOHNSON I BUILDING
7600 Colshire Drive
McLean, VA 22102
Fairfax County, Virginia
Dated July 21, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I BASIC LEASE INFORMATION AND DEFINITIONS . . . . . . . . . . 1
ARTICLE II PREMISES AND QUIET ENJOYMENT . . . . . . . . . . . . . . . 4
ARTICLE III PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V COMMENCEMENT DATE; DELIVERY OF POSSESSION . . . . . . . . . 5
ARTICLE VI RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VII DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII SERVICES OF LANDLORD . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX OPERATING COSTS . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE X ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XI REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XII CONDUCT OF BUSINESS BY TENANT . . . . . . . . . . . . . . . 16
ARTICLE XIII INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . . 18
ARTICLE XIV DESTRUCTION OF PREMISES . . . . . . . . . . . . . . . . . . 22
ARTICLE XV CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XVI ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . 25
ARTICLE XVII FINANCING AND SUBORDINATION . . . . . . . . . . . . . . . . 29
ARTICLE XVIII DEFAULT OF TENANT . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XIX ACCESS BY LANDLORD . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XX SURRENDER; HOLDING OVER . . . . . . . . . . . . . . . . . . 36
ARTICLE XXI NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE XXII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XXIII HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . 44
EXHIBITS
--------
EXHIBIT A PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . Attached
EXHIBIT B LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . Attached
EXHIBIT C COMMENCEMENT NOTICE . . . . . . . . . . . . . . . . . . . . Attached
EXHIBIT D RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . Attached
EXHIBIT E WORK AGREEMENT . . . . . . . . . . . . . . . . . . . . . . Attached
EXHIBIT F SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . Attached
EXHIBIT G JANITORIAL SPECIFICATIONS . . . . . . . . . . . . . . . . . Attached
RIDERS
- ------
RIDER NO.1 RENEWAL OPTION . . . . . . . . . . . . . . . . . . . . . . Attached
RIDER NO.2 EXPANSION OPTION . . . . . . . . . . . . . . . . . . . . . Attached
RIDER NO. 3 TERMINATION OF EXISTING LEASES . . . . . . . . . . . . . . Attached
</TABLE>
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<PAGE> 4
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into as of the 21st day
of July, 1997, by and between WEST*GROUP PROPERTIES LLC, a Virginia limited
liability company ("Landlord") and ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation ("Tenant"), upon and in consideration of
the terms, covenants and conditions contained in this Lease (including all
Exhibits, Addenda and Riders hereto), to each and all of which Landlord and
Tenant hereby agree, the sum of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
W I T N E S S E T H
ARTICLE I
BASIC LEASE INFORMATION AND DEFINITIONS
Section 1.01. Each reference in this Lease to information and definitions
contained in this Section 1.01 shall have the respective meaning set forth in
this Section 1.01.
A. Premises: That portion of the third (3rd), fourth (4th) and sixth (6th)
floors of the Building, as shown on the floor plans of the Building attached
hereto as Exhibits A-1, A-2 and A-3. The "Initial Space" constituting the
Premises shall consist of the entire sixth (6th) floor of the Building,
consisting of approximately 17,056 square feet of space, as shown on Exhibit
A-1 attached hereto. The "First Expansion Space" shall consist of the entire
third (3rd) floor of the Building, consisting of approximately 16,831 square
feet of space, as shown on Exhibit A-2 attached hereto. The "Second Expansion
Space" shall consist of the entire fourth (4th) floor of the Building,
consisting of approximately 16,831 square feet of space, as shown on Exhibit
A-3 attached hereto. (Hereinafter, the Initial Space, First Expansion Space and
Second Expansion Space shall sometimes be individually and generically referred
to as a "Phase" of the Premises.) Landlord hereby represents that the Premises
have been measured in accordance with the Washington D.C. Association of
Realtors Standard Method of Measurement.
<PAGE> 5
B. Land: That certain parcel of real property situate, lying and being in
the County of Fairfax, Virginia, as the same is shown on Exhibit B attached
hereto.
C. Project: The Land, Building and all other improvements or other
structures located or constructed, or to be located or constructed, on the
Land.
D. Building: The building located on the Land of which the Premises are a
part commonly known as the Johnson I Building, and having an address of 7600
Colshire Drive, McLean, Virginia 22102.
E. Commencement Date: That certain date on which the Term and the Base Rent
and other rents and charges payable hereunder shall commence, as such date is
determined pursuant to the provisions of Article V hereof. The Commencement
Date for the Initial Space shall be July 21, 1997 ("Initial Space Commencement
Date"). The parties hereto anticipate that the Commencement Date for the First
Expansion Space ("First Expansion Space Commencement Date") shall be on or
about April 1, 1998; and the Commencement Date for the Second Expansion Space
("Second Expansion Space Commencement Date") shall be on or about April 1,
1999.
F. Expiration Date: July 31, 2002.
G. Term: That certain period of approximately five (5) years, beginning on
the Initial Space Commencement Date and ending on the Expiration Date, unless
earlier terminated as provided herein.
H. Net Rentable Area of the Premises: Approximately fifty thousand seven
hundred eighteen (50,718) square feet.
I. Net Rentable Area of the Building: One hundred thousand nine hundred
fifty-eight (100,958) square feet.
J. Tenant's Pro Rata Share: Effective as of the Initial Space Commencement
Date, Tenant's Pro Rata Share shall be sixteen and eighty-nine one-hundredths
percent (16.89%), representing a fraction, the numerator of which is the Net
Rentable Area of the Initial Space and the denominator of which is the Net
Rentable Area of the Building. Effective as of the First Expansion Space
Commencement Date, Tenant's Pro Rata Share shall be thirty-three and
fifty-seven one-hundredths percent (33.57%), representing a fraction, the
numerator of which is the Net Rentable Area of both the Initial Space and the
First Expansion Space and the denominator of which is the Net Rentable Area of
the Building. Effective as of
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<PAGE> 6
the Second Expansion Space Commencement Date, Tenant's Pro Rata Share shall be
fifty and twenty-four one-hundredths percent (50.24%), representing a fraction,
the numerator of which is the Net Rentable Area of the entire Premises and the
denominator of which is the Net Rentable Area of the Building.
K. Rent: Base Rent and Additional Rent.
L. Base Rent: The initial Base Rent for the Initial Space shall be Three
Hundred Eleven Thousand Two Hundred Seventy-Two and 08/100 Dollars
($311,272.08) per annum ($25,939.34 per month) ($18.25 per square foot of Net
Rentable Area in the Initial Space). The initial Base Rent (on a per square foot
basis) for the First Expansion Space and for the Second Expansion Space shall
be equal to the then current Base Rent (on a per square foot basis) for the
Initial Space. The initial Base Rent set forth herein shall be subject to
escalation pursuant to Section 6.02 hereof.
M. Broker: The Rome Group, Inc./Grubb & Ellis.
N. Landlord's Address for Notice:
WEST*GROUP PROPERTIES LLC
c/o G.T. Halpin
1600 Anderson Road
McLean, VA 22102
with a copy to:
WEST*GROUP MANAGEMENT LLC
ATTN: General Counsel
1600 Anderson Road
McLean, VA 22102
O. Landlord's Address for Payment:
WEST*GROUP PROPERTIES LLC
c/o WEST*GROUP MANAGEMENT LLC -- Accounting Dept.
1600 Anderson Road
McLean, VA 22102
P. Tenant's Address for Notice:
At the Premises.
Q. Deposit: The total amount of the Deposit shall be $77,133.64 to be paid
in installments pursuant to terms of this
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<PAGE> 7
paragraph. The initial Deposit shall be 25,939.34. Upon the First Expansion
Space Commencement Date, Tenant shall be required to add to the Deposit
$25,597.15. Upon the Second Expansion Space Commencement Date, Tenant shall be
required to add to the Deposit an additional $25,597.15. The Deposit, and each
installment thereof, shall be held by Landlord in accordance with the
provisions of Article VII hereof.
R. Permitted Use: General office purposes.
ARTICLE II
PREMISES AND QUIET ENJOYMENT
Section 2.01. Premises. Landlord hereby leases and demises to Tenant, and
Tenant hereby leases and rents from Landlord, the Premises for the Term,
together with the right to use in common with others the Common Areas, subject
to all of the terms, covenants, and conditions contained herein and also
subject to any easements, covenants, restrictions or agreements now or
hereafter affecting the Project. The exterior walls, floor and ceiling and the
area above and beneath the Premises are not demised hereunder, and the use
thereof, together with the right to install, maintain, use, repair and replace
pipes, ducts, conduits, wires, tunnels, sewers and structural elements leading
through the Premises in locations which will not materially interfere with
Tenant's use thereof and serving other parts of the Project are hereby
reserved to Landlord. Tenant hereby acknowledges that the remainder of the
Building will be undergoing substantial renovation during the Term, thereby
resulting in substantial traffic of workers into and from the Building and
noise related thereto. Landlord agrees to use commercially reasonable efforts
to minimize any disruption to Tenant's business which may be caused by the
foregoing activities.
Section 2.02. Quiet Enjoyment. Provided that Tenant fully and timely performs
all the terms of this Lease on Tenant's part to be performed, including payment
by Tenant of all Rent, Tenant shall peaceably and quietly have, hold and enjoy
the Premises during the Term without hindrance, disturbance or molestation from
or by Landlord, subject, however, to Section 2.01 and Article XIX hereof, and
any and all deeds of trust, mortgages, restrictive covenants, easements,
governmental ordinances and other encumbrances now or hereafter affecting the
Project.
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<PAGE> 8
ARTICLE III
PARKING
Landlord hereby grants to Tenant a license to use in common with other tenants
of the Building and with the public, those portions of the Project designated
for parking by Landlord from time to time. Tenant, together with its agents,
employees and invitees, shall have the right, at no cost to Tenant, to use 3.5
of the foregoing parking spaces for each 1,000 square feet of space leased by
Tenant. Parking shall be free of charge during the original Term and the
Renewal Term described in Rider No. 1 hereto (to the extent Tenant exercises
its right to renew the Term pursuant to said Rider).
ARTICLE IV
IMPROVEMENTS
Landlord agrees to construct the "Landlord Improvement Work" and the "Tenant
Improvement Work", as the same are described in the Work Agreement attached
hereto as Exhibit E. Except for the construction of the aforesaid
improvements, Tenant agrees to accept the Premises in "as is" condition.
ARTICLE V
COMMENCEMENT DATE; DELIVERY OF POSSESSION
Section 5.01. Commencement Date.
A. The Commencement Date for the Initial Space shall be the date set forth
in Section 1.01.E hereof. The Commencement Date for the First Expansion Space
and the Second Expansion Space shall be the earlier of: (i) the date such Phase
is deemed available for occupancy pursuant to Section 5.01.B hereof, or (ii)
the date Tenant, or anyone claiming by, through or under Tenant, occupies that
Phase of the Premises for the purpose of conducting Tenant's (or such other
person's) business therein. Notwithstanding the foregoing, in no event shall
the First Expansion Space Commencement Date occur prior to April 1, 1998, nor
shall the Second Expansion
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<PAGE> 9
Space Commencement Date occur prior to April 1, 1999, unless otherwise agreed
to in writing by both Landlord and Tenant.
B. Tenant agrees to accept the Initial Space in "as is" condition. The
First Expansion Space and the Second Expansion Space shall be deemed available
for occupancy as soon as the Landlord Improvement Work and the Tenant
Improvement Work for such Phase have been substantially completed and Landlord
has obtained the non-residential use permit therefor.
C. Notwithstanding anything to the contrary contained in this Article V, if
there is a delay in the availability for occupancy of the First Expansion Space
or the Second Expansion Space due to Tenant Delay, then such Phase shall be
deemed available for occupancy on the date on which that Phase would have been
available for occupancy but for such Tenant Delay, even though the construction
of Tenant Improvement Work for such Phase has not been completed. As used
herein, the term "Tenant Delay" shall include any action or omission by Tenant,
or Tenant's agents, contractors, representatives, licensees and the like, which
delays Landlord's completion of its work.
Section 5.02. Commencement Notice. When the Commencement Date for each of the
First Expansion Space and the Second Expansion Space has been determined by
Landlord in accordance with the provisions of this Article V, Landlord and
Tenant shall execute a Commencement Notice in the form attached hereto as
Exhibit C; provided, however, that the failure of Landlord to prepare and
present the Commencement Notice to Tenant, or Tenant's failure to execute the
same shall not relieve Tenant of its liability hereunder.
Section 5.03. Entry by Tenant. Tenant may not enter or occupy any portion of
the Premises prior to the applicable Commencement Date without Landlord's
express written consent. Any early entry by Tenant shall be subject to all of
the terms of this Lease, but no such early entry shall change the applicable
Commencement Date or the Expiration Date of this Lease.
Section 5.04. Occupancy. Occupancy of any Phase of the Premises, or anyone
claiming by, through or under Tenant, for the conduct of (or the preparation to
conduct) Tenant's, or such other person's, business therein shall be conclusive
evidence that Tenant, and all parties claiming by, through or under Tenant, (a)
have accepted that Phase of the Premises as suitable, (b) have accepted the
Common Areas as being in a good and satisfactory condition, and (c) have waived
any defects in that Phase of the Premises and the Project.
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<PAGE> 10
ARTICLE VI
RENT
Section 6.01. Base Rent. Tenant hereby covenants and agrees to pay to Landlord,
during the Term, Base Rent, in equal monthly installments, in advance, on the
first day of each calendar month during the Term; provided, however, that the
first monthly installment shall be paid in advance on the date of Tenant's
execution of this Lease and applied to the first monthly installment of Base
Rent coming due hereunder. Tenant's obligation to pay Rent shall survive the
termination or expiration of this Lease.
Section 6.02. Base Rent Escalation. On the first (1st) anniversary of the
Initial Space Commencement Date, and on each anniversary thereafter during the
Term (each of such dates being hereinafter referred to as an "Adjustment
Date"), the Base Rent shall be increased by an amount equal to the product of
(i) the Base Rent in effect immediately prior to the Adjustment Date then at
hand (disregarding any rental abatement then in effect), and (ii) three percent
(3%). The Base Rent, as adjusted, shall be due and payable as of such
Adjustment Date and on the first (1st) day of each month thereafter until the
next Adjustment Date or the end of the Term, as applicable.
Section 6.03. Definitions and Payments. All sums of money or charges required
to be paid by Tenant under this Lease other than Base Rent shall be deemed
Additional Rent hereunder and all remedies applicable to the non-payment of
Base Rent shall be applicable thereto. All Rent shall be paid without prior
notice or demand therefor, and without any counterclaim, set-off, deduction,
recoupment, credit or defense whatsoever, it being understood and agreed that
Tenant's covenant to pay the Rent is hereby deemed to be, and shall be,
independent of the obligations of Landlord hereunder. All Rent payable by
Tenant to Landlord hereunder shall be payable in immediately available funds.
Any Additional Rent that relates to any default by Tenant shall be deemed
payable on the first day of the month next following such default except as
otherwise provided in this Lease. No payment by Tenant or receipt by Landlord
of a lesser amount than the amount then due of any sum required to be paid
hereunder by Tenant shall be deemed to be other than on account of the earliest
amount of such obligation then due. No endorsement or statement on any check or
letter or other communication accompanying a check for payment of any Rent
shall be deemed an accord and satisfaction. No receipt and/or acceptance by
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<PAGE> 11
Landlord of any sums shall be deemed a waiver of any default by Tenant.
Section 6.04. Late Payment Charges and Interest. Tenant shall pay a late charge
of five percent (5%) of the amount of any installment of Rent not paid within
five (5) days of the due date. However, if during the Term, Tenant remits Rent
payments later than the fifth (5th) day after the applicable due date two (2)
times, Landlord shall thereafter have the right to invoke its late charge as of
the expiration of the applicable due date. In addition to the foregoing late
charge, all past due payments of Rent shall bear interest from the due date
until paid at the rate ("Interest Rate") which is four percent (4%) above the
prime rate of interest from time to time publicly announced by Crestar Bank, or
any successor thereof; provided, however, the interest sought to be imposed
shall not exceed the maximum rate permitted under Federal law or under the laws
of the Commonwealth of Virginia. Payment of a late charge and interest shall
not cure such default.
Section 6.05. Rental Abatement. Notwithstanding anything to the contrary set
forth in this Article VI, Landlord shall abate Rent for the period extending
from the Commencement Date for the Initial Space through July 25, 1997.
ARTICLE VII
DEPOSIT
Section 7.01. Security Deposit. Tenant agrees to pay Landlord the Deposit
(which may be paid via letter of credit, in form reasonably acceptable to
Landlord) upon execution of this Lease as security for the faithful performance
by Tenant of the terms and covenants of this Lease. The Deposit shall not be
deemed by Tenant to constitute Rent for any period. The Deposit, without
interest, shall be repaid to Tenant after the termination of this Lease,
provided Tenant shall have made all such payments and performed all such terms
and conditions required by the Lease. Upon any Default by Tenant hereunder, all
or part of the Deposit may, at any time and from time to time and in Landlord's
sole discretion, be applied on account of such Default and thereafter Tenant
shall restore the resulting deficiency in the Deposit within ten (10) days
after Landlord's application thereof.
Section 7.02. Liability for Deposit. In no event shall any transferee of any
interest of Landlord in the Project or any
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<PAGE> 12
portion thereof, have any liability or obligation whatsoever to Tenant or
Tenant's successors or assigns for the return of all or any part of the Deposit
unless, and then only to the extent that, such transferee acknowledges receipt
of all or any part of Tenant's Deposit.
ARTICLE VIII
SERVICES OF LANDLORD
Section 8.01. Services.
A. Provided Tenant is not in Default under the terms of this Lease, during
the Term Landlord shall furnish Tenant with the following services and
facilities: (i) Elevator service from 8:00 a.m. to 7:00 p.m. except Saturday,
Sunday and holidays, with one elevator subject to call at all other times; (ii)
Heat and/or air conditioning twenty-four (24) hours per day, 365 days per year,
(iii) Electric current, water, public lavatory facilities and supplies; and
(iv) Janitorial services, Monday through Friday, excepting holidays.
B. If Tenant requires services (such as cleaning services) routinely
supplied by Landlord for hours or days in addition to the hours and days
specified in Section 8.01.A (either on a continuous or non-continuous basis),
Landlord shall make reasonable efforts to provide such additional service after
reasonable prior written request therefor from Tenant, and Tenant shall
reimburse Landlord for such additional service.
C. Electricity provided to Tenant's supplementary HVAC system serving
Tenant's computer room shall be submetered by Landlord. The cost of supplying
electricity to the supplemental HVAC system, as reflected on the submeter,
shall be paid by Tenant to Landlord on a monthly basis as Additional Rent. In
addition, if Tenant's requirements for or consumption of electricity exceeds
what is customarily needed to power standard office equipment, such as
typewriters and desk top computers, Landlord shall, at Tenant's expense, make
reasonable efforts to supply such service through the then existing feeders and
risers serving the Building and the Premises and shall bill Tenant periodically
for such additional service.
Section 8.02. Utility Suppliers. Landlord's obligation to furnish electrical
and other utility services shall be subject to the rules
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<PAGE> 13
and regulations of the supplier of such electricity or other utility services
and the rules and regulations of any municipal or other governmental authority
regulating the business of providing electricity and other utility services.
Section 8.03. No Abatement. No failure to furnish, or any stoppage of, the
services referred to in this Article VIII resulting from any cause shall make
Landlord liable in any respect for damages to any person, property or business,
or be construed as an eviction of Tenant, or entitle Tenant to any abatement of
Rent (other than as set forth in the following sentence) or other relief from
any of Tenant's obligations under this Lease. Notwithstanding the foregoing, in
the event any of the services referred to in this Article VIII is stopped as a
result of the gross negligence of Landlord, and such stoppage prevents Tenant
from conducting business, at the Premises, Landlord shall use commercially
reasonable efforts to restore such service, and shall abate Rent until such
service is restored.
ARTICLE IX
OPERATING COSTS
Section 9.01. Tenant's Operating Costs Payment. Tenant shall pay to Landlord,
as Additional Rent, for each year or fractional year during the Term an amount
("Tenant's Operating Costs Payment") of money equal to Tenant's Pro Rata Share
of Operating Costs (as hereinafter defined) in excess of the Base Operating
Costs (as hereinafter defined), such amount to be calculated and paid as
follows:
A. At the beginning of calendar year 1999 and each calendar year thereafter
during the Term (or as soon thereafter as is practicable), Landlord shall
furnish Tenant with an estimate ("Estimate") of Tenant's Operating Costs
Payment for the forthcoming year. On the first day of each calendar month
during such year (other than as hereinafter set forth in this paragraph A),
Tenant shall pay to Landlord one-twelfth (1/12th) of Tenants estimated
Operating Costs Payment as shown on the Estimate. If for any reason Landlord
has not provided Tenant with the Estimate at the beginning of any year during
the Term, then Tenant shall continue to pay Tenant's Operating Costs Payment
payable for the previous year, and promptly after receipt of Landlord's
Estimate, Tenant shall pay to Landlord any deficiency between the amounts
actually paid for such year and the amount due in accordance with
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<PAGE> 14
Landlord's Estimate for such year. The foregoing notwithstanding, Landlord
shall have the right from time to time during any year to adjust such Estimate.
Notwithstanding the foregoing, Tenant shall not be liable for Tenant's
Operating Costs Payment (or the Estimate thereof) until the first (1st)
anniversary of the Initial Space Commencement Date.
B. At the beginning of calendar year 2000 and all subsequent calendar years
during the Term (or as soon thereafter as is practicable), Landlord shall
furnish Tenant with a statement of the actual Operating Costs for the preceding
year. Within thirty (30) days after Landlord's delivery of such statement,
Tenant shall make a lump sum payment to Landlord in the amount, if any, by
which Tenant's Pro Rata Share of Operating Costs for such preceding year as
shown on Landlord's statement, exceeds the aggregate of the monthly
installments of Tenant's Operating Costs Payments paid during such preceding
year. If Tenant's Pro Rata Share of Operating Costs, as shown on Landlord's
statement, is less than the aggregate of the monthly installments actually paid
by Tenant during such preceding year, then Landlord shall apply such amount to
the next accruing installment(s) of Additional Rent due from Tenant under this
Section 9.01 until fully credited to Tenant. Landlord's and Tenant's
obligations under this Article IX shall survive the expiration or earlier
termination of this Lease.
C. A pro rata adjustment shall be made to Tenant's Pro Rata Share of
Operating Costs for the years in which the term of the Lease begins and ends,
as necessary. The provisions of this Section 9.01 shall survive the Expiration
Date or any sooner termination provided for in this Lease.
Section 9.02. Operating Costs. For purposes of this Lease, the term "Operating
Costs" shall mean any and all expenses, costs and disbursements of every kind
which Landlord pays, incurs or becomes obligated to pay in connection with the
operation, management, repair and maintenance of all portions of the Project.
All Operating Costs shall be determined according to generally accepted
accounting principles which shall be consistently applied. Operating Costs
include, but are not limited to, the following: (a) Wages, salaries, and fees
of all personnel or entities engaged in the operation, repair, maintenance, or
security of the Project; (b) Cost of performance by Landlord's personnel of, or
of all service agreements for, maintenance, janitorial services, access
control, alarm service, window cleaning, elevator maintenance and landscaping
for the Project; (c) All utilities for the Project, including water, sewer,
power, electricity, gas, fuel and lighting; (d) Cost of all insurance for the
Project which Landlord may carry
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<PAGE> 15
from time to time including, without limitation, insurance against vandalism,
fire and extended coverage insurance and liability insurance, together with all
appraisal and consultants' fees in connection with such insurance; (e) All
Taxes (as hereinafter defined); (f) Legal and accounting costs incurred by
Landlord or paid by Landlord to third parties (exclusive of legal fees with
respect to disputes with individual tenants, negotiations of tenant leases, or
with respect to the ownership rather than the operation of the Project); (g)
Cost of non-capitalized repairs and general maintenance of the Project; (h)
Project management office rent or rental value; (i) A management fee equal to
five percent (5%) of the total Rent for such year, and all items reimbursable
to the Project manager, if any, pursuant to any management contract for the
Project; and (j) Amortization of the cost of improvements or equipment which
are capital in nature and which (1) are for the purpose of reducing Operating
Costs of the Project, up to the amount saved as a result of the installation
thereof, as reasonably estimated by Landlord, or (2) enhance the Project for
the general benefit of tenants or occupants thereof, or (3) are required by any
governmental authority, or (4) replace any building equipment needed to operate
the Project at the same quality levels as prior to the replacement, or (5) are
customarily considered to be operating costs in the real estate industry
notwithstanding the capital nature thereof under generally accepted accounting
principles. All such costs, including interest, shall be amortized on a
straight-line basis over the useful life of the capital investment items, as
reasonably determined by Landlord, but in no event beyond the reasonable useful
life of the Project as a first-class office project. If any amounts comprising
Operating Costs are incurred not just with respect to the Project, but also
with respect to one or more other buildings or areas outside the Project, then
Landlord shall reasonably and equitably allocate such amounts between the
Project and such other buildings or areas.
For purposes hereof, the term "Taxes" shall mean (i) all taxes, assessments,
and other governmental charges, applicable to or assessed against the Project
or any portion thereof, or applicable to or assessed against Landlord's
personal property used in connection therewith, whether Federal, state, county,
or municipal and whether assessed by taxing districts or authorities presently
taxing the Project or the operation thereof or by other taxing authorities
subsequently created, or otherwise, and (ii) any reasonable expenses incurred
by Landlord in contesting any taxes or the assessed valuation of all or any
part of the Project. If at any time during the Term Landlord shall be required
to pay any charge which is based upon rents from the Project, or the
transactions represented by leases or the occupancy or use of the
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<PAGE> 16
Project, such charges shall be deemed to be Taxes; provided, however, that any
(i) franchise, corporation, income or net profits tax, unless substituted for
real estate taxes or imposed as additional charges in connection with the
ownership of the Project, which may be assessed against Landlord or the Project
or both, (ii) transfer taxes assessed against Landlord or the Project or both,
(iii) penalties or interest on any late payments of Landlord, and (iv) personal
property taxes of Tenant or other tenants in the Project shall be excluded from
Taxes.
"Operating Costs" shall not include (i) expenses for which Landlord actually
receives reimbursement from insurance, condemnation awards, other tenants or
any other sources; (ii) expenses incurred in leasing, procuring or negotiating
with tenants (including lease commissions, advertising expenses and expenses of
renovating space for tenants), or expenses incurred in connection with tenant
disputes; (iii) principle, interest or other finance charges made on any
mortgages or other debt by Landlord; (iv) net basic rents under ground
leases; (v) costs specially billed to and paid by specific tenants; (vi)
salaries, wages or other compensation paid to officers or executives of
Landlord; (vii) costs, fines or penalties incurred due to a violation by
Landlord of any legal requirement; (viii) costs arising from the presence of
Hazardous substances on or about the Project, unless the presence of such
Hazardous Substances is caused by the acts or omissions of Tenant, or its
agents, employees, contractors, licensees or invitees; or (ix) costs associated
with the Landlord Improvement Work. There shall be no duplication of costs or
reimbursement.
Section 9.03. Base Operating Costs. As used herein, the term "Base Operating
Costs" shall mean and refer to all Operating Costs accruing during 1998 ("Base
Year").
Section 9.04. Adjustments. If the Building is not fully occupied (meaning one
hundred percent (100%) of the Net Rentable Area of the Building) during any
full or fractional year of the Term, the actual Operating Costs shall be
adjusted for such year to an amount which Landlord estimates would have been
incurred in Landlord's reasonable judgment had the Building been fully
occupied. Additionally, if Landlord effects a change in either the number of
square feet of Net Rentable Area in the Premises or in the Building, Tenant's
Share of Operating Costs shall be adjusted, effective as of the date of any
such change.
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ARTICLE X
ALTERATIONS
Section 10.01. Alterations. Tenant shall not make or cause to be made any
alterations, repairs, additions or improvements in or to the Premises without
Landlord's prior written consent, which consent may be withheld in Landlord's
sole and absolute discretion. Notwithstanding anything to the contrary
contained herein, Tenant shall have the right to make strictly decorative
alterations or to rearrange trade fixtures without obtaining Landlord's prior
consent.
Section 10.02. Mechanic's Liens. In the event that any mechanic's lien is filed
against the Premises or the Project as a result of any services or labor
provided, or materials furnished, by or on Tenant's behalf, or claimed to have
been provided by or on Tenant's behalf, Tenant shall (i) immediately notify
Landlord of such lien, and (ii) within ten (10) calendar days after the filing
of any such lien, discharge and cancel such lien of record, by payment or
bonding in accordance with the laws of the Commonwealth of Virginia, all at
Tenant's sole cost and expense.
Section 10.03. Removal. All leasehold improvements (including the improvements
described in the Work Agreement), alterations and other physical additions made
to the Premises shall be Landlord's property and shall not be removed from the
Premises. Notwithstanding the foregoing, upon the expiration or earlier
termination of this Lease, Tenant shall, at Tenant's expense, remove any of the
foregoing items (excluding the improvements described in the Work Agreement)
from the Premises if Landlord gives Tenant written notice to do so. Landlord
hereby grants Tenant the right to remove, upon the termination or expiration of
this Lease, (i) the emergency generator (and associated equipment) described in
Section 12.07 hereof, and (ii) the supplementary HVAC system serving Tenant's
computer room. Tenant shall promptly repair or reimburse Landlord for the cost
of repairing all damage done to the Premises by such removal.
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REPAIRS
Section 11.01. By Landlord. Landlord shall perform all maintenance and make all
repairs and replacements to the Premises. In addition to paying Landlord for
Tenant's Pro Rata Share of Operating Costs pursuant to Article IX hereof,
Tenant shall pay to Landlord the actual cost, including a fee (in an amount not
to exceed 5% of such cost) to cover Landlord's overhead, for (a) all
maintenance, repairs and replacements within the Premises which are not charged
as Operating Costs (other than repairs and replacements necessitated by the
willful misconduct or gross negligence of Landlord or its agents, employees,
contractors, invitees or licensees to the extent the cost thereof is not
collectible under Tenant's insurance, or, if Tenant is not carrying all of the
insurance described in Section 13.02, to the extent such cost would not be
covered by the insurance described in Section 13.02 if the same were in
effect), and (b) all repairs and replacements necessitated by damage to the
Project (including the Building structure and the central Building systems
within the Premises) caused by the Tenant or its agents, employees,
contractors, invitees and licensees but only to the extent the cost thereof is
not collected under Landlord's insurance. Amounts payable by Tenant pursuant to
this Section 11.01 shall be payable on demand after receipt of an invoice
therefor from Landlord. Landlord has no obligation and has made no promise to
maintain, alter, remodel, improve, repair, decorate, or paint the Premises or
any part thereof, except as specifically set forth in this Lease. In no event
shall Landlord have any obligation to maintain, repair or replace any
furniture, furnishings, fixtures or personal property of Tenant.
Section 11.02. By Tenant. Tenant shall keep the Premises (including the initial
improvements) in good order and in a safe, neat and clean condition. Tenant
shall not perform any maintenance or repair work or make any replacement in or
to the Premises, but rather shall promptly notify Landlord of the need for such
maintenance, repair or replacement so that Landlord may proceed to perform the
same pursuant to the provisions of Section 11.01.
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ARTICLE XII
CONDUCT OF BUSINESS BY TENANT
Section 12.01. Use of Premises. Tenant shall use and occupy the Premises during
the Term solely for the Permitted Use set forth in the Basic Lease Information
and for no other purpose. Tenant specifically agrees that the basement portion
of the Premises is the only portion thereof which may be used for the storage
of personal property. If any governmental licenses or permits shall be required
for the proper and lawful conduct of Tenant's business in the Building, then
Tenant shall procure and maintain same at Tenant's expense.
Section 12.02. Operation of Business. Tenant warrants, represents, covenants
and agrees that, in the operation of its business within the Premises, Tenant
will (i) pay before delinquency, any and all taxes, assessments and public
charges levied, assessed or imposed upon Tenant's business, Tenant's leasehold
interest or upon Tenant's fixtures, furnishings or equipment in the Premises,
and pay when due all such license fees, permit fees and charges of a similar
nature for the conduct by Tenant or any subtenant; (ii) observe the Rules and
Regulations attached hereto as Exhibit D and all other reasonable rules and
regulations established by Landlord from time to time, provided Tenant shall be
given notice thereof; and (iii) not use any space outside the Premises for
storage or any other undertaking.
Section 12.03. Care of Premises. Tenant shall not move any safe, heavy
machinery, heavy equipment, or fixtures into or out of the Premises without
Landlord's prior written consent, which shall not be unreasonably withheld.
Tenant agrees that it will not place a load on the floor exceeding the floor
load per square foot which such floor was designed to carry, and will not
install, operate or maintain in the Premises any heavy equipment except in such
manner as to achieve a proper distribution of weight.
Section 12.04. Signage. Tenant shall have the right to install and maintain one
(1) sign on the facade of the Building in accordance with the terms of Exhibit
F attached hereto. Tenant shall have no right to install any other sign on the
Project without the prior written consent of Landlord. Upon termination of this
Lease, Tenant shall remove any sign installed pursuant to this Section 12.04,
and shall repair any damage caused thereby. Landlord agrees to provide Tenant
with its Pro Rata Share of
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directory space on the directory board located in the Building lobby.
Section 12.05. Legal Requirements. Tenant shall, at its own expense, comply
with all laws, orders, ordinances and regulations of Federal and local
authorities and with directions of public rules, recommendations, requirements
and regulations of the Board of Fire Underwriters, Landlord's insurance
companies and any other organization establishing insurance rates in the
geographical area where the Building is located, respecting all matters of
occupancy, condition or maintenance of the Premises, whether such orders or
directions shall be directed to Tenant or Landlord. Wherever the term "legal
requirements" appears in this Lease, such terms shall be deemed to be, and
include, the requirements hereinabove set forth. Landlord agrees to deliver the
Premises to Tenant in compliance with all applicable legal requirements.
Section 12.06. Satellite Dish. To the extent legally permitted, Tenant shall
have the nonexclusive right to install a satellite dish, not more than SIX (6)
feet in diameter, on the roof of the Building, in a location mutually
acceptable to Landlord and Tenant. Tenant shall coordinate the installation
of, and access to, the satellite dish with Landlord's property manager, and
shall perform the installation in accordance with Landlord's guidelines. The
installation of the satellite dish shall be completed in a workmanlike manner
and in accordance with all applicable laws and regulations. Tenant shall
install the satellite dish using a nonpenetrating roof mount, and shall comply
with all roof and floor load limitations. Tenant shall. be solely responsible
for obtaining any permits or licenses necessary to install the satellite dish,
and shall indemnify Landlord for any costs which Landlord might incur due to
the installation, operation and maintenance thereof. Tenant shall cause its
general liability and casualty policies to cover the satellite dish and related
equipment. Upon the expiration or termination of this Lease, Tenant shall
remove the satellite dish at Tenant's sole cost and expense, and shall restore
the Project to its original condition; and, if Tenant fails to remove the same,
then the satellite dish shall be deemed abandoned, and Landlord may cause the
same to be removed, and the Project to be restored, at Tenant's expense, which
expense shall be considered Additional Rent. If the real estate taxes or
insurance premiums for the Building are increased as a result of the
installation of the satellite dish, then Tenant shall pay its share of any such
increase directly attributable to such installation upon receipt of adequate
documentation. Notwithstanding the terms of this Section 12.06, Landlord makes
no representations as to whether a satellite
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dish is presently permitted under the current zoning ordinances affecting the
Project.
Section 12.07. Emergency Generator. To the extent legally permitted, Tenant
shall have the nonexclusive right to install an emergency generator and
associated equipment on the Land, in a location selected by Landlord. Tenant
shall coordinate the installation of, and access to, the emergency generator
with Landlord's property manager, and shall perform the installation in
accordance with Landlord's guidelines. The installation of the emergency
generator shall be completed in a workmanlike manner and in accordance with all
applicable laws and regulations. Tenant shall be solely responsible for
obtaining any permits or licenses necessary to install the emergency generator,
and shall indemnify Landlord for any costs which Landlord might incur due to
the installation, operation and maintenance thereof. Tenant shall cause its
general liability and, casualty policies to cover the emergency generator and
related equipment. Upon the expiration or termination of this Lease, Tenant
shall remove the emergency generator at Tenant's sole cost and expense, and
shall restore the Project to its original condition; and, if Tenant fails to
remove the same, then the emergency generator shall be deemed abandoned, and
Landlord may cause the same to be removed, and the Project to be restored, at
Tenant's expense, which expense shall be considered Additional Rent. If the
real estate taxes or insurance premiums for the Building are increased as a
result of the installation of the emergency generator, then Tenant shall pay
its share of any such increase directly. attributable to such installation upon
receipt of adequate documentation. Notwithstanding the terms of this Section
12.07, Landlord makes no representations as to whether an emergency generator
is presently permitted under the current zoning ordinances affecting the
Project.
ARTICLE XIII
INSURANCE AND INDEMNITY
Section 13.01. Insurance to be Procured by Landlord. Landlord agrees, during
the term hereof, to obtain and maintain in effect at all times, fire and
extended coverage insurance (or broader insurance coverage) insuring the
Building, including all enclosed Common Areas therein. Such insurance shall be
issued by an insurance company licensed to do business in the Commonwealth of
Virginia.
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Section 13.02. Insurance to be Procured by Tenant. Tenant, at Tenant's sole
cost and expense, shall obtain and maintain in effect at all times during the
term of this Lease, policies providing for the following coverage:
A. Property Insurance. Policies of insurance covering Tenant's fixtures and
equipment installed and located in the Premises, and in addition thereto,
covering all of the furnishings, merchandise and other contents in the
Premises, for the full replacement value of said items. Coverage should at
least insure against any and all perils included within the classification
"Fire and Extended Coverage" under insurance industry practice in the
Commonwealth of Virginia, together with insurance against vandalism, malicious
mischief and sprinkler leakage or other sprinkler damage. Any and all proceeds
of such insurance, so long as the Lease shall remain in effect, shall be used
only to repair or replace or pay for the items so insured.
B. Liability Insurance. A policy of commercial general liability
insurance, naming Landlord and any mortgagee of the Project as additional
insureds, protecting against any liability occasioned by any occurrence on or
about any part of the Project or the Premises, and containing contractual
liability coverage, with such policies to be in the minimum amount of Five
Million and NO/100 Dollars ($5,000,000.00), combined single limit, written on
an occurrence basis. In the event that it becomes customary for a significant
number of tenants of commercial office buildings in the area to be required to
provide liability insurance policies to their landlords with coverage limits
higher than the foregoing limits, then Tenant shall be required on demand of
Landlord to obtain insurance policies the limits of which are not less than the
then customary limits.
C. Tenant's Worker's Compensation Insurance. Tenant shall, during the
entire term hereof, keep in full force and effect, worker's compensation or
similar insurance affording statutory coverage and containing statutory limits
as required under the local worker's compensation or similar statutes.
Section 13.03. General Provisions. All insurance policies herein to be procured
by Tenant shall (i) be issued by good and solvent insurance companies licensed
to do business in the Commonwealth of Virginia and having a Best's Rating of
A:XII or better; (ii) be written as primary policy coverage and not
contributing with or in excess of any coverage which Landlord may carry; (iii)
insure and name Landlord and any mortgagee of the Project as additional
insureds as their respective interests may appear; all such
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policies shall contain a provision that although Landlord and such mortgagees
are named insureds, Landlord and such mortgagees shall nevertheless be entitled
to recover under said policies for any loss, injury or damage to Landlord, such
mortgagees or their servants, agents and employees by reason of the act or
negligence of Tenant; and (iv) shall contain an express waiver of any right of
subrogation by the insurance company against Landlord or Landlord's agents and
employees. Neither the issuance of any insurance policy required hereunder, nor
the minimum limits specified herein with respect to Tenant's insurance
coverage, shall be deemed to limit or restrict in any way Tenant's liability
arising under or out of this Lease. With respect to each and every one of the
insurance policies herein required to be procured by Tenant, on or before the
Initial Space Commencement Date and before any such insurance policy shall
expire, Tenant shall deliver to Landlord a duplicate original, a certified copy
or a certificate of insurance of each such policy or renewal thereof, as the
case may be, together with evidence of payment of all applicable premiums. Any
insurance required to be carried hereunder may be carried under a blanket
policy covering the Premises and other locations of Tenant, and if Tenant
includes the Premises in such blanket coverage, Tenant shall deliver to
Landlord, as aforesaid, a duplicate original or certified copy of each such
insurance policy, or a certificate evidencing such insurance coverage on the
Premises. Each and every insurance policy required to be carried hereunder by
or on behalf of Tenant shall provide (and any certificate evidencing the
existence of each such insurance policy shall certify) that, unless Landlord
shall first have been given thirty (30) days prior written notice thereof: (i)
such insurance policy shall not be canceled and shall continue in full force
and effect, (ii) the insurance carrier shall not, for any reason whatsoever,
fail to renew such insurance policy, and (iii) no material changes may be made
in such insurance policy. The term "insurance policy" as used herein shall be
deemed to include any extensions or renewals of such insurance policy. In the
event that Tenant shall fail promptly to furnish any insurance coverage
hereunder required to be procured by Tenant, Landlord, at its sole option,
shall have the right to obtain the same and pay the premium therefor for a
period not exceeding one (1) year in each instance, and the premium so paid by
Landlord together with an administrative fee of eighteen percent (18%) of such
premium shall be immediately payable by Tenant to Landlord as Additional Rent.
Section 13.04. Insurance Requirements. Tenant shall not do or permit to be done
any act or thing upon the Premises that will invalidate or be in conflict with
fire insurance policies covering the Project or any part thereof, including all
Common Areas, or
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fixtures and property therein, or any other insurance policies or coverage
referred to above in this section; and Tenant shall promptly comply with all
rules, orders, regulations, or requirements, of the Insurance Services Office
having jurisdiction, or any similar body, in the case of such fire insurance
policies, and shall not do, or permit anything to be done, in or upon the
Premises, or bring or keep anything therein, which shall increase the rate of
fire insurance on the Project or on any property, including all Common Areas,
located therein, or increase the rate or rates of any other insurance referred
to hereinabove applicable to the Project or any portion thereof. If by reason
of failure of Tenant to comply with the provisions of this Section, the fire
insurance rate, or the rate or rates of any other insurance coverage referred
to above, shall at any time be higher than it otherwise would be, and if
Landlord, at such time is obligated to, or has elected to, obtain and maintain
in effect any such insurance coverage, then Tenant shall reimburse Landlord on
demand as Additional Rent for that part of all premiums for any insurance
coverage that shall have been charged because of such violation by Tenant and
which Landlord shall have paid on account of an increase in the rate or rates
in its own policies of insurance. In any action or proceeding wherein Landlord
and Tenant are parties, a schedule or "make-up" of rate for the Premises issued
by the Insurance Services Office having jurisdiction, or similar body making
fire insurance rates for the Premises or property, in the case of the aforesaid
fire insurance, policies, and, the respective body or bureau establishing rates
in the case of all of the other aforesaid insurance policies, shall be
conclusive evidence of the facts therein stated and of the several items and
changes in the fire insurance rate and other insurance rates then applicable to
the Project.
Section 13.05. Indemnification. Tenant hereby waives all claims against
Landlord for damage to any property or injury to, or death of, any person in,
upon, or about the Project, including the Premises, arising at any time and
from any cause other than solely by reason of the negligence or willful
misconduct of Landlord, its agents, employees, representatives, or contractors.
Tenant shall, and hereby agrees to, indemnify and hold Landlord harmless from
any damage to any property or injury to, or death of, any person arising from
the condition of the Project or the use or occupancy of the Building and the
Premises by Tenant, its agents, employees, representatives, contractors,
successors or assigns, licensees or invitees, unless such damage is caused
solely by the negligence or willful misconduct of Landlord, its agents,
employees, representatives or contractors. Tenant's foregoing indemnity shall
include reasonable attorneys' fees, investigation costs, and all
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other reasonable costs and expenses incurred by Landlord in any connection
therewith. The provisions of this Article XIII shall survive the termination of
this Lease with respect to any occurrence prior to such termination and any
resulting damage, injury or death. If Landlord is made a party to any
litigation commenced by or against Tenant or relating to this Lease or to the
Premises, and provided that in any such litigation Landlord is not finally
adjudicated to be primarily at fault, then Tenant shall pay all costs and
expenses, including court costs and reasonable attorneys' fees, incurred by or
imposed upon Landlord because of any such litigation, and the amount of all
such costs and expenses, including actual but not unreasonable attorneys' fees
and court costs, shall be a demand obligation owing by Tenant to Landlord.
Section 13.06. Mutual Waiver of Claims. Landlord and Tenant each hereby release
and relieve each other, and waive their entire right to recovery against the
other, for loss or damage insured by the casualty policies required herein or
any other casualty policies actually held by either Landlord or Tenant, whether
due to the negligence, respectively, of Landlord or Tenant, or their agents,
employees, contractors, licensees or invitees. Landlord and Tenant shall cause
their respective casualty policies to contain a provision acknowledging the
foregoing waiver of claims.
ARTICLE XIV
DESTRUCTION OF PREMISES
Section 14.01. Destruction of Premises. Tenant shall give prompt notice to
Landlord in case of any fire or other damage or casualty to the Premises or the
Building. If the Premises or the Building shall be damaged by fire or other
casualty, then Landlord may terminate this Lease by notice given within ninety
(90) days after such event. In addition, Landlord shall notify Tenant, in
writing, within ninety (90) days after the date the damage occurred, if
Landlord has reasonably determined that it will take more than one hundred
eighty (180) days from the date the damage occurred to rebuild the Premises,
whereupon Tenant shall have the right to terminate this Lease upon written
notice to Landlord delivered not more than thirty (30) days after Landlord
delivers said notice to Tenant. In the event this Lease is terminated as
provided in this Section 14.01: (i) the entire proceeds of the insurance
provided for in Section 13.01 hereof shall be paid by the insurance company or
companies directly to Landlord and shall belong to, and be the sole property
of, Landlord, (ii) the portion of the proceeds of the
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insurance provided for in Section 13.02 which is insuring leasehold
improvements and any other items which, by the terms of the Lease, rightfully
belong to the Landlord upon the termination of the Lease by whatever cause
shall be paid by the insurance company or companies directly to Landlord, and
shall belong to, and be the sole property of, Landlord, (iii) Tenant shall
immediately vacate the Premises in accordance with this Lease, (iv) all Rent
shall be apportioned and paid to the date on which possession is relinquished
or the date of such damage, whichever last occurs, and (v) Landlord and Tenant
shall be relieved from any and all further liability or obligation hereunder
except as expressly provided in this Lease. Tenant hereby waives any and all
rights to terminate this Lease that it may have, by reason of damage to the
Premises by fire or other casualty, pursuant to any presently existing or
hereafter enacted statute or pursuant to any other law.
Section 14.02. Obligation to Rebuild. If all or any portion of the Premises is
damaged by fire or other casualty and this Lease is not terminated in
accordance with the provisions of Section 14.01 above, then all insurance
proceeds under the policies referred to in Sections 13.01 and 13.02 hereof that
are recovered on account of any such damage by fire or casualty shall be made
available for the payment of the cost of repair, replacing and rebuilding, and
as soon as practicable after such damage occurs Landlord shall, using the
proceeds provided for by Section 13.01 (and, to the extent applicable, proceeds
from insurance policies provided for by Section 13.02) hereof, repair or
rebuild the Premises or such portion thereof to its condition immediately prior
to such occurrence to the extent the cost therefor is fully funded by insurance
proceeds. In no event shall Landlord be obligated to repair or replace Tenant's
movable trade fixtures, equipment or personalty. In addition, Tenant shall,
using the remaining proceeds of the insurance proceeds from policies provided
for in Section 13.02 hereof, repair, restore and replace Tenant's movable trade
fixtures, personalty and equipment. If the aforesaid insurance proceeds under
the insurance provided for in Section 13.02 hereof shall be less than the cost
of repairing or replacing Tenant's movable trade fixtures, equipment and
personalty, or other items required to be insured by Tenant pursuant to Section
13.02 hereof, Tenant shall pay the entire excess cost thereof; and if such
insurance proceeds shall be greater than the cost of such repair, restoration,
replacement or rebuilding, the excess proceeds shall belong to, and be the
property of, Tenant.
Section 14.03. Rent Abatement. In the event of any repair or rebuilding
pursuant to the provisions of Section 14.02 hereof, then there shall be abated
an equitable portion of the Rent during the
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existence of such damage, based upon the portion of the Premises from which
Tenant is then unable to conduct its business, and the duration thereof;
provided, however, that if, due to the extent, location or nature of the
casualty, Tenant is unable to conduct its business in the entire Premises, then
the Rent due for the entire Premises shall be abated during the existence of
such damage. Except as may be specifically set forth in this Article XIV,
Landlord shall not be liable or obligated to Tenant to any extent whatsoever by
reason of any fire or other casualty damage to the Premises, or any damages
suffered by Tenant by reason thereof, or the deprivation of Tenant's possession
of all or any part of the Premises.
ARTICLE XV
CONDEMNATION
Section 15.01. Condemnation of Premises or Project. In the event that all or
substantially all of the Premises or the Project is taken or condemned by
condemnation or conveyance in lieu thereof (such taking, condemnation or
conveyance in lieu thereof being hereinafter referred to as "condemnation"),
the Term hereof shall cease and this Lease shall terminate on the earlier of
the date the condemning authority takes possession or the date title vests in
the condemning authority.
Section 15.02. Partial Taking of Project. In the event any portion of the
Project shall be taken by condemnation (whether or not such taking includes any
portion of the Premises), which taking, in Landlord's judgment, results in a
condition where the Project cannot be restored in an economically feasible
manner for use substantially as originally designed, then Landlord shall have
the right, at Landlord's option, to terminate this Lease, effective as of the
date specified by Landlord in a written notice of termination from Landlord to
Tenant.
Section 15.03. Partial Taking of Premises. In the event that a portion, but
less than substantially all of the Premises shall be taken by condemnation,
then this Lease shall be terminated as of the date of condemnation as to the
portion of the Premises so taken, and, unless Landlord exercises its option to
terminate this Lease pursuant to Section 15.02, this Lease shall remain in full
force and effect as to the remainder of the Premises.
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Section 15.04. Termination. In the event of termination of this Lease pursuant
to the provisions of Section 15.01, 15.02 or 15.03, the Rent shall be
apportioned as of the date of such termination; provided, however, that those
provisions of this Lease which are designated to cover matters of termination
and the period thereafter, or by their very nature covers such matters, shall
survive the termination hereof.
Section 15.05. Condemnation Award. All compensation awarded or paid upon a
condemnation of any portion of the Project shall belong to and be the property
of Landlord without participation by Tenant. Nothing herein shall be construed,
however, to preclude Tenant from prosecuting any claim directly against the
condemning authority for loss of business, loss of goodwill, moving expenses,
damage to, and cost of removal of, trade fixtures, furniture and other personal
property belonging to Tenant; provided, however, that Tenant shall make no
claim which shall diminish or adversely affect any award claimed or recovered
by Landlord.
ARTICLE XVI
ASSIGNMENT AND SUBLETTING
Section 16.01. Restrictions.
A. Tenant shall not sublet the Premises (or any portion thereof)
or assign this Lease (or any interest herein), nor shall any assignment or
sublease occur by operation of law, without the prior written consent of
Landlord, which Landlord shall not unreasonably withhold or delay.
Notwithstanding the foregoing, as an alternative to granting consent to a
proposed sublease or assignment, Landlord shall have the right (subject to
Section 16.01.C hereof), in its sole discretion, to elect one of the following
alternatives: (i) if Tenant desires to sublease (in the aggregate) more than
forty percent (40%) of the Premises, to sublet from Tenant the portion of the
Premises proposed by Tenant to be sublet upon the same terms as the proposed
sublet (but in no event shall the rental rate thereunder be greater than the
rental rate hereunder); or (ii) if Tenant desires to assign this Lease, to
terminate this Lease as of the proposed effective date of the assignment. In no
event, however, shall Tenant be permitted to sublease the Premises or assign
this Lease if Tenant is then in Default under this Lease. In the event of any
assignment or sublease pursuant to the terms of this Article XVI, Tenant shall
remain liable for all of its obligations under this Lease,
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including but not limited to payment of Rent. Landlord's consent to a
particular assignment or sublease pursuant to this Article XVI shall not
constitute consent to any other assignment or sublease.
B. If Tenant should desire to assign this Lease or sublet the
Premises, Tenant shall give Landlord written notice thereof specifying: (i) the
name, current address and business of the proposed assignee or sublessee, (ii)
the amount and location of the space within the Premises proposed to be so
subleased, (iii) the proposed effective date and duration of the assignment or
sublease, (iv) the proposed rent and other consideration to be paid to Tenant
by such assignee or sublessee, and (v) all other information reasonably
required by Landlord to evaluate the proposed assignment or sublease. If
Landlord consents to such assignment or sublease, Tenant shall deliver to
Landlord copies of all documents executed in connection therewith, which
documents shall be in form and substance reasonably satisfactory to Landlord,
and which documents shall require such assignee or sublessee to comply with all
terms of this Lease on Tenant's part to be performed. No acceptance by Landlord
of any rent or any other sum of money from any sublessee or assignee shall be
deemed to constitute Landlord's consent to any assignment or sublease. If
Landlord permits Tenant to sublet the Premises or assign this Lease, and the
rental rate thereunder exceeds the rental rate hereunder, Tenant shall remit to
Landlord as Additional Rent, as and when Rent hereunder becomes due, fifty
percent (50%) of the difference between the rent due under the sublease or
assignment and the Rent due hereunder, less the actual expenses Tenant incurs
in subleasing the space or assigning this Lease.
C. Notwithstanding the foregoing provisions of this Section
16.01, Tenant shall have the right, upon prior written notice to Landlord, but
without Landlord's consent, and provided Tenant is not then in Default, to
assign this Lease, or to sublet all or any part of the Premises, to (i) any
entity resulting from a merger or consolidation with Tenant, (ii) any
corporation succeeding to all the business and assets of Tenant, or (iii) any
affiliate of Tenant; provided, however, that the net worth of the surviving or
successor entity or the affiliate is at least equal to the net worth of Tenant
as of the date of this Lease; and provided, further, that Tenant shall remain
unconditionally liable for Tenant's obligations under this Lease. For purposes
hereof, an affiliate of Tenant is any entity which controls, is controlled by,
or is under common control with Tenant.
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Section 16.02. Assignment Under Bankruptcy Code.
A. Tenant acknowledges that this Lease is a lease of
nonresidential real property and, therefore, agrees that Tenant, as the debtor
in possession, or the trustee for Tenant (collectively "the Trustee") in any
proceeding under Title 11 of the United States Bankruptcy Code relating to
Bankruptcy, as amended, or under any other similar federal or state statute
(collectively, the "Bankruptcy Code"), shall not seek or request any extension
of time to assume or reject this Lease or to perform any obligations of this
Lease which arise from or after the order of relief.
B. If the Trustee proposes to assume or to assign this Lease or
sublet the Premises (or any portion thereof) to any person who shall have made
a bona fide offer to accept an assignment of this Lease or a subletting on
terms acceptable to the Trustee, the Trustee shall give Landlord and lessors
and mortgagees of Landlord, of which Tenant has notice, written notice setting
forth the name and address of such person and the terms and conditions of such
offer, no later than twenty (20) days after receipt of such offer, but in any
event no later than ten (10) days prior to the date on which the Trustee makes
application to the Bankruptcy Court for authority and approval to enter into
such assumption, assignment or subletting. Landlord shall have the prior right
and option, to be exercised by written notice to the Trustee given at any time
prior to the effective date of such proposed assumption, assignment or
subletting, to accept an assignment of this Lease or subletting of the Premises
upon the same terms and conditions and for the same consideration, if any, as
the bona fide offer made by such person, less any brokerage commissions which
may be payable out of the consideration to be paid by such person for the
assignment or subletting.
C. The Trustee shall have the right to assume Tenant's rights and
obligations under this Lease only if the Trustee: (i) promptly cures, or
provides adequate assurance that the Trustee will promptly cure, any default
under this Lease; (ii) compensates, or provides adequate assurance that the
Trustee will promptly compensate, Landlord for any actual pecuniary loss
incurred by Landlord as a result of Tenant's default under this Lease; and
(iii) provides adequate assurance of future performance under this Lease.
Adequate assurance of future performance by the proposed assignee shall
include, as a minimum, that: (a) the Trustee or any proposed assignee of this
Lease shall deliver to Landlord a security deposit in an amount equal to at
least three (3) months' Rent accruing under this Lease; (b) any proposed
assignee of this Lease shall provide to Landlord an audited financial
statement,
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dated no later than six (6) months prior to the effective date of such proposed
assignment or sublease with no material change therein as of the effective
date, which financial statement shall show the proposed assignee to have a net
worth equal to at least twelve (12) months' Rent accruing under this Lease, or,
in the alternative, the proposed assignee shall provide a guarantor of such
proposed assignee's obligations under this Lease, which guarantor shall provide
an audited financial statement meeting the above requirements of this clause
(b) and execute and deliver to Landlord a guaranty agreement in form and
substance acceptable to Landlord; and (c) any proposed assignee shall grant to
Landlord a security interest in favor of Landlord in all furniture, fixtures
and other personal property to be used by such proposed assignee in the
Premises. All payments of Rent required of Tenant under this Lease, whether or
not expressly denominated as such in this Lease, shall constitute rent for the
purposes of Title 11 of the Bankruptcy Code.
D. The parties agree that for the purposes of the Bankruptcy Code
relating to (i) the obligation of the Trustee to provide adequate assurance
that the Trustee will "promptly" cure defaults and compensate Landlord for
actual pecuniary loss, the word "promptly" shall mean that cure of defaults and
compensation will occur no later than sixty (60) days following the filing of
any motion or application to assume this Lease; and (ii) the obligation of the
Trustee to compensate or to provide adequate assurance that the Trustee will
promptly compensate Landlord for "actual pecuniary loss", the term "actual
pecuniary loss" shall mean, in addition to any other provisions contained
herein relating to Landlord's damages upon default, payments of Rent, including
interest at the Interest Rate on all unpaid Rent, all attorneys' fees and
related costs of Landlord incurred in connection with any default of Tenant and
in connection with Tenant's bankruptcy proceedings.
E. Any person or entity to which this Lease is assigned pursuant
to the provisions of the Bankruptcy Code shall be deemed, without further act
or deed, to have assumed all of the obligations arising under this Lease and
each of the conditions and provisions hereof on and after the date of such
assignment. Any such assignee shall, upon the request of Landlord, forthwith
execute and deliver to Landlord an instrument, in form and substance acceptable
to Landlord, confirming such assumption.
F. Notwithstanding the foregoing, to the extent allowed by law,
this Lease shall not be assigned or assignable by voluntary or involuntary
bankruptcy, insolvency or reorganization proceedings, and in no event shall
this Lease or any rights or privileges
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hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
Section 16.03. Assignment by Landlord. The term "Landlord", as used in this
Lease, so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or owners, at
the time in question, of the fee title to, or a lessee's interest in a ground
lease of, the Project. In the event of any transfer, assignment or other
conveyance or transfers of any such title or interest, Landlord herein named
(and in case of any subsequent transfers or conveyances, the then grantor)
shall be automatically freed and relieved from and after the date of such
transfer, assignment or conveyance of all liability as respects the performance
of any covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed and, without further agreement, the transferee of
such title or interest shall be deemed to have assumed and agreed to observe
and perform any and all obligations of Landlord hereunder, during its
ownership of the Project. Landlord may transfer its interest in the Lease or
the Project without the consent of Tenant and such transfer or subsequent
transfer shall not be deemed a violation on Landlord's part of any of the terms
of this Lease.
ARTICLE XVII
FINANCING AND SUBORDINATION
Section 17.01. Subordination.
A. This Lease and all rights of Tenant hereunder are subject and
subordinate to all current and future underlying leases, deeds of trust,
mortgages or other security instruments covering any portion of the Project or
any interest of Landlord therein, as the same may be amended from time to time.
This provision is declared by Landlord and Tenant to be self-operative and no
further instrument shall be required to effect such subordination of this
Lease. Upon demand, however, Tenant shall execute, acknowledge, and deliver to
Landlord any further instruments evidencing such subordination as Landlord, and
any mortgagee or lessor of Landlord shall reasonably require, and if Tenant
fails to so execute, acknowledge and deliver such instruments within ten (10)
days after the Landlord's request, Landlord is hereby empowered to do so in
Tenant's name and on Tenant's behalf; Tenant hereby irrevocably appoints
Landlord as Tenant's agent and attorney-in-fact for the
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purpose of executing, acknowledging, and delivering any such instruments.
B. Notwithstanding anything contained in paragraph A above to the
contrary, Landlord shall obtain from its current mortgagee, at Tenant's sole
cost and expense, a subordination, attornment and non-disturbance agreement on
such mortgagee's standard form of agreement, in form reasonably acceptable to
Tenant. In addition, upon Tenant's written request, Landlord shall endeavor in
good faith to obtain a non-disturbance agreement (on such mortgagee's standard
form) from any future mortgagee or beneficiary of any deed of trust with
respect to the Premises, provided that the same can be obtained at no cost or
liability to Landlord. Landlord shall have no liability to Tenant, however, in
the event that Landlord is unable to obtain such an agreement after having
endeavored in good faith to do so.
Section 17.02. Subordination by Landlord's Mortgagee or Lessor; Attornment.
A. Notwithstanding the generality of the foregoing provisions of
Section 17.01, any mortgagee or lessor of Landlord shall have the right at any
time to subordinate any such deed of trust or mortgage or underlying lease to
this Lease, or to any of the provisions hereof, on such terms and subject to
such conditions as such mortgagee or lessor of Landlord may consider
appropriate in its discretion.
B. At any time, before or after any transfer of Landlord's
interest in the Project, Tenant shall, upon request of such transferee
("Successor Landlord"), automatically attorn to and become the Tenant (or if
the Premises has been validly subleased, the subtenant) of the Successor
Landlord, without change in the terms or other provisions of this Lease (or, in
the case of a permitted sublease, without change in this Lease or in the
instrument setting forth the terms of such sublease); provided, however, that
the Successor Landlord shall not be bound by any modification to this Lease
without the consent of the Successor Landlord or by any payment made by Tenant
of Rent for more than one (1) month in advance. This agreement of Tenant to
attorn to a Successor Landlord shall survive any foreclosure sale, trustee's
sale, conveyance in lieu thereof or termination of any underlying lease. Tenant
shall upon demand at any time, before or after any such foreclosure or
termination, execute, acknowledge, and deliver to the Successor Landlord any
written instruments evidencing such attornment as such Successor Landlord may
reasonably require.
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Section 17.03. Notice to Lender; Cure by Lender. In the event of any default by
Landlord hereunder, Tenant shall, prior to taking any action to remedy such
default or to cancel this Lease or any other action in connection therewith,
send to The Prudential Insurance Company of America, c/o Prudential Capital
Group, One Ravinia Drive, Suite 1400, Atlanta, GA 30346 (or to any subsequent
lender of which Tenant has notice) (the "Mortgagee"), by certified mail, return
receipt requested, a notice specifying the default by Landlord, whereupon such
Mortgagee shall have the right, but not the obligation, to cure such default on
behalf of Landlord, which cure shall be accepted by Tenant, and such Mortgagee
shall be afforded a reasonable period of time to do so. Tenant shall have no
right to take any other action as a result of Landlord's default unless and
until Tenant complies with the provisions of this paragraph.
ARTICLE XVIII
DEFAULT OF TENANT
Section 18.01. Defaults. The following shall constitute "Defaults" by Tenant
under the Lease:
A. Subject to the terms of the Bankruptcy Code, if Tenant shall
(i) make an assignment for the benefit of creditors, (ii) file or acquiesce in
a petition in any court (whether or not pursuant to any statute of the United
States or of any state) in any bankruptcy, reorganization, composition,
extension, arrangement or insolvency proceedings, or (iii) make an application
in any such proceedings for or acquiesce in the appointment of a trustee or
receiver for it or all or any portion of its property;
B. Subject to the terms of the Bankruptcy Code, if any petition
shall be filed against Tenant (whether or not pursuant to any statute of the
United States or any state) in any bankruptcy, reorganization, composition,
extension, arrangement or insolvency proceedings and (i) Tenant shall
thereafter be adjudicated bankrupt, or (ii) such petition shall be approved by
any such court, or (iii) such proceedings shall not be dismissed, discontinued
or vacated within thirty (30) days after such petition is filed;
C. Subject to the terms of the Bankruptcy Code, if, in any
proceeding, pursuant to the application of any party other than Tenant, in
which Tenant acquiesces, a receiver or trustee shall be
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appointed for Tenant for all or any portion of the property of Tenant and such
receivership or trusteeship shall not be set aside within thirty (30) days
after such appointment;
D. Intentionally deleted.
E. Intentionally deleted.
F. If any execution, levy, attachment or other process of law
shall occur upon Tenant's interest in the Premises or upon a substantial amount
of Tenant's goods or fixtures;
G. If Tenant violates the provisions of Article XVI by attempting
to make an unpermitted assignment, transfer or sublease;
H. If Tenant shall fail to pay any installment of Rent when the
same shall become due and payable, and such failure shall continue for five
(5) days after written notice thereof;
I. If Tenant permits to be done anything which creates a lien
upon the leasehold or the Premises and fails to cause such lien to be
discharged, or bond such lien or post such security with Landlord as is
required by Section 10.02;
J. If Tenant fails to maintain in force all policies of insurance
required. by this Lease, and such failure continues twenty-four (24) hours
after verbal notice thereof;
K. If Tenant fails to provide Landlord with the financial
statements or the estoppel certificates within the time period referenced in
Sections 22.16 and 22.17, respectively, and such failure continues five (5)
days after written notice thereof;
L. If Tenant shall fail to perform or observe any other term of
this Lease (not hereinbefore specifically referred to) on the part of Tenant to
be performed or observed, and such failure shall continue for more than fifteen
(15) days after written notice from Landlord (except that such fifteen (15) day
period shall be extended for such additional period of time as may reasonably
be necessary to cure such Default (subject to a maximum extension of thirty
(30) days), if such Default, by its nature, cannot be cured within such
fifteen (15) day period, provided that Tenant commences to cure such Default
within such fifteen (15) day period and is, at all times thereafter, in the
process of diligently curing the same and in any event cures such Default prior
to the time a failure to cure could cause the Landlord to be subject to
prosecution for violation of any law, rule, ordinance or regulation or causes,
or
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could cause a default under any deed of trust, mortgage, underlying lease,
tenant lease or other agreement applicable to the Project); or
M. If Tenant shall have failed to perform any of its obligations
under this Lease (including without limitation those specifically listed in
this Section 18.01(A)-(L)) three or more times within any eighteen (18) month
period, notwithstanding any subsequent cure of such failure as provided in this
Section 18.01.
Section 18.02. Landlord's Remedies. Should a Default occur under this Lease,
Landlord may pursue any or all of the following:
A. Landlord shall have the right, by written notice to Tenant, to
declare this Lease terminated and the Term ended, in which event (i) Tenant
shall vacate and surrender the Premises; (ii) Tenant shall immediately pay to
Landlord the sum of (a) all Rent accrued through the date of termination or
recovery of possession by Landlord, whichever is later; plus (b) the amount of
Rent reserved in this Lease for the remainder of the stated term over the then
reasonable rental value of the Premises for the remainder of the stated term;
and (iii) this Lease shall automatically expire.
B. Landlord shall have the right to bring a special proceeding to
recover possession of the Premises from Tenant.
C. Landlord shall have the right, without notice, to reenter the
Premises and dispossess, by summary proceedings, self help or otherwise, Tenant
and any other occupant(s) of the Premises, and Tenant shall have no further
claim or right hereunder.
D. Landlord may exercise its rights under Section 18.02 B or C
above with or without terminating the Lease, and in no event shall any such
exercise be construed as an election to terminate this Lease or operate to
release Tenant from any of its obligations for the remainder of the Term of
this Lease, or gives rise to any claim for trespass.
E. If Landlord exercises its rights under Section 18.02 (B) or
(C) above, Landlord may remove all persons from the Premises, and Landlord may
treat all property as abandoned and dispose of same in accordance with Section
20.02 of this Lease.
F. If Landlord exercises its rights under Section 18.02 B or C
above and elects not to terminate the Lease, it may from time to
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time, make such alterations and repairs as necessary in order to relet the
Premises, and thereafter relet the Premises or any part thereof for such rent
and upon such other terms and conditions as Landlord may determine advisable in
its sole discretion. Upon each such reletting all rentals and other sums
received by Landlord from such reletting shall be applied, first, to the
payment of any costs and expenses of such reletting; second, to the payment of
any indebtedness other than Rent due hereunder from Tenant to Landlord; third,
to the payment of Rent due and unpaid hereunder; and the residue, if any, shall
be applied in payment of the current month's rent. If such rentals and other
sums received from such reletting during any month are less than the amounts
due pursuant to the foregoing schedule for application of proceeds, Tenant
shall pay such deficiency to Landlord; if such rentals and other sums shall be
more, Tenant shall have no right to, and shall receive no credit for, the
excess. Such deficiency shall be calculated and paid monthly. Notwithstanding
any such reletting without termination, Landlord may at any time elect to
terminate this Lease for such previous breach. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedies it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the Premises, reasonable attorneys'
fees, and including the worth at the time of such termination of the excess, if
any, of the amount of Rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Premises for the
remainder of the stated term, all of which amounts shall be immediately due and
payable from Tenant to Landlord. The failure or refusal of Landlord to relet
the Premises shall not affect Tenant's liability.
G. Any damage or loss of rent sustained by Landlord may be
recovered by Landlord, at Landlord's option, at the time of the reletting or
termination, in a single action or in separate actions, from time to time, as
said loss of rents or damages shall accrue, or in a single proceeding deferred
until the expiration of the Term of this Lease (in which event Tenant hereby
agrees that the cause of action shall not be deemed to have accrued until the
date of expiration of said Term). In case suit shall be brought for recovery of
the Premises, for the recovery of Rent, or because of the breach of any other
covenant, and a breach shall be established, Tenant shall pay to Landlord all
expenses incurred therefor, including actual but not unreasonable attorneys'
fees.
H. To the extent permitted by law, Tenant waives notice of
re-entry or institution of legal proceedings to that end and any right of
redemption, re-entry or repossession including, without limitation, any rights
under Va. Code Section 55-247.
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Section 18.03. Waiver of Trial by Jury. Tenant and Landlord each hereby waive
all right to trial by jury in any matter arising out of or in any way connected
with this Lease.
Section 18.04. Injunction. In addition to the other remedies provided in this
Lease, and anything contained herein to the contrary notwithstanding, Landlord
shall be entitled to restraint by injunction of any Default or violation, or
attempted or threatened Default or violation, of any of the terms, covenants,
conditions or other provisions of this Lease.
Section 18.05. Landlord's Right to Perform for Account of Tenant. If Tenant
shall default hereunder, Landlord shall have the right, at its sole option, to
cure said default for the account and at the expense of Tenant. Landlord may
exercise its right to cure hereunder immediately and without any notice that
may be required under any other provision of this Lease. Tenant agrees to pay,
with interest at the Interest Rate on demand, to Landlord the amount so paid,
expended, or incurred by Landlord and any and all expenses of Landlord,
including without limitation attorneys' fees incurred in connection with such
default, and all of the same shall be deemed to be Additional Rent.
Section 18.06. Additional Remedies and Waivers. With respect to the rights
and remedies of, and waivers by, Landlord (i) the rights and remedies of
Landlord set forth herein shall be in addition to any other right and remedy
now or hereafter available at law or in equity; (ii) all such rights and
remedies shall be cumulative and not exclusive of each other; (iii) Landlord
may exercise such rights and remedies at such times, in such order, to such
extent, and as often as Landlord deems advisable, without regard to whether the
exercise of one right or remedy precedes, concurs with or succeeds the exercise
of another; (iv) a single or partial exercise of a right or remedy shall not
preclude (a) a further exercise thereof, or (b) the exercise of another right
or remedy, from time to time; and (v) no waiver of a Default shall be effective
unless it is in writing signed by Landlord.
ARTICLE XIX
ACCESS BY LANDLORD
Landlord may, during any reasonable time or times, upon prior notice to Tenant,
enter upon the Premises, any portion thereof, and any appurtenance thereto
(with workers and materials, if required)
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for the purpose of: (i) inspecting the same; (ii) making repairs,
replacements or alterations (including alterations of building systems and
components serving other portions of the Building); or (iii) showing the
Premises to prospective purchasers or, during the last twelve (12) months of
the Term, lessees. No such entry by Landlord shall constitute an actual or
constructive eviction of Tenant or give rise to any liability to Tenant.
ARTICLE XX
SURRENDER; HOLDING OVER
Section 20.01. Surrender. Upon the expiration or earlier termination of this
Lease, or upon re-entry by Landlord without terminating this Lease pursuant to
Article XVIII, Tenant shall peacefully vacate and surrender the Premises to
Landlord in good order, broom clean and in the same condition as at the
beginning of the Term, reasonable wear and tear excepted. Tenant shall also
remove its trade fixtures, furniture and other personal property from the
Premises along with any leasehold improvements or other additions which Tenant
is required to remove pursuant to Section 10.03.
Section 20.02. Personal Property. If Tenant fails to timely remove its property
in accordance with Section 20.01 above, Landlord shall have the right, on the
fifth (5th) day after Landlord's delivery of written notice to Tenant, to deem
such property abandoned by Tenant. (Notwithstanding Section 18.01 of the Lease,
Tenant shall not be entitled to any further notice or cure period.) Landlord
may thereafter remove or otherwise deal with the abandoned property in a
commercially reasonable manner at Tenant's sole cost and expense and Landlord
shall have no liability to Tenant with respect to such abandoned property.
Tenant specifically acknowledges and agrees that in no event shall Landlord be
considered a bailee as to such property. Tenant shall and hereby agrees to
indemnify Landlord against any loss, cost, expense, claim, cause of action or
the like arising in connection with Landlord's proper exercise of its rights
under this Section 20.02 including, without limitation, any claim by a third
party for conversion or trespass as to chattels. Notwithstanding anything to
the contrary contained herein, this Section 20.02 shall not apply to Tenant's
personal property encumbered by a security interest to which Landlord has given
its prior written consent.
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Section 20.03. Holding Over. If Tenant shall hold possession of the Premises
after the expiration or sooner termination of the Term of this Lease, Landlord
shall have the right, at its sole option and discretion, to terminate the
nature of Tenant's possession of the Premises after the end of the term of this
Lease, in accordance with the following provisions:
A. If Landlord so desires, Tenant shall be deemed to be occupying
the Premises as a tenant from month-to-month, at a monthly rental equal to the
sum of (i) the monthly installment of Base Rent payable during the last month
of the Term, and (ii) one-twelfth (1/12) of the monthly installments of
Tenant's Operating Costs Payment payable during the last month of the Term,
subject to all the other conditions, provisions and obligations of this Lease
insofar as the same are applicable to a month-to-month tenancy;
B. If Landlord so desires, Tenant may be treated as a trespasser,
and Landlord shall be entitled to the benefit of all laws relating to the
speedy recovery of the possession of the Premises; or
C. If Landlord so desires, Tenant shall be deemed to be occupying
the Premises as a hold-over tenant, at a monthly rental equal to one hundred
fifty percent (150%) of the sum of (i) the monthly installment of Base Rent
payable during the last month of the Term, and (ii) one-twelfth (1/12) of the
monthly installments of Tenant's Operating Costs Payment payable during the
last month of the Term, subject to all the other conditions, provisions and
obligations of this Lease insofar as the same are applicable to a hold-over
tenancy
D. Unless Landlord notifies Tenant in writing to the contrary
within thirty (30) days after the expiration or sooner termination of this
Lease, the provisions of paragraph A above shall apply and this Lease shall
automatically become a month-to-month Lease, and Tenant's possession hereunder
a month-to-month tenancy, without notice from Landlord.
Section 20.04. Survival. The terms of this Article XX shall survive the
expiration or earlier termination of this Lease.
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ARTICLE XXI
NOTICES
All notices, consents, demands, requests, documents, or other communications
(other than payment of Rent) required or permitted hereunder (collectively,
"notices") shall be deemed given, whether actually received or not, when
dispatched via hand delivery or delivery by air express courier (with signed
receipts) to the other party, or on the third business day after deposit in the
United States Mail, postage prepaid, certified or registered, return receipt
requested, except for notice of change of address which shall be deemed given
only upon actual receipt. The addresses of the parties for notices shall be
those set forth in the Basic Lease Information, or any such other addresses
subsequently specified by each party in notices given pursuant to this Article.
ARTICLE XXII
MISCELLANEOUS
Section 22.01. Professional Fees. To the extent permitted by law, in any action
or proceeding brought by either party against the other under this Lease, the
substantially prevailing party shall be entitled to recover from the other
party its actual professional fees such as appraisers', accountants' and
attorneys' fees, investigation costs, and other legal expenses and court costs
incurred by the prevailing party in such action or proceeding.
Section 22.02. No Partnership. Nothing contained herein shall be deemed or
construed as creating the relationship of principal and agent, partnership,
joint venture or any other relationship between the parties hereto except
Landlord and Tenant.
Section 22.03. Brokerage. Landlord and Tenant each warrant and represent to the
other that there was no broker or agent on Landlord's or Tenant's behalf
instrumental in consummating this Lease, other than Broker and WEST*GROUP, Inc.
(or its successor, WEST*GROUP MANAGEMENT LLC) ("WEST*GROUP"), whose commissions
shall be paid in full by Landlord in accordance with separate agreements, and
that no conversations or prior negotiations were had by Landlord or Tenant with
any broker or agent (other than Broker and WEST*GROUP) on Landlord's or
Tenant's behalf concerning the renting of the Premises. Landlord and Tenant
each agree to indemnify and
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hold the other harmless against any claims for brokerage or other commissions
arising by reason of a breach by Landlord or Tenant of the aforesaid
representation and warranty.
Section 22.04. Interpretation.
A. Every term, condition, agreement or provision contained in
this Lease that imposes an obligation on Tenant shall be deemed to be also a
covenant by Tenant.
B. Wherever it is provided herein that a party "may" perform an
act or do anything, it shall be construed that that party may, but shall not be
obligated to, so perform or so do such act or thing.
C. This Lease may be executed in several counterparts and the
counterparts shall constitute but one and the same instrument.
D. Any party may act under this Lease by its attorney or agent
appointed by an instrument executed by such party.
E. Wherever a requirement is imposed on any party hereto, it
shall be deemed that such party shall be required to perform such requirement
at its sole cost and expense unless it is specifically otherwise provided
herein.
F. Any restriction on or requirement imposed upon Tenant
hereunder shall be deemed to extend to Tenant's guarantors, Tenant's
sublessees, Tenant's assignees and Tenant's invitees, and it shall be Tenant's
obligation to cause the foregoing persons to comply with such restriction or
requirement.
G. The words "re-enter" and "re-entry" as used herein shall not
be restricted to their technical legal meaning.
Section 22.05. Recording. Neither this Lease nor any memorandum hereof may be
recorded among the land records of the jurisdiction in which the Project is
located without the express written consent of Landlord which consent may be
granted or withheld in Landlord's sole and absolute discretion.
Section 22.06. Severability. Every agreement contained in this Lease is, and
shall be construed as, a separate and independent agreement. If any term of
this Lease or the application thereof to any person or circumstance shall be
invalid or unenforceable, the remaining agreements contained in this Lease
shall not be affected.
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Section 22.07. Non-Merger. There shall be no merger of this Lease with any
underlying leasehold interest or the fee estate in the Project or any part
thereof by reason of the fact that the same person may acquire or hold,
directly or indirectly, this Lease or any interests in this Lease as well as
any underlying leasehold interest or fee estate in the Project or any interest
in such fee estate.
Section 22.08. Landlord's Liability. Anything contained in this Lease to the
contrary notwithstanding, Tenant agrees that Tenant shall look solely to the
estate and property of Landlord in the Project for the collection of any
judgment or other judicial process requiring the payment of money by Landlord
for any default or breach by Landlord under this Lease, subject, however, to
the prior rights of any mortgagee or lessor of the Project. No other assets of
Landlord or any partners, shareholders, or other principals of Landlord shall
be subject to levy, execution or other judicial process for the satisfaction of
Tenant's claim.
Section 22.09. Force Majeure. Whenever a period of time is herein prescribed
for action to be taken by Landlord, Landlord shall not be liable or responsible
for, and there shall be excluded from the computation for any such period of
time, any delays due to force majeure, which term shall include strikes, riots,
acts of God, shortages of labor or materials, war, governmental approvals,
laws, regulations, or restrictions, or any cause of any kind whatsoever which
is beyond the reasonable control of Landlord.
Section 22.10. Headings. The article headings contained in this Lease are for
convenience only and shall not enlarge or limit the scope or meaning of the
various and several articles hereof. Words in the singular number shall be held
to include the plural, unless the context otherwise requires.
Section 22.11. Successors and Assigns. If there be more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several, and all
agreements and covenants herein contained shall be binding upon the respective
heirs, personal representatives, and successors and assigns of the parties
hereto. Notwithstanding the foregoing, nothing contained in this Section 22.11
shall be deemed to override Article XVI.
Section 22.12. Entire Agreement; Amendments. This Lease and the Exhibits and
Riders attached hereto set forth the entire agreement between the parties. No
amendment or modification of this Lease shall be binding or valid unless
expressed in a writing executed by both parties hereto.
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Section 22.13. Governing Law. This Lease shall be governed by and construed
under the laws of the Commonwealth of Virginia, without reference to its
conflicts of laws principles. Tenant hereby consents to jurisdiction in the
Circuit Court for the City of Alexandria, Virginia or in any other court in the
Commonwealth of Virginia selected by Landlord if any suit is brought relating
to this Lease. Should any provision of this Lease require judicial
interpretation, Landlord and Tenant hereby agree and stipulate that the court
interpreting or considering same shall not apply the presumption that the terms
hereof shall be more strictly construed against a party by reason of any rule
or conclusion that a document should be construed more strictly against the
party who itself or through its agents prepared the same, it being agreed that
all parties hereto have participated in the preparation of this Lease and that
each party had full opportunity to consult legal counsel of its choice before
the execution of this Lease.
Section 22.14. Time of Essence. Time is of the essence in this Lease.
Section 22.15. Acceptance by Landlord. The submission of this Lease to Tenant
shall not be construed as an offer and Tenant shall not have any rights with
respect thereto unless and until Landlord executes a copy of this Lease and
delivers the same to Tenant.
Section 22.16. Financial Statements. If Tenant is in Default, or if so
requested by Landlord's mortgagee, or a prospective mortgagee or purchaser of
the Project, or a prospective partner of Landlord, Tenant shall, upon ten (10)
days prior written notice from Landlord, provide Landlord with a current annual
financial statement and annual financial statements of the two (2) years prior
to the current financial statement year. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant. If it is not the normal practice of Tenant to prepare audited
statements, then the unaudited statements shall be certified to by the Tenant's
chief financial officer. Landlord agrees to keep such financial statements
confidential, unless such information is requested by, or Landlord deems it
necessary or desirable to provide such information to, a mortgagee, prospective
mortgagee, or prospective purchaser of the Building, or a prospective equity
partner of Landlord. Landlord acknowledges that if Tenant becomes a publicly
owned company, the publicly available reports on the Tenant (e.g., 10K and 1OQ
reports) shall constitute the financial statements referred to herein.
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<PAGE> 45
Section 22.17. Estoppel Certificates. Tenant shall, from time to time, within
ten (10) days after request from Landlord, or from any mortgagee or beneficiary
of any deed of trust of Landlord (a "mortgagee") or lessor of Landlord, or
entity which may be a prospective purchaser of the property of which the
Premises are a part, execute, acknowledge and deliver in recordable form a
certificate certifying, to the extent true, that this Lease is in full force
and effect and unmodified (or, if there have been modifications, that the same
is in full force and effect as modified and stating the modifications); that
the Term has commenced and the full amount of Rent then accruing hereunder; the
dates to which the Rent has been paid; that Tenant has accepted possession of
the Premises and that any improvements required by the terms of this Lease to
be made by Landlord have been completed to the satisfaction of Tenant; the
amount, if any, that Tenant has paid to Landlord as a Security Deposit; that no
Rent under this Lease has been paid more than thirty (30) days in advance of
its due date; that the address for notices to be sent to Tenant is as set
forth in this Lease (or has been changed by notice duly given and is as set
forth in the certificate); that Tenant, as of the date of such certificate, has
no charge, lien, or claim of offset under this Lease or otherwise against Rent
or other charges due or to become due hereunder; that, to the knowledge of
Tenant, Landlord is not then in default under the terms of this Lease; that, if
Landlord has assigned this Lease as collateral for a loan, and informed Tenant
of the identity of the mortgagee, Tenant will, upon written request of the
mortgagee, pay Rent directly to such mortgagee; and such other matters as may
be reasonably requested by Landlord or any mortgagee, lessor or prospective
purchaser of Landlord. Any such certificate may be relied upon by Landlord, or
any mortgagee, lessor or prospective purchaser of Landlord. In the event that
Tenant fails to provide Landlord with an estoppel certificate as described and
within the time period provided hereinabove, Landlord is hereby appointed
Tenant's attorney-in-fact for the purpose of executing such estoppel
certificate and delivering the same to any mortgagee, lessor or prospective
purchaser of Landlord, which appointment is coupled with an interest and is
therefore irrevocable.
Section 22.18. Waiver of Redemption. Tenant hereby expressly waives (to the
extent legally permissible), for itself and all persons claiming by, through,
or under it, any right of redemption or for the restoration of the operation of
this Lease under any present or future law, including, without limitation, as
provided in Va. Code Section 55-247, in case Tenant shall ever be in default
hereunder or shall be dispossessed for any cause, or in case Landlord shall
obtain possession of the Premises as herein
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provided. Notwithstanding anything to the contrary in the Lease, the Premises
shall not be used in whole or in part for residential purposes, and shall not
be redeemable under any provision of law now or hereafter in effect.
Section 22.19. Common Areas. "Common Areas" shall mean those certain areas and
facilities of the Building which are from time to time provided by Landlord for
the use of tenants of the Project and their employees, clients, customers,
licensees and invitees or for use by the public.
Section 22.20. ERISA Covenant. Tenant represents and warrants to Landlord, and
any mortgagee, beneficiary of any deed of trust or other individual or entity
having a security interest in the Project, or a portion thereof (a
"mortgagee"), that it is not a pension plan, employee benefit fund or
government plan subject to regulation as such by any Federal or state laws,
rules, regulations or orders, and specifically that (i) it is not a pension
fund, employee benefit plan or other fund subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) it
is not a "government plan" as defined in Section 3(32) of ERISA, (iii) it is
not a "party in interest" (as defined in ERISA) with respect to any of the
above, (iv) no source of its funds constitutes "plan assets" as defined in
ERISA and within the meaning of 29 C.F.R. Section 2510.3-101, or assets of any
government plan within the meaning of Section 3(32) of ERISA, and (v) it is not
a "party in interest" with respect to The Prudential Insurance Company of
America. Tenant covenants that it will maintain the status throughout the Term,
except as may be consented to by Landlord from time to time, in Landlord's sole
and absolute discretion, and will re-certify the foregoing to Landlord within
ten (10) days after Landlord's written request. Tenant hereby agrees to
indemnify, defend and hold Landlord and any and all mortgagees (past, present
or future) harmless from and against any and all claims, suits, actions,
proceedings, liability, damages, penalties, losses, costs and expenses (and,
without limitation, court costs and attorneys' fees) which they, or any of them
may suffer or incur as a result of a breach of the foregoing representations,
warranties and covenants. Such a breach shall, in addition, constitute a
Default.
Section 22.21. Authority of Tenant. If Tenant signs as a corporation, execution
hereof shall constitute a representation and warranty by Tenant that Tenant is
a duly organized and existing corporation, that Tenant has been and is
qualified to do business in the Commonwealth of Virginia and in good standing
with the Commonwealth of Virginia, that the corporation has full right and
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<PAGE> 47
authority to enter into this Lease, and that all persons signing on behalf of
the corporation were authorized to do so by appropriate corporate action. If
Tenant signs as a partnership, trust, or other legal entity, execution hereof
shall constitute a representation and warranty by Tenant that Tenant has
complied with all applicable laws, rules and governmental regulations relative
to Tenant's right to do business in the Commonwealth of Virginia, that such
entity has the full right and authority to enter into this Lease, and that all
persons signing on behalf of Tenant were authorized to do so by any and all
necessary or appropriate partnership, trust or other actions.
Section 22.22. Landlord's Failure to Perform. If Landlord shall fail to perform
any of its obligations under this Lease, and such failure materially adversely
affects Tenant's ability to use or occupy the Premises in accordance with this
Lease, then Tenant may (but shall not be obligated to), upon the continuance of
such failure on Landlord's part for thirty (30) days after Landlord's receipt
of notice from Tenant specifying the failure (or, in the case of any such
failure which cannot with due diligence be cured within thirty (30) days,
within such additional period, if any, as may be reasonably required by
Landlord to cure such failure with due diligence), and without waiving or
releasing Landlord from any obligation, perform such obligation, and all
necessary costs incurred by Tenant in performing such obligation shall be paid
by Landlord to Tenant on demand, and, if not so paid by Landlord, Tenant shall
have the right to pursue any legal remedies it may have to collect payment, but
shall not be entitled to offset such payment against Rent thereafter payable
under this Lease. Notwithstanding the foregoing, Tenant's right to perform any
obligations of Landlord to repair or maintain the Premises shall be limited to
those repairs or maintenance activities which occur wholly within, and solely
affect, the Premises, and under no circumstances shall Tenant have the right to
repair or maintain any facilities, systems or structures which extend beyond,
or affect areas of the Building other than, the Premises.
ARTICLE XXIII
HAZARDOUS MATERIALS
Section 23.01. Environmental Requirements. Tenant's use and occupancy of the
Premises shall at all times be in strict compliance with any and all federal,
state and local statutes, laws, rules, regulations, orders, ordinances and
standards, as they
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<PAGE> 48
may now or hereafter exist, relating in any way to the protection of the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. Sections 9601,
et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Sections 6901, et seq. ("RCRA"), the Toxic Substances Control Act, as
amended, 15 U.S.C. Sections 2601, et seq., the Clean Water Act, as amended, 33
U.S.C. Sections 1251, et seq., the Clean Air Act, as amended, 42 U.S.C.
Sections 7401, et seq., and analogous state statutes (collectively,
"Environmental Statutes")
Section 23.02. Clean-Up. In the event of any Release (as hereinafter defined)
or threat of a Release or the presence of any Hazardous Substance (as
hereinafter defined) affecting the Premises or surrounding areas, Tenant shall
immediately notify Landlord in writing thereof and Tenant shall immediately
take all measures necessary to contain, remove and dispose off the Premises, or
surrounding areas, all such materials present or released or contaminated by
the Release and remedy and mitigate all threats to public health or the
environment relating to such presence or Release or threat of Release. If
Tenant shall fail to take the measures described above or fail to comply with
any of the requirements of any Environmental Statutes, Landlord may, at its
election, but without the obligation to do so, give such notice and/or cause
such work to be performed at the Premises or surrounding areas, as applicable,
and/or take any and all other actions as Landlord shall deem necessary to
restore the Premises or surrounding areas, as applicable, to the original
condition existing as of the date of this Lease. Such actions by Landlord do
not affect Tenant's obligations under the Lease. This entire Article XXIII
shall survive termination or the Expiration Date of the Lease.
Section 23.03. Indemnification. Tenant shall, at all times, indemnify, defend
and hold harmless Landlord against and from any and all claims, liens, suits,
actions, debts, damages, costs, losses, liabilities, obligations, judgments,
and expenses (including, without limitation, court costs and attorneys' fees),
of any nature whatsoever, arising from or relating to (i) compliance with any
Environmental Statutes; (ii) a Release of any Hazardous Substance; (iii) the
threat of a Release of any Hazardous Substance; or (iv) the presence of any
Hazardous Substance affecting the Premises or surrounding areas, including,
without limitation, any loss of value of, loss of use of, or loss of income
from the Premises as a result of any of the foregoing. Tenant's obligations
under this Lease shall arise whether or not any
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<PAGE> 49
governmental authority or individual has taken or threatened any action in
connection with the presence of any Hazardous Substance.
Section 23.04. Definitions. As used herein, the term "Hazardous Substance"
shall mean any material that is or contains "hazardous substances" as defined
pursuant to CERCLA or the Virginia hazardous waste management regulations or
"petroleum" as defined pursuant to RCPA or other material or substance that
requires special handling by Federal, state or local law, or industry practice,
without regard to the quantity or location of such material. The term Hazardous
Substances shall include building materials and building components including,
without limitation, asbestos contained in or comprising building materials or
building components. The term "Release" shall have the same meaning as set
forth in Section 101(22) of CERCLA.
Section 23.05. Operations. Tenant will not engage in operations during the Term
or any extension or renewal thereof which involve the generation,
manufacturing, refining, transportation, treatment, storage, disposal or
handling of any Hazardous Substance, except that office equipment and
cleaning solutions that are customarily found in first-class office buildings
and which are or contain a Hazardous Substance may be used, generated, handled
or stored on the Premises, provided such is incident to and reasonably
necessary for the operation and maintenance of the Premises as permitted
pursuant to the terms of this Lease and is in compliance with applicable laws.
Tenant shall not cause or allow a Release of a Hazardous Substance or solid
waste in, on or under the Project.
Section 23.06. Property Transfer. If Tenant's use of any portion of the Project
is for any purpose that results in the requirement to obtain an approval of any
kind by any governmental agency administering Environmental Statutes (i) in
order to: (aa) change the form or substance of part or all of the ownership of
the Project or the assets thereon by any means or under any circumstances, or
(bb) transfer the ownership of part or all of the Project or the assets thereon
by any means or under any circumstances, or (ii) due to: (xx) cessation of part
or all of the operations on the Project for any reason, or (yy) a change in the
operations on the Project to a use that does not require special approval,
Tenant shall, in compliance with all applicable requirements, and, if relevant,
prior to the expiration or termination of this Lease or prior to assigning or
transferring an interest in the Project, at Tenant's sole cost and expense,
apply for and obtain for Landlord the required approval and perform all
remedial actions necessitated in whole or part by Tenant's activities at the
Project. Tenant and Landlord shall cooperate as
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<PAGE> 50
necessary to prepare any such application and represent and warrant that any
such application made pursuant to this subsection shall be true and complete to
the best knowledge, information and belief of each. If such a governmental
approval requirement exists, but Tenant believes that it is not subject to such
requirement, Tenant, at its sole cost and expense, shall obtain for Landlord a
statement from the applicable governmental agency that the Project is not
subject to such requirement.
Section 23.07. Inspection. Tenant agrees to permit Landlord and its authorized
representatives to enter, inspect and assess the Premises at reasonable times
for the purpose of determining Tenant's compliance with the provisions of this
section of the Lease. Such inspections and assessments may include obtaining
samples and performing tests of building materials, soil, surface water,
groundwater or other media.
Section 23.08. Asbestos. The Tenant shall not install, apply, or otherwise use
or introduce asbestos or any substance containing asbestos in or about the
Premises. In the event that asbestos is located in the Building, Tenant shall
comply with any Operations and Maintenance Program adopted by Landlord in
connection therewith.
IN WITNESS WHEREOF, Landlord and Tenant have set their signatures and
seals as of the date first above written.
LANDLORD:
WEST*GROUP PROPERTIES LLC
By: /s/ G.T. HALPIN
----------------------------
G.T. Halpin, President
TENANT:
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By: /s/ MICHAEL H. HEATH
----------------------------
NAME: MICHAEL H. HEATH 11/10/97
--------------------------
TITLE: PRESIDENT
-------------------------
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<PAGE> 1
EXHIBIT 10.2
ONLINE RESOURCES, LTD.
STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 Purpose.
Online Resources, Ltd.'s 1989 Stock Option Plan (the "Plan")
is established to create additional incentive for employees, consultants and
directors of Online Resources, Ltd. (the "Company") to promote the financial
success and progress of the Company.
1.2 Administration.
(a) The Plan shall be administered by the Company's Board
of Directors (the "Board") and/or by a duly appointed committee of the Board
having such powers as shall be specified by the Board. Any subsequent
references to the Board shall also mean the committee if it has been appointed.
(b) Subject to the limitations of the Plan, the Board
shall have the sole and complete authority (i) to select from the regular
full-time employees of the Company those who shall participate in the Plan
("Employee Participant" or "Employee Participants"), (ii) to select such
additional individuals who are directors or consultants of the Company and who
are determined in the discretion of the Board to perform valuable services for
the Company to participate in the Plan ("Non-Employee Participant" or
"Non-Employee Participants"), (iii) to make awards in such forms and amounts as
it shall determine, (iv) to impose such limitations, restrictions and
conditions upon such awards as it shall deem appropriate and (v) to interpret
the Plan and to adopt, amend and rescind administrative guidelines and other
rules and regulations relating to the actions necessary or advisable for the
implementation and administration of the Plan. The Board's determinations on
matters within its authority shall be conclusive and binding upon the Company
and all other persons. (Employee Participants and Non-Employee Participants are
hereinafter sometimes collectively referred to as "Participants")
(c) The Board shall act on behalf of the Corporation as
sponsor of the Plan. Except as otherwise provided in section 2.4 hereof, all
expenses associated with the Plan shall be borne by the Company.
<PAGE> 2
1.3 Eligibility.
Participants shall be selected by the Board from (i) employees
and (ii) non-employee directors or consultants who have the capacity to
contribute to the success of the Company. In making these selections and in
determining the form and amount of awards, the Board may give consideration to
the functions and responsibilities of the individual, his or her past, present
and potential contributions to the Company's profitability and sound growth,
the value of his or her services to the Company and other factors deemed
relevant by the Board.
1.4 Types of Awards under the Plan.
Awards under the Plan may be in the form of either of the
following; (i) Incentive Stock Options ("ISOs") or (ii) Nonstatutory Stock
Options ("NSOs") (hereinafter sometimes collectively referred to as "Options").
A Participant may, if otherwise eligible, be granted additional Options from
time to time.
1.5 Shares Subject to the Plan.
Shares of stock issued under the Plan may be in whole or in
part authorized and unissued or treasury shares of the Company's common stock,
with par value $0.01 per share (the "Common Stock"). The maximum number of
shares of Common Stock which may be issued for all purposes under the Plan
shall be 50,000, subject to adjustment in accordance with the provisions of
section 3.2 hereof. Any shares of Common Stock subject to an Option which for
any reason is cancelled or terminated without having been exercised shall again
be available for awards under the Plan. No fractional shares shall be issued,
and the Board shall determine the manner in which fractional share value shall
be treated.
ARTICLE II
TERMS OF THE OPTIONS
2.1 Award of Options.
Subject to the provisions of the Plan, the Board shall
determine for each Option (which need not be identical) the number of shares
for which the Option shall be granted, whether the Option is an ISO or a NSO,
the option price of the Option, the exercisability of the Option and all other
terms and conditions of the Option. In no event, however, shall any ISOs be
awarded to Non-Employee Participants. Options granted pursuant to the Plan
shall be evidenced by written agreements specifying the number of shares
covered thereby, in such form as the Board shall from time to time establish,
which agreements may
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incorporate all or any of the terms of the Plan by reference ("Stock Option
Agreements").
2.2 Option Price.
The purchase price of Common Stock purchasable under ISOs
shall be not less than the fair market value as determined by the Board of the
shares of Common Stock of the Company on the date of the granting of the ISO,
except that, as to an employee who at the time the ISO is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company within the meaning of section 422A(b)(6) of the Internal
Revenue Code of 1986, as amended (the "Code") (a "Ten Percent Owner Employee"),
the option price shall not be less than 110% of the fair market value of the
shares on the date the ISO is granted. The option price for NSOs shall be
determined by the Board and may be less than fair market value.
2.3 Term of Options.
(a) The Plan shall become effective on the date of its
adoption by the Board subject to the approval of the Plan by the holders of the
majority of the shares of stock of the Company entitled to vote at a meeting of
the stockholders, within 12 months of the effective date. No ISOs shall be
awarded pursuant to the Plan after the expiration of the ten year period
beginning on the date the Plan is adopted by the Board.
(b) The Board shall have the power to set the time or
times within which each Option shall be exercisable or the event or events upon
the occurrence of which all or a portion of each Option shall be exercisable
and the term of each Option; provided, however, that no ISO shall be
exercisable after the expiration of ten years from the date such ISO is
granted, and provided further, that no ISO granted to a Ten Percent Owner
Employee shall be exercisable after the expiration of five years from the date
such ISO is granted. Notwithstanding the foregoing, each Option granted
hereunder that is designated by the Board as a NSO shall expire not later than
ten years after the date of grant. Unless otherwise provided for by the Board
in the grant of the Option, any Option granted hereunder shall be exercisable
in full immediately upon grant.
2.4 Exercise of Options.
(a) Options may be exercised only by written notice to
the Company, stating the number of shares of Common Stock being purchased and
accompanied by payment of the option price for the number of such shares being
purchased (i) in cash, (ii) by tender to the Company of shares of the Company's
Common Stock owned by the Participant and having a fair market value not less
than the option price or (iii) by such other consideration as the Board
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<PAGE> 4
may approve at the time the Option is granted. As soon as practicable after
receipt of such notice and full payment for the shares of Common Stock being
purchased, the Company shall deliver to the Participant a certificate or
certificates representing the acquired shares of Common Stock. At the time an
Option is exercised, in whole or in part, or at any time thereafter as
requested by the Company, the Participant shall pay, or make adequate provision
for payment of, federal and state income and employment tax withholding
obligations of the Company, if any, which arise upon exercise, in whole or in
part, of the Option or upon disposition of the shares acquired by exercise of
the Option. The applicability of such withholding taxes shall be determined by
the Company in its sole discretion.
(b) Unless otherwise agreed in writing by the Board,
Options may be exercised only twice in any calendar year.
2.5 Limitations on ISOs.
(a) Under the terms of the Plan, the aggregate fair
market value (determined at the time an ISO is granted) of the shares of Common
Stock with respect to which ISOs are exercisable for the first time by an
Employee Participant during any calendar year (under all such ISO plans of the
Company) shall not exceed $100,000.
(b) An Employee Participant shall have the following
rights upon death, disability or other termination of his or her employment:
(i) If the Employee Participant's employment is
terminated by death, his or her estate or the person who acquired the right to
exercise such ISO by bequest or inheritance from the Employee Participant shall
be entitled, for a period of one year following the date of his of her death,
to exercise the ISO with respect to all or any part of the shares of Common
Stock subject thereto, to the extent the ISO had become exercisable at the time
of death.
(ii) If the Employee Participant's employment
terminates because of disability within the meaning of section 105(d)(4) of
the Code, the Employee Participant or his or her legal representative shall
have the right, for a period of one year following the date of such
termination, to exercise the ISO with respect to all or any part of the shares
of Common Stock subject thereto, to the extent the ISO had become exercisable
at the time of such termination.
(iii) If the Employee Participant's employment is
terminated for any reason other than death or disability, as provided above,
the Employee Participant holding an ISO under the Plan shall have the right,
for a period of three months following
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such termination, to exercise any ISO with respect to all or any part of the
shares of Common Stock subject thereto, to the extent that the ISO had become
exercisable at the time of such termination.
2.6 Termination of Relationship.
In the event any Non-Employee Participant terminates his or
her relationship with the Company voluntarily, without cause or upon his or her
death or disability, the Non-Employee Participant or his or her estate or the
person who acquired the right to exercise such NSO by bequest or inheritance
from the Non-Employee Participant or the Non-Employee Participant's legal
representative shall be entitled at any time prior to an expiration date
established for such NSO by the Board at the time of the award, but in no event
after its respective expiration date, to exercise any NSO held by such
Non-Employee Participant with respect to all or any part of the shares of
Common Stock subject thereto, to the extent that such NSO had become
exercisable at the time of such termination. If any Non-Employee Participant's
relationship with the Company is terminated for cause, all of the then
outstanding NSOs granted to such Non-Employee Participant shall terminate
immediately.
ARTICLE III
MISCELLANEOUS PROVISIONS
3.1 Non-Transferability.
No Option award under the Plan shall be transferable by any
Participant otherwise than by will or, if the Participant dies intestate, by
the laws of descent and distribution. All awards shall be exercisable or
received during the Participant's lifetime only by such Participant or his or
her legal representative. Any transfer contrary to this Section 3.1 will
nullify the Option involved.
3.2 Adjustments of and Changes in Stock.
In the event that the shares of Common Stock of the Company,
as presently constituted, shall be changed into or exchanged for a different
number or kind of shares of stock (as defined in section 425 of the Code) of
the Company or of another corporation (whether by reason of corporate merger,
consolidation, acquisition of property or stock separation, reorganization or
liquidation) or if the number of such shares of Common Stock shall be increased
through the payment of a stock dividend, then there shall be substituted for or
added to each share of stock theretofore appropriated or thereafter subject or
which may become subject to an Option under this Plan, the number and kind of
such shares of stock into which each outstanding
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<PAGE> 6
share of Common Stock of the Company shall be so changed, or for which each
such share shall be exchanged, or to which each such share shall be entitled,
as the case may be. Outstanding Options shall also be appropriately amended as
to price and other terms as may be necessary to reflect the foregoing events.
Upon dissolution or liquidation of the Company, or upon a reorganization,
merger or consolidation in which the Company is not the surviving corporation,
or upon the sale of substantially all of the property of the Company to another
corporation, the Plan and the Options issued thereunder shall terminate, unless
provisions are made in connection with such transaction for the assumption of
Options theretofore granted, or for the substitution for such Options of new
options of the successor corporation or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kinds of shares and the per share
exercise prices.
3.3 Stock Transfer Restrictions.
Shares of Common Stock purchased under the Plan and held by or
through any person who is an officer, director or affiliate of the Company may
not be sold or otherwise disposed of except (i) pursuant to an effective
registration statement under the Securities Act of 1933, as amended ("the
Act"), or a transaction which, in the opinion of counsel for the Company, is
exempt from registration under the Act and (ii) in compliance with state
securities laws. The Board may waive the foregoing restrictions, in whole or in
part, in any particular case or cases or may terminate such restrictions
whenever the Board determines that such restrictions afford no substantial
benefit to the Company.
3.4 Amendment, Modification and Termination of the Plan.
The Board of Directors may terminate, amend or modify the
Plan, at any time; provided, however, that no such action of the Board of
Directors, without approval of the stockholders, may (i) increase the total
number of shares of Common Stock for which Options may be granted under the
Plan, except as contemplated in Section 3.2 above, (ii) decrease the minimum
ISO price or (iii) increase the maximum ISO term or extend the period after
which ISOs may not be awarded under the Plan. No amendment, modification or
termination of the Plan shall in any manner affect any Option theretofore
granted to a Participant under the Plan without the consent of the Participant
or the transferee of such Option.
3.5 Non-Uniform Determinations.
The Board's determinations under the Plan, including without
limitation, (i) the determination of the Participants to receive awards, (ii)
the form, amount and timing of such awards,
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(iii) the terms and provisions of such awards and (iv) the agreements
evidencing the same, need not be uniform and may be made by it selectively
among Participants who receive, or who are eligible to receive, awards under
the Plan, whether or not such Participants are similarly situated.
3.6 Leaves of Absence; Transfers.
The Board shall be entitled to make such rules, regulations
and determinations as it deems appropriate under the Plan in respect of any
leave of absence from the Company granted to a Participant. Without limiting
the generality of the foregoing, the Board shall be entitled to determine (i)
whether or not any such leave of absence shall be treated as if an Employee
Participant ceased to be an employee or a Non-Employee Participant terminated
his or her relationship with the Company and (ii) the impact, if any, of any
such leave of absence on awards under the Plan. In the event an Employee
Participant transfers within the Company, such Participant shall not be deemed
to have ceased to be an employee for purposes of the Plan.
3.7 Rights as a Stockholder or Employee.
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by an Option until such time as stock
certificates for the shares of Common Stock for which the Option has been
exercised are issued. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such stock certificate(s) are issued, except as provided in Section 3.2 above.
Nothing in this Plan or in any Stock Option Agreement shall confer upon any
Participant any right to continue in the employ of the Company or interfere in
any way with any right of the Company to terminate the Participant's employment
at any time.
3.8 Termination of the Plan.
Termination of the Plan shall not affect the right of
Participants under Options previously granted to them, and all unexpired
Options shall continue in force and operation after termination of the Plan
except as they may lapse or be terminated by their own terms and conditions.
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EXHIBIT 10.3
LOAN AGREEMENT
This Loan Agreement is dated as of June 3, 1997, by and between
Online Resources & Communications Corporation, a Delaware corporation (the
"Company") and Dominion Fund IV, a Delaware Limited Partnership ("Dominion").
Certain other terms used herein are defined in Section 9.
The Company and Dominion hereby agree as follows:
Article 1. Amount and Terms of the Loans.
1.1 Recitals. The Company wishes to borrow up to $2,000,000 on a
purchase money secured basis to be used to purchase or refinance the purchase of
inventory, machinery and equipment (the "Loan"). Dominion is willing to make the
Loan, subject to the terms and conditions hereafter set forth.
1.2 The Loan. Subject to the terms and conditions hereof, and in
reliance upon the representations and warranties contained herein, Dominion will
make the Loan to the Company. $1,500,000 of the Loan will be drawn at the
Closing. The remaining $500,000 principal of the Loan may be drawn on or prior
to June 1, 1998 (the "Conversion Date") in one or more advances (the
"Advances"). On July 1, 1998, the Loan shall convert to a term loan with a
thirty six (36) month maturity. The first Advance may be made five (5) days
after written notice from the Company to Dominion, provided that the Conditions
to Closing specified in Article 4 of this Agreement shall have been fulfilled.
The Company shall provide notice to Dominion of any subsequent Advance at least
five days' prior to the expected date of each such Advance and no subsequent
Advance shall be made unless the Conditions to Making Subsequent Advances
specified in Article 5 shall have been fulfilled. Each Advance shall be in a
minimum amount of $100,000 or the remaining amount of the Equipment Loan, if
less. Dominion shall have no obligation to make Advances at any time while there
exists an Event of Default under this Agreement.
A. The Note. The Loan shall be evidenced by a secured
promissory note of the Company in a principal amount equal to the Loan
and in the form attached hereto as Exhibit 1.3A (the "Note").
B. Interest and Payment Terms. Monthly payments of interest
only at the rate of 9% per annum (.75% per month) of the Loan shall be
payable in arrears on the first day of every month commencing July 1,
1997 and continuing through June 1, 1998. Thereafter the Loan shall be
paid commencing on July 1, 1998 in 36 equal monthly installments of
principal and interest. All amounts due under the Note shall be paid in
full by June 1, 2001.
C. Prepayment. The Company may prepay the Note in whole at any
time or in part from time to time without penalty or premium. Any
optional prepayment of the Note in part shall be in a principal amount
not less than $25,000. Any prepayment of the Note shall be made
together with accrued interest on the amount prepaid to the date of
such prepayment. Any prepayments of the Note shall be applied to
installments of the Note in the inverse order of maturity.
D. Security. (a) The Note and the other obligations of the
Company thereunder shall be secured by and entitled to the benefits of
a first priority security interest in all of the inventory of the
Company (the "Inventory Collateral")
<PAGE> 2
and the equipment, and machinery (collectively, the "Equipment") which
Equipment is set forth on the Schedule referred to in Article 2 as such
schedule may be amended from time to time (the "Equipment Collateral")
(the Inventory Collateral and Equipment Collateral, together with any
additions thereto or replacements or proceeds thereof being referred to
hereafter collectively as the "Collateral").
(b) All of the agreements and instruments securing
the Note and the Company's related obligations hereunder and thereunder
are sometimes hereinafter referred to collectively as the "Security
Documents" and individually as a "Security Document". The Company
agrees to take such actions as may be necessary from time to time to
cause Dominion to be secured by and entitled to the benefits of the
Security Documents as described in this subsection, including, without
limitation, the obtaining of consents of any third parties. The
Security Documents shall be satisfactory in form to Dominion and its
counsel.
E. Loan Fee. On the due date of the last monthly payment of
the Loan, whether at maturity or by declaration, acceleration or
otherwise, the Company shall pay Dominion a loan fee (the "Equipment
Loan Fee") equal to 10% of the aggregate of the Advances under the
Note.
1.3 Overdue Payments and Default Rate of Interest for the Notes. In the
event that the Company shall fail to make any payment of principal of or
interest on the Note within ten (10) days when due, whether at maturity or at a
date fixed for the payment of any installment or prepayment thereof or by
declaration, acceleration or otherwise, interest on such unpaid principal and
(to the extent permitted by law) on such unpaid interest and additional interest
from the date due until paid in full shall thereafter be payable on demand at a
rate equal to 2% per month, provided that in no event shall the amount
contracted for and agreed to be paid by the Company as interest on the Note
exceed the highest lawful rate permissible under any law applicable hereto.
1.4 Form of Payment. All payments by the Company of principal of or
interest on the Note and of any fee due thereunder shall be made to Dominion at
44 Montgomery Street, Suite 4200, San Francisco, California 94101 (or at such
other address as Dominion shall have furnished to the Company in writing) and
shall be made by check or wire transfer. If any payment of principal of or
interest on the Note shall become due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day and such extension shall
be included in computing interest in connection with such payment.
1.5 Warrant. Concurrently with the execution and delivery of this
Agreement, the Company shall execute and deliver to Dominion a Warrant Purchase
Agreement in the form of Exhibit 1.5A hereto (the "Warrant Purchase Agreement")
and shall issue to Dominion thereunder a Warrant in the form of Exhibit 1.5B
hereto (the "Warrant").
1.6 Closing. The closing (the "Closing") of the transactions
contemplated hereby shall take place at 10:00 a.m. at the offices of Choate,
Hall & Stewart, Exchange Place, Boston, Massachusetts, on June ___, 1997 or on
such other date and time as the parties may agree (the "Closing Date").
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Article 2. Use of Proceeds.
The Company will use the proceeds of the Loan exclusively for the
purchase or reimbursement of the cost of acquiring inventory and equipment.
Dominion has agreed to the Inventory and Equipment Schedule attached hereto as
Exhibit 2. The Company will not directly or indirectly use any part of such
proceeds for any purpose which would violate any provision of any applicable
statute, regulation, order, or restriction.
Article 3. Representations and Warranties.
In order to induce Dominion to enter into this Agreement and to make
the Loan provided for hereunder, the Company makes the following representations
and warranties, which shall survive the execution and delivery hereof and of the
Note and shall be true and correct as set forth below upon the date of the Loan:
3.1 Organization, Standing, etc. of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted and
proposed to be conducted, to enter into this Agreement, the Security Documents,
and all other documents to be executed by it in connection with the transactions
contemplated hereby, to issue the Note and the Warrant and to carry out the
terms hereof and thereof.
3.2 Subsidiaries. The Company has no Subsidiary.
3.3 Qualification. The Company is duly qualified as a foreign
corporation in Virginia. Other than Virginia, the Company is not required to be
qualified or licensed as a foreign corporation in any jurisdiction in which the
failure to become qualified or licensed would have a material adverse effect on
the Company.
3.4 Financial Information; Disclosure, etc. The Company has furnished
Dominion with the financial statements and other reports listed in Schedule 3.4
attached hereto. Such financial statements (including the notes thereto) have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial position and
results of operations of the Persons to which they purport to relate as of the
dates and for the periods indicated. Since the end of the most recent fiscal
period shown in such financial statements, there has not been any material
adverse change in the business, operations, properties or financial position of
the Company (or of the Persons to which such financial statements purport to
relate). The Loan will not render the Company unable to pay its debts as they
become due; the Company is not contemplating either the filing of a petition by
it under any state or federal bankruptcy or insolvency laws or the liquidation
of all or a major portion of its property; and the Company has no knowledge of
any person contemplating the filing of any such petition against it.
3.4A Material Contracts. Included in Schedule 3.4A is a
complete and accurate list of all (a) contracts (written or unwritten) with
respect to which the Company has any liability or obligation, contingent or
otherwise, or which may otherwise have any continuing effect after the date of
this Agreement, and which involve in any case more than $50,000 per contract or
per transaction (in the case of contracts covering multiple transactions) or
which place any material limitation on the method of conducting or scope of the
Company's business, (b) contracts with labor unions, (c) plans pursuant to
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<PAGE> 4
which benefits are provided to employees of the Company, (d) contracts with
shareholders, officers or directors of the Company, or the spouses or relatives
thereof, (e) compensation arrangements or other understandings between the
Company and any of its officers or directors pursuant to which compensation is
payable or other benefits are made available by the Company to such person or
funds are or have been loaned or advanced by the Company to such person, (f)
contracts between officers or directors of the Company and any other person or
entity which contracts purport to restrict the business activities of or use of
information by any officer or director of the Company, (g) any other material
contracts, instruments, commitments, plans or arrangements, copies of which
would be required to be filed with the Securities and Exchange Commission as an
exhibit to a registration statement on Form S-1 if the Company were registering
its Common Stock under the 1933 Act, (h) all agreements known to the Company
relating to any securities of the Company or rights in connection therewith,
other than agreements which will be terminated at or prior to the time of the
Closing hereunder, and (i) all other contracts to which the Company is a party
or by which it is bound which are not in the ordinary course of the Company's
business. All the foregoing are herein called "Material Contracts". Such list
includes with respect to each Material Contract the names of the parties, the
date thereof, its title or other general description, and a brief summary of its
contents and the amounts involved in connection therewith, and all amounts owing
to the Company by any officer or director and the repayment terms for such
obligations. Upon request, the Company will furnish to Dominion, at any time
prior to or after the Closing, copies of any Material Contracts not previously
furnished to Dominion and any further information that Dominion may reasonably
request in connection therewith.
The Company, and, to the best of the Company's knowledge, each other
party thereto have in all material respects performed all the obligations
required to be performed by them to date pursuant to a Material Contract (or
each non-performing party has received a valid, enforceable and irrevocable
written waiver with respect to its non-performance), have received no notice of
default and are not in default (with due notice or lapse of time or both) under
any Material Contract. The Company does not have any present expectation or
intention of not fully performing all its obligations under each such Material
Contract, and the Company has no knowledge of any breach or anticipated breach
by the other party to any Material Contract.
3.5 Licenses; Franchises, etc. Schedule 3.5 attached hereto accurately
and completely lists all material authorizations, licenses, permits and
franchises of any public or governmental regulatory body granted or assigned to
the Company and the same constitute the only material authorizations, licenses,
permits and franchises of any public or governmental regulatory body which are
necessary for the conduct of the business of the Company as now conducted and
proposed to be conducted (such authorizations, licenses, permits and franchises,
together with any extensions or renewals thereof, being herein sometimes
referred to collectively as the "Licenses"). All such Licenses are validly
issued and in full force and effect and the Company has fulfilled and performed
all of its material obligations with respect thereto and has full power and
authority to operate thereunder.
3.6 Tax Returns and Payments. The Company has filed all tax returns
required by law to be filed and has paid all taxes, assessments and other
governmental charges levied upon any of its properties, assets or income, other
than those not yet delinquent and those, not substantial in aggregate amount,
being or about to be contested as provided in Section 6.4. The charges, accruals
and reserves on the books of the Company in respect of its taxes are adequate in
the opinion of the Company, and the Company knows of no unpaid assessment for
additional taxes or of any basis therefor.
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3.7 Indebtedness, Liens and Investments, etc. Schedule 3.7 attached
hereto correctly describes, as of the date or dates indicated therein, (a) all
outstanding Indebtedness of the Company in respect of borrowed money, Capital
Leases and the deferred purchase price of property; (b) all existing mortgages,
liens and security interests in respect of any property or assets of the
Company; (c) all outstanding investments, loans and advances of the Company
(other than expense advances to employees in the ordinary course of business);
and, (d) all existing guarantees by the Company.
3.8 Title to Properties; Liens. Except as set forth on Schedule 3.8,
the Company has good and marketable title to all of its properties and assets
reflected in the balance sheet as of December 31, 1996, and none of such
properties or assets is subject to any mortgage, pledge, lien, security
interest, charge or encumbrance except for minor liens and encumbrances which in
the aggregate are not substantial in amount, do not in any case materially
detract from the value of the property subject thereto or materially impair the
operations of the Company and have not arisen otherwise than in the ordinary
course of business. The Company enjoys quiet possession under all leases to
which it is a party as lessee, and all of such leases are valid, subsisting and
in full force and effect. None of such leases contains any provision restricting
the incurrence of indebtedness by the lessee or any unusual or burdensome
provision materially adversely affecting the current and proposed operations of
the Company.
3.9 Litigation, Claims, etc. There is no action, proceeding or
investigation pending or, to the Company's knowledge, threatened (or any basis
therefor known to the Company) which questions the validity of this Agreement,
the Note, the Warrant or the other documents executed in connection herewith, or
any action taken or to be taken pursuant hereto, or which might result, either
in any case or in the aggregate, in any material adverse change in the business
operations, affairs or condition of the Company or any of its properties or in
any material liability on the part of the Company.
3.10 Authorization; Compliance with Other Instruments. The execution,
delivery and performance of this Agreement, the Note, the Warrant and the
Security Documents have been duly authorized by all necessary corporate action
on the part of the Company, will not result in any violation of or be in
conflict with or constitute a default under any term of the charter or by-laws
of the Company, or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to the Company, or result in
the creation of any mortgage, lien, charge or encumbrance upon any of the
properties or assets of the Company pursuant to any such term. The Company is
not in violation of any term of its Certificate of Incorporation or by-laws, or
of any term of any agreement or instrument to which it is a party, or of any
judgment, decree, order, statute, rule or governmental regulation applicable to
it.
3.11 Governmental Consent. Neither the Company nor, to the Company's
knowledge, any of its shareholders, is required to obtain any order, consent,
approval or authorization of, or required to make any declaration or filing with
any governmental authority in connection with the execution and delivery of this
Agreement and the issuance and delivery of the Note and the Warrant pursuant
hereto (collectively, "Consents").
3.12 Employee Retirement Income Security Act of 1974. The terms used in
this Section 3.12 and in Section 7.9 of this Agreement shall have the meanings
assigned
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thereto in the applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as
amended (the "Code"), and the term "Affiliated Company" shall mean the Company
and all corporations, partnerships, trades or businesses (whether or not
incorporated) which constitute a controlled group of corporations with the
Company, a group of trades or businesses under common control with the Company,
an affiliated service group or other affiliated group, within the meaning of
Section 414(b), Section 414(c), Section 414(m) or Section 414(o), respectively,
of the Code, or Section 4001 of ERISA. Each employee benefit plan sponsored by
an Affiliated Company and each multiemployer plan to which any Affiliated
Company makes contributions, is in material compliance with applicable
provisions of ERISA and the Code. No Affiliated Company has incurred any
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or any
employee benefit plan on account of any failure to meet the contribution
requirements of any such plan, minimum funding requirements or prohibited
transactions under ERISA or the Code, termination of a single employer plan,
partial or complete withdrawal from a multiemployer plan, or the insolvency,
reorganization or termination of any multiemployer plan, and no event has
occurred or condition exists which presents a material risk that any Affiliated
Company will incur any material liability on account of any of the foregoing
circumstances. The consummation of the transactions contemplated by this
Agreement will not result in any prohibited transaction under ERISA or the Code
for which an exemption is not available.
3.13 Capitalization; Ownership of Company. As of the date hereof, the
authorized capital stock of the Company consists of 30,000,000 shares of Common
Stock, of which 10,726,372 shares are issued and outstanding, 1,000,000 shares
of Series A Convertible Preferred Stock of which 795,000 shares are issued and
outstanding, 100,000 shares of Series B Convertible Preferred Stock of which
10,050 shares are issued and outstanding, and 237,000 shares of Series C
Convertible Preferred Stock of which none are issued as of the date hereof. All
of said outstanding shares are validly issued, fully paid and nonassessable and,
to the knowledge of the Company, are owned by such shareholders, free of any
assignment, pledge, lien, security interest, charge, option or other encumbrance
except those existing under applicable state and federal securities laws and in
the case of the Series C Convertible Preferred Stock being issued those being
created under a Stockholders Agreement to which holders of shares of such shares
will be made subject. Except as otherwise set forth in Schedule 3.13, the
Company is not obligated in any manner to issue any additional shares of its
capital stock.
3.14 Environmental Matters. Neither the Company nor, to the Company's
knowledge (after due inquiry), any prior user or owner of the real estate on
which the Company's business is conducted (the "Property"), or any third party,
has ever caused or permitted any Hazardous Material to be disposed of on or
under the Property, and the Property has never been used (either by the Company
or, to the Company's knowledge (after due inquiry) by any prior user or owner of
the Property, or any third party as (i) a disposal site or permanent storage
site for any Hazardous Material or (ii) a temporary storage site for any
Hazardous Material. To the best of the Company's knowledge, all areas of the
property where any disposal or release of Hazardous Materials has occurred have
been remediated in accordance with applicable legal requirements. The Company
has been issued and is in compliance with all material permits, certificates,
licenses, approvals and other authorizations relating to environmental matters
and necessary for its business, and has filed all notifications and reports
relating to chemical substances, air emissions, underground storage tanks,
effluent discharges and Hazardous Material waste storage, treatment and disposal
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<PAGE> 7
required in connection with the operation of its business, the failure to have
or comply with which would, individually or in the aggregate, have a material
adverse effect on the Company. All Hazardous Materials used or generated by the
Company have been generated, accumulated, stored, transported, treated, recycled
and disposed of in compliance with all applicable laws and regulations, the
violation of which has any reasonable likelihood of having a material adverse
effect on the Company. The Company has no liabilities with respect to Hazardous
Materials, and to the knowledge of the Company (after due inquiry), no facts or
circumstances exist which could give rise to liabilities with respect to
Hazardous Materials, which could have any reasonable likelihood of having a
material adverse effect on the Company.
3.15 Intellectual Property. The Company owns or possesses sufficient
legal rights to all patents, trademarks, service marks, tradenames, copyrights,
trade secrets, licenses, information and proprietary rights and processes (the
"Intellectual Property") necessary for its business as conducted and proposed to
be conducted without any known conflict with, or infringement of the rights of
others and each such legal right is listed on Schedule 3.15. The Company has not
received any communications alleging that it has violated or, by conducting
business as proposed, would violate the Intellectual Property rights of any
other person or entity. Except as disclosed in Schedule 3.15, the Company has
not licensed or granted rights to others in any of its Intellectual Property.
3.16 Insurance. All of the properties and operations of the Company are
adequately insured, by financially sound and reputable insurers against loss or
damage of the kinds and in the amounts customarily insured against by companies
of established reputation engaged in the Company's business or similar
businesses, and the Company carries with such insurers in customary amounts such
other insurance as is usually carried by companies of established reputation
engaged in the same or similar businesses.
3.17 Compliance with Law. The Company has complied in all material
respects with all rules, regulations, statutes, decrees and orders applicable to
its business.
3.18 Regulations U and X. No part of the proceeds of the Loan will be
used to purchase or carry, or to reduce, retire or refinance any credit incurred
to purchase or carry, any margin stock (within the meaning of Regulations U and
X of the Board of Governors of the Federal Reserve System or to extend credit to
others for the purpose of purchasing or carrying any margin stock.
3.19 Investment Company. The Company is not subject to regulation under
the Investment Company Act of 1940, as amended.
3.20 U.S. Real Property Holding Corporation. The Company is not now and
has never been a "United States real property holding corporation" as defined in
Section 897(c) of the Code and Section 1.897-2(b) of the regulations promulgated
by the Internal Revenue Service, and the Company has filed with the Internal
Revenue Service all statements, if any, with its United States income tax
returns which are required under Section 1.897-2(h) of such regulations.
3.21 Full Disclosure. Neither this Agreement nor any financial
statements, reports or other documents or certificates furnished to Dominion by
the Company in connection with the transactions contemplated hereby contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements herein or therein contained not misleading.
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3.22 No Material Adverse Change Since March 31, 1997, there has been no
material adverse change in the condition (financial or otherwise), properties,
business operations or prospects of the Company nor any change in the assets,
liabilities or financial condition of the Company from that reflected in the
balance sheet as of March 31, 1997, except for changes in the ordinary course of
business which in the aggregate have not been materially adverse.
Article 4. Conditions to Closing.
The obligation of Dominion to make the initial advance under the Loan
is subject to the following conditions:
4.1 The Note. By the Closing Date, Dominion shall have received the
Note, duly completed, executed and delivered, as provided in Article 1.
4.2 Opinions and Certificates. On and as of the Closing Date, Dominion
shall have received:
(a) The favorable opinion of Michaels, Wishner & Bonner, P.C.,
counsel for the Company, dated as of such date and in form and substance
satisfactory to Dominion and its counsel;
(b) A certificate, dated as of the Closing Date, signed by the
Company's Secretary, in the form attached hereto as Exhibit 4.2(b);
(c) A certificate, dated as of the Closing Date, signed by a
principal officer of the Company, in the form attached hereto as Exhibit 4.2(c)
certifying that the conditions specified in this Article 4 have been fulfilled;
and
(d) All other information and documents which Dominion or its
counsel may reasonably have requested in connection with the transactions
contemplated by this Agreement, such information and documents where appropriate
to be certified by the proper Company officers or governmental authorities.
4.3 No Default; Representations and Warranties, etc. On the Closing
Date: (a) the representations and warranties of the Company contained in Article
3 of this Agreement shall be true on and as of such date as if they had been
made on such date; (b) the Company shall be in compliance in all material
respects with all of the terms and provisions set forth herein on its part to be
observed or performed on or prior to such date; (c) after giving effect to the
Loan, no Event of Default specified in Article 8 hereof, nor any event which
with the giving of notice or expiration of any applicable grace period or both
would constitute such an Event of Default, shall have occurred and be
continuing; (d) all of the conditions to closing set forth in this Article 4
have been satisfied; and (e) since the date of this Agreement, there shall have
been no material adverse change in the assets or liabilities or in the financial
or other condition of the Company.
4.4 Security Documents. On the Closing Date, Dominion shall have
received the Security Documents, together with any other documents reasonably
required or contemplated by the terms thereof.
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4.5 Payment of Counsel Fees and Other Expenses. On the Closing Date,
the Company shall have paid the fees and disbursements of Dominion's counsel
relating to this Agreement invoiced to the Closing Date, including an estimate
of those which are reasonably expected to be incurred post-Closing, and shall
have paid any other expenses incurred by Dominion relating to the transactions
contemplated hereby (including consulting fees, accounting fees and travel
expenses) invoiced by Dominion to the Company prior to the Closing.
4.6 Inventory and Equipment Schedules. As of the Closing Date, the
Company shall have furnished to Dominion in writing a schedule of the inventory,
machinery and equipment to be financed by the draw at Closing, and Dominion
shall have approved such Schedule in writing.
4.7 Stock Purchase Agreement. As of the Closing Date, the Company,
Dominion and the parties named therein shall have executed and delivered a Stock
Purchase Agreement in the form of Exhibit 4.7 (the "Stock Purchase Agreement")
and the other documents and agreements contemplated thereby, and a certificate
representing all Shares purchased by Dominion thereunder shall be duly issued
and delivered to Dominion.
4.8 Filing of Financing Statements. As of the Closing Date, financing
statements in appropriate form shall have been filed with the State Corporation
Commission for the Commonwealth of Virginia and in all other places required by
law to perfect Dominion's security interest in all of the Equipment Collateral
financed by the first Advance.
4.9 Certificate of Insurance. As of the Closing Date, the Company shall
have furnished to Dominion a Certificate of Insurance naming Dominion as a loss
payee with regard to the Collateral.
4.10 Warrant. The Company shall have execute the Warrant Purchase
Agreement to Dominion and pursuant thereto shall have issued the Warrant to
Dominion.
4.11 Landlord's Consent and Waiver. As of the Closing Date, Dominion
shall have received a signed and executed Landlord's consent and waiver in form
satisfactory to Dominion for all locations at which the Collateral is located.
4.12 Lien Search Results. The Company shall have furnished Dominion
with evidence reasonably satisfactory to Dominion that Dominion has a first
priority security interest in the Collateral.
Article 5. Conditions to Making Subsequent Advances.
5.1 Certificates. On and as of the date of each subsequent Advance,
Dominion shall have received a certificate, dated as such date, signed by a
principal officer of the Company, in the form attached hereto as Exhibit 5.1
certifying, as of the date of the certificate, that (a) the representations and
warranties of the Company contained in Article 3 of this Agreement shall be true
in all material respects on and as of such date as if they had been made on such
date; (b) the Company shall be in compliance in all material respects with all
of the terms and provisions set forth herein on its part to be observed or
performed on or prior to such date; (c) after giving effect to the Advance, no
Event of Default specified in Article 8 hereof, nor any event which with the
giving of notice or expiration of any applicable grace period or both would
constitute such an Event of Default, shall have occurred and be continuing; and
(d) since the date of the
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last such certificate given to the Lender pursuant to Article 4 or Article 5,
there shall have been no material adverse change in the assets or liabilities or
in the financial or other condition of the Company (other than as the result of
the draw down of the Equipment Loan).
5.2 Inventory and Equipment Schedule. The Company shall have furnished
to Dominion in writing a schedule of the inventory, machinery and equipment to
be financed by such subsequent Advance, and Dominion shall have approved such
schedule in writing.
5.3 Filing of Financing Statements. Financing statements in appropriate
form shall have been filed with the State Corporation Commission of the
Commonwealth of Virginia and in all other places required by law to perfect
Dominion's purchase money security interest in the Collateral being financed by
such subsequent Advance.
5.4 Landlord's Consent and Waiver. The Company shall have furnished to
Dominion an executed Landlord's Waiver and Consent in form and substance
satisfactory to Dominion for each location where Collateral financed by such
subsequent Advance is located.
5.5 Expiration Date. The date of any subsequent Advance shall be prior
to the Conversion Date.
Article 6. Affirmative Covenants.
Until the principal of and interest on the Note and all fees due
hereunder shall have been paid in full, the Company agrees that the following
covenants shall remain in full force and effect, which covenants shall be
applicable to the Company and each of its Subsidiaries, if any.
6.1 Financial Statements, etc. The Company will furnish or cause to be
furnished to Dominion:
(a) As soon as available and in any event within 120 days
after the end of each fiscal year of the Company, (i) the consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such year, and (ii) the related consolidated and consolidating statements of
income and surplus and cash flows for such year, setting forth (except for the
initial financial statement of the Company delivered pursuant to this Section
6.1(a)) in comparative form with respect to such consolidated financial
statements figures for the previous fiscal year, all in reasonable detail,
together with the opinion thereon of independent public accountants selected by
the Company and satisfactory to Dominion, which opinion shall be in a form
generally recognized as unqualified and shall state that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with that of the preceding fiscal year
(except for changes, if any, which shall be specified and approved in such
opinion) and that the audit by such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards related to reporting, provided that such accountants'
certification may be limited to the consolidated financial statements in which
case the consolidating financial statements shall be signed by a principal
officer of the Company;
(b) Within 30 days after the end of each month, a statement of
operations for such month in form and substance satisfactory to Dominion;
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(c) As soon as available and in any event within 45 days after
the end of each quarterly accounting periods in each fiscal year of the Company,
an analysis and report on the financial and operating results of each fiscal
quarter, in form and substance satisfactory to Dominion;
(d) Not later than 30 days prior to the beginning of each
fiscal year of the Company, a copy of the Company's annual budget (the
"Budget"), including balance sheets, cash flow and income and loss projections,
a consolidated capital and operating expense budget and a business plan for the
Company, each itemized in reasonable detail and prepared on a monthly basis, and
promptly after preparation, any revisions to the foregoing;
(e) Promptly upon receipt thereof (and in no event more than
five (5) business days after receipt thereof), copies of all final audit
reports, "management letters", so called, and other communications and reports
submitted to the Company by independent certified public accountants in
connection with each interim or special audit of the books of the Company made
by such accountants;
(f) Promptly upon their becoming available (and in no event
later than they are first sent to security holders, any securities exchange, or
the Securities and Exchange Commission), copies of all financial statements,
reports, notices and proxy statements sent by the Company to its security
holders and all annual, periodic or special reports or registration statements
filed by the Company with the Securities and Exchange Commission;
(g) Prompt notice of any action, suit, proceeding or
investigation at law or in equity or by or before any governmental
instrumentality or agency which, if adversely determined, would materially
impair the right of the Company or any subsidiary to carry on its business as
then conducted or would have a material adverse effect on the business,
operations or financial condition of the Company or any Subsidiary;
(h) [Intentionally Omitted]
(i) Together with the financial statements delivered pursuant
to subparagraphs (a) and (c) above, a compliance certificate substantially in
the form of Exhibit 6.1 attached hereto signed by a principal officer of the
Company;
(j) Any information generally furnished by the Company to its
stockholders, including without limitation all information pertaining to
financial, marketing, business development or regulatory issues generally
furnished by the Company to its stockholders or to any class of its
stockholders; and,
(k) Forthwith upon any officer of the Company obtaining
knowledge of any condition or event which constitutes an Event of Default or
which, after notice or lapse of time or both, would constitute an Event of
Default, a certificate signed by such officer specifying in reasonable detail
the nature and period of existence thereof and what action the Company has taken
or proposes to take with respect thereto.
The Company will also furnish or cause to be furnished to Dominion such
other information regarding the business, affairs and condition of the Company
as Dominion may from time to time reasonably request. The Company will permit
Dominion to inspect the books and any of the properties or assets of the Company
and its Subsidiaries at
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such reasonable times as Dominion may from time to time request. Dominion agrees
not to disclose any confidential information received from the Company (except
to its partners and to its professional advisors) and to use the same care with
such information as it affords to its own confidential information.
6.2 Legal Existence; Compliance with Laws, etc. The Company will, and
will cause each Subsidiary to: maintain its corporate existence and business;
maintain all properties which are reasonably necessary for the conduct of such
business, now or hereafter owned, in good repair, working order and condition;
take all actions necessary to maintain and keep in full force and effect its
rights and franchises; and comply in all material respects with all applicable
statutes, rules, regulations and orders of, and all applicable restrictions
imposed by, all governmental authorities in respect of the conduct of its
business and the ownership of its properties; provided that neither the Company
nor any Subsidiary shall be required by reason of this subsection to comply
therewith at any time while the Company or such Subsidiary shall be contesting
its obligations to do so in good faith by appropriate proceedings promptly
initiated and diligently conducted, and if it shall have set aside on its books
such reserves, if any, with respect thereto as are required by generally
accepted accounting principles and deemed adequate by the Company and its
independent public accountants. Neither the Company nor any Subsidiary will,
without the prior written consent of Dominion, engage in any business other than
the business in which the Company is currently engaged and other activities
reasonably related thereto.
6.3 Insurance. The Company will maintain or cause to be maintained on
all insurable properties now or hereafter owned by the Company or any Subsidiary
insurance against loss or damage by fire or other casualty to the extent
customary with respect to like properties of companies conducting similar
businesses, and will maintain or cause to be maintained public liability and
workmen's compensation insurance insuring the Company to the extent customary
with respect to companies conducting similar businesses. Upon request, the
Company will furnish to Dominion satisfactory evidence of the insurance
described in the preceding sentence. All such policies (or certificates) shall
be delivered to Dominion upon request. Each insurance policy pertaining to any
of the Collateral shall: (i) name Dominion as an insured so far as its interests
shall appear; (ii) provide that no action of the Company, any Subsidiary or any
tenant or subtenant shall void such policy as to Dominion; and (iii) provide
that Dominion shall be notified of any proposed cancellation of such policy at
least thirty (30) days in advance of such proposed cancellation. All such
policies (or certificates) shall be delivered to Dominion upon request. In the
event of a casualty loss, the Company may apply the proceeds of any insurance to
the restoration or replacement of the property or asset which was the subject of
such loss, provided that the Company shall have demonstrated to the reasonable
satisfaction of Dominion that such property or asset will be restored to
substantially its previous condition or will be replaced by a substantially
identical property or asset.
6.4 Payment of Taxes. The Company will, and will cause each Subsidiary
to, pay and discharge promptly as they become due and payable all taxes,
assessments and other governmental charges or levies imposed upon it or its
income or upon any of its properties or assets, or upon any part thereof, as
well as all lawful claims of any kind (including claims for labor, materials and
supplies) which, if unpaid, might by law become a lien or a charge upon its
property; provided that neither the Company nor any Subsidiary shall be required
to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and if the
Company shall have set aside on its books such reserves, if any, with respect
thereto as are
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required by generally accepted accounting principles and deemed appropriate by
the Company and its independent public accountants.
Upon the request of Dominion, the Company will furnish to Dominion
satisfactory proof of the payment or deposit of payroll and withholding taxes
required by applicable federal, state and local law. Such proof shall be
furnished within ten days after written demand by Dominion.
6.5 Payment of Other Indebtedness, etc. Except as to matters being
contested in good faith and by appropriate proceedings, the Company will, and
will cause each Subsidiary to, pay promptly when due all other Indebtedness and
obligations incident to the conduct of its business.
6.6 Further Assurances. From time to time hereafter, the Company will
execute and deliver, or will cause to be executed and delivered, such additional
instruments, certificates or documents, and will take all such actions, as
Dominion may reasonably request, for the purposes of implementing or
effectuating the provisions of this Agreement, the Note and the Security
Documents. Upon the exercise by Dominion of any power, right, privilege or
remedy pursuant to this Agreement which requires any consent, approval,
registration, qualification or authorization of any governmental authority or
instrumentality, the Company will execute and deliver, or will cause the
execution and delivery of, all applications, certifications, instruments and
other documents and papers that Dominion may be required to obtain for such
governmental consent, approval, registration, qualification or authorization.
6.7 Visitation Rights. [Intentionally Omitted]
6.8 Rights of First Offer. So long as the Loan shall be outstanding,
the Company shall first offer by written notice to Dominion, before obtaining
any debt financing from any other party (exclusive of revolving lines of credit
from a bank or similar financial institution (a "Revolver"), the right to
provide to the Company the full amount of any debt financing (whether or not
having an equity feature) required by the Company (the "Right of First Offer").
The Company shall promptly notify Dominion in writing of its plans to obtain any
such debt financing, including in such notice a description of the proposed debt
financing. Within ten (10) days after receipt of the Company's written notice,
Dominion shall notify the Company whether it wishes to satisfy the Company's
debt financing requirements and if so, the terms and conditions under which it
proposes to satisfy such requirements. If Dominion elects not to exercise the
Right of First Offer or fails to respond within such 10-day period, or if the
Company rejects in good faith Dominion's offer, the Company shall be free to
obtain such debt financing from another source upon such terms as the Company
may accept, provided that such debt financing does not result in a default or an
Event of Default under this Agreement. The rejection by Dominion of a proposed
debt financing shall not affect adversely Dominion's Right of First Offer with
respect to future such debt financings.
6.9 Net Worth. The sum of the Company's assets (including the value of
intangible assets) will at all times exceed the sum of the Company's
liabilities.
6.10 Employee Nondisclosure and Development Agreements. The Company
shall use its best efforts to obtain an Employee Nondisclosure Agreement, in
form satisfactory to Dominion, from all future officers and key employees of the
Company, upon their employment by the Company.
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6.11 Indemnification. So long as a representative of the Dominion
serves on the Board of Directors of the Company, the Company shall use its best
efforts to maintain at all times provisions in its By-laws and/or Certificate of
Incorporation indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware.
6.12 Replenishment of Collateral. In the event the Inventory Collateral
is sold and not replenished, the Company will grant to Dominion a security
interest in additional collateral equal or greater in value than the Inventory
Collateral so sold to the extent necessary to secure the then outstanding
balance on the Note.
Article 7. Negative Covenants.
Until the principal of and interest on the Notes and all fees due
hereunder shall have been paid in full, the Company, without the prior written
consent of Dominion, agrees that:
7.1 Indebtedness. Neither the Company nor any Subsidiary will create,
incur, assume or become or remain liable in respect of any Indebtedness, except:
(a) Indebtedness to Dominion;
(b) Revolvers;
(c) Current liabilities of the Company (other than for borrowed money)
incurred in the ordinary course of its business and in accordance with customary
trade practices;
(d) Existing Indebtedness, if any, of the Company referred to in
Schedule 3.7 attached hereto, in not more than the respective unpaid principal
amounts thereof specified in such Schedule;
(e) Indebtedness subordinated to Dominion on terms satisfactory to
Dominion in its sole discretion;
(f) Indebtedness of the Company in respect of guarantees to the extent
permitted under Section 7.3;
(g) Indebtedness in respect of Capital Leases permitted by Section 7.4;
and
(h) Indebtedness which Dominion elected not to extend under Section
6.8; provided, no security interest for any such Indebtedness will extend to any
of the Collateral;
In no event, however, will the total Indebtedness referenced in (b) and
(h), above, exceed $10,000,000.
7.2 Mortgages, Liens, etc. Neither the Company nor any Subsidiary will,
directly or indirectly, create, incur, assume or suffer to exist, any mortgage,
lien, charge or encumbrance on, or security interest in, or pledge of, or
conditional sale or other title retention agreement (including any Capital
Lease) with respect to, any property or asset now owned or hereafter acquired by
the Company, except:
(a) Any lien securing Revolvers;
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(b) Any lien securing Indebtedness to Dominion;
(c) Liens for taxes not yet delinquent or being contested in good faith
as provided in Section 6.4; liens in connection with workmen's compensation,
unemployment insurance or other social security obligations; liens securing the
performance of bids, tenders, contracts, surety and appeal bonds, liens to
secure progress or partial payments and other liens of like nature arising in
the ordinary course of business; mechanics', workmen's, materialmen's or other
like liens arising in the ordinary course of business in respect of obligations
which are not yet due or which are being contested in good faith; and other
liens or encumbrances incidental to the conduct of the business of the Company
or to the ownership of its properties or assets, which were not incurred in
connection with the borrowing of money or the obtaining of credit and which do
not materially detract from the value of the properties or assets of the Company
or materially affect the use thereof in the operation of its business;
(d) Capital Leases permitted by Section 7.4; and
(e) Any lien securing Indebtedness which Dominion elected not to
extend; provided, however, that no lien or security interest securing any such
Indebtedness will extend to any of the Collateral.
Upon the Company's request, Dominion promptly agrees to release its
security interest to any asset of the Company encumbered by any lien described
in Section 7.2(e) above if such lien does not exceed 100% of the purchase price
of the asset and is given at the time of the acquisition of the asset.
7.3 Loans, Guarantees and Investments. Neither the Company nor any
Subsidiary will make or permit to remain outstanding any loan or advance to, or
guarantee or endorse (except as a result of endorsing negotiable instruments for
deposit or collection in the ordinary course of business) or otherwise assume or
remain liable with respect to any obligation of, or make or own any investment
in, or acquire (except in the ordinary course of business) the properties or
assets of, any Person, except:
(a) Extensions of credit by the Company in the ordinary course of
business in accordance with customary trade practices;
(b) The presently outstanding investments, loans and advances, if any,
and the presently existing guarantees, if any, referred to in Schedule 3.7
attached hereto;
(c) Marketable direct obligations of the United States of America or
any department or agency thereof maturing not more than one year from the date
of issuance thereof;
(d) Certificates of deposit, repurchase agreements, money market
deposits or other similar types of investments maturing not more than one year
from the date of acquisition thereof and evidencing direct obligations of any
bank within the United States of America having capital surplus and undivided
profits in excess of $50,000,000; and
(e) Capital Expenditures to the extent permitted by Section 7.6.
7.4 Leases. Neither the Company nor any Subsidiary will enter into any
Capital Lease or operating lease which relates to any of the Equipment
Collateral.
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7.5 Restricted Payments. The Company will not, directly or indirectly,
declare, order, pay or make any Restricted Payment or set aside any sum or
property therefor without the prior consent of Dominion, except that the Company
may redeem capital stock from employees upon the termination of employment
pursuant to stock restriction agreements approved by the Company's Board of
Directors or in accordance with its Certificate of Incorporation.
7.6 Capital Expenditures. Neither the Company nor any Subsidiary will
make any Capital Expenditure (including any payments under Capital Leases)
during any fiscal year in excess of $2,000,000.
7.7 Mergers and Consolidations. Neither the Company nor any Subsidiary
will enter into any merger or consolidation without the prior written consent of
Dominion which will not be unreasonably withheld.
7.8 Sale of Assets. Neither the Company nor any Subsidiary will sell,
lease or otherwise dispose of all or any substantial part of its properties or
assets without the prior written consent of Dominion.
7.9 Compliance with ERISA. The Company will make, and will cause all
Affiliated Companies to make, all payments or contributions to employee benefit
plans required under the terms thereof and in accordance with applicable minimum
funding requirements of ERISA and the Code and applicable collective bargaining
agreements. The Company will cause all employee benefit plans sponsored by any
Affiliated Company to be maintained in material compliance with ERISA and the
Code. The Company will not engage, and will not permit or suffer any Affiliated
Company or any Person entitled to indemnification or reimbursement from the
Company or any Affiliated Company to engage, in any prohibited transaction for
which an exemption is not available. No Affiliated Company will terminate, or
permit the PBGC to terminate, any employee benefit plan or withdraw from any
multiemployer plan, in any manner which could result in material liability of
any Affiliated Company.
7.10 Transactions with Affiliates. Neither the Company nor any
Subsidiary will, directly or indirectly, enter into any lease or other
transaction with any shareholder of the Company or with any Affiliate of the
Company or such shareholder, on terms that are less favorable to the Company or
such Subsidiary than those which might be obtained at the time from Persons who
are not such a shareholder or Affiliate.
7.11 Environmental Liabilities. Neither the Company nor any Subsidiary
will violate any requirement of law, rule or regulation regarding Hazardous
Materials, the failure to comply with which would individually, or in the
aggregate, have a material adverse effect on the Company or such Subsidiary;
and, without limiting the foregoing, neither the Company nor any Subsidiary will
dispose of any Hazardous Material into or onto, or (except in accordance with
applicable law) from, any real property owned, leased or operated by the Company
or such Subsidiary or in which the Company or such Subsidiary holds, directly or
indirectly, any legal or beneficial interest or estate, nor allow any lien
imposed pursuant to any law, regulation or order relating to Hazardous Materials
or the disposal thereof to be imposed or to remain on such real property, except
for liens being contested in good faith by appropriate proceedings and for which
adequate reserves have been established and are being maintained on the books of
the Company.
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7.12 Prepayment of Indebtedness. Neither the Company nor any Subsidiary
will prepay any Indebtedness except for Indebtedness owed to Dominion and
Indebtedness represented by Revolvers and paid and reborrowed in the ordinary
course of business.
7.13 Set-off. The Company will not exercise any right of set-off with
respect to any indebtedness owed by the Company to Dominion.
Article 8. Defaults; Remedies.
8.1 Events of Default; Acceleration. If any of the following events
(each an "Event of Default") shall occur:
(a) The Company shall default in the payment of principal of or
interest on the Note after the same becomes due and payable, whether on demand,
at maturity or at a date fixed for the payment of any installment or prepayment
thereof or otherwise; or
(b) The Company shall default in the payment of any other fee due
hereunder, including but not limited to the Equipment Loan Fee, within 30 days
after the same becomes due and payable, whether on demand, at maturity or at a
date fixed for the payment of any installment or prepayment thereof or
otherwise; or
(c) The Company shall default in the performance of or compliance with
any term contained in Articles 6 or 7 and, as to any terms capable of being
cured, fail to cure the same within thirty (30) days after receipt of written
notice notifying the Company of such default; or
(d) The Company shall default in the performance of or compliance with
any term contained in this Agreement other than those specifically referred to
in this Article 8 and such default shall not have been remedied within 30 days
after written notice thereof shall have been given to the Company by Dominion;
or
(e) The Company shall default in the performance of or compliance with
any term contained in the Security Documents or in the performance of or
compliance with any term contained in any other written agreement with Dominion,
and such default shall continue for more than the period of grace, if any,
specified therein and shall not have been waived pursuant thereto; or
(f) Any representation or warranty made by the Company herein or
pursuant hereto shall prove to have been false or incorrect in any material
respect when made; or
(g) The holder of any Indebtedness in respect of borrowed money, any
Capital Lease or the deferred purchase price of property, in any case
aggregating $500,000 or more, shall have accelerated the maturity thereof as a
result of any default thereunder; or
(h) The Company shall discontinue its business or shall make an
assignment for the benefit of creditors, or shall fail generally to pay its
debts as such debts become due, or shall apply for or consent to the appointment
of or taking possession by a trustee, receiver or liquidator (or other similar
official) of the Company or any substantial part of the property of the Company,
or shall commence a case or have an order for relief entered against it under
the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or if
the Company shall take any action to dissolve or liquidate the Company; or
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(i) If, within 30 days after the commencement against the Company of a
case under the federal bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
such case shall have been consented to or shall not have been dismissed or all
orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if within 30 days after the entry of a decree appointing a
trustee, receiver or liquidator (or other similar official) of the Company or
any substantial part of the property of the Company, such appointment shall not
have been vacated; or
(j) A final judgment which, with other outstanding final judgments
against the Company, exceeds an aggregate of $500,000 shall be rendered against
the Company and if, within 60 days after entry thereof, such judgment shall not
have been discharged or execution thereof stayed pending appeal, or if, within
60 days after the expiration of any such stay, such judgment shall not have been
discharged, or if any such judgment shall not be discharged forthwith upon the
commencement of proceedings to foreclose any lien, attachment or charge which
may attach as security therefor and before any of the property or assets of the
Company shall have been seized in satisfaction thereof;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, Dominion may by written notice to the Company, declare
the principal of and accrued interest in respect of each of the Note to be
forthwith due and payable, whereupon the principal of and accrued interest in
respect of the Note shall become forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Company.
8.2 Remedies on Default, etc. In case any one or more Events of Default
shall occur and be continuing, Dominion may proceed to protect and enforce its
rights by any action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in the
Note or a Security Document, or for an injunction against a violation of any of
the terms hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by law. In case of a default in the payment of any
principal of or interest on the Note or in the payment of any fee due hereunder,
the Company will pay to Dominion such further amount as shall be sufficient to
cover the cost and expense of collection, including, without limitation,
reasonable attorneys' fees, expenses and disbursements. No course of dealing and
no delay on the part of Dominion in exercising any right shall operate as a
waiver thereof or otherwise prejudice Dominion's rights. No right conferred
hereby or by the Note or the Security Documents upon Dominion shall be exclusive
of any other right referred to herein or therein or now or hereafter available
at law, in equity, by statute or otherwise.
Article 9. Definitions.
As used herein the following terms have the following respective
meanings:
Affiliate: as applied to any Person, any other Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such Person.
Affiliated Company: the meaning specified in Section 3.12.
Banking Day: any day, excluding Saturday and Sunday and
excluding any other day which shall be in San Francisco, California, a legal
holiday or a day on which banking institutions are authorized by law to close.
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Capital Expenditure: any payment made directly or indirectly
for the purpose of acquiring or constructing fixed assets, real property or
equipment which in accordance with generally accepted accounting principles
would be added as a debit to the fixed asset account of the Person making such
expenditure, including, without limitation, amounts paid or payable under any
conditional sale or other title retention agreement or under any lease or other
periodic payment arrangement which is of such a nature that payment obligations
of the lessee or obligor thereunder would be required by generally accepted
accounting principles to be capitalized and shown as liabilities on the balance
sheet of such lessee or obligor.
Capital Lease: any lease of property (real, personal or mixed)
which, in accordance with generally accepted accounting principles, should be
capitalized on the lessee's balance sheet or for which the amount of the asset
and liability thereunder as if so capitalized should be disclosed in a note to
such balance sheet.
Closing Date: the meaning specified in Section 1.6.
Code: the meaning specified in Section 3.12.
Company: the meaning specified at the beginning of this
Agreement.
Consents: the meaning specified in Section 3.11.
Dominion: the meaning specified at the beginning of this
Agreement.
Equipment Loan Fee: The meaning specified in Section 1.3(D).
ERISA: the meaning specified in Section 3.12.
Event of Default: the meaning specified in Article 8.
Hazardous Material: (a) any asbestos or insulation or other
material composed of or containing asbestos and (b) any petroleum product and
any hazardous, toxic or dangerous waste, substance or material defined as such
in (or for purposes of) the Comprehensive Environmental Response, Compensation
and Liability Act, any so-called "Superfund" or "Superlien" law, or any other
applicable federal, state, local or other statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
Indebtedness: as applied to any Person, (i) all items (except
items of capital or surplus or of retained earnings) which in accordance with
generally accepted accounting principles would be included in determining total
liabilities as shown on the liability side of the balance sheet of such Person
as of the date of which Indebtedness is to be determined, including any Capital
Lease, (ii) all indebtedness secured by any mortgage, pledge, lien or
conditional sale or other title retention agreement to which any property or
asset owned or held by such Person is subject, whether or not the indebtedness
secured thereby shall have been assumed, and (iii) all indebtedness of others
which such Person has directly or indirectly guaranteed, endorsed (otherwise
than for collection or deposit in the ordinary course of business), discounted
or sold with recourse or agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, stock purchase, capital
contributions or otherwise) or otherwise to become directly or indirectly
liable.
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Intellectual Property: the meaning specified in Section 3.15.
Licenses: the meaning specified in Section 3.5.
Loans: the meaning specified in Section 1.1.
Material Contracts: the meaning specified in Section 3.4.
Note: the meaning specified in Section 1.3(A).
Operating Lease: any Lease other than a Capital Lease.
PBGC: the meaning specified in Section 3.12.
Person: a corporation, an association, a partnership, a joint
venture, an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Restricted Payment: (a) any dividend or other distribution,
direct or indirect, on or on account of any shares of any class of stock of the
Company now or hereafter outstanding, (b) any redemption, purchase or other
acquisition, direct or indirect, of any shares of any class of stock of the
Company now or hereafter outstanding or of any warrants or rights to purchase
any such stock (including without limitation the repurchase of any such stock or
warrant or any refund of the purchase price thereof in connection with the
exercise by the holder thereof of any right of rescission or similar remedies
with respect thereto).
Revolver: the meaning specified in Section 6.8.
Security Documents: the meaning specified in Section 1.3(C).
Stock Purchase Agreement: The Stock Purchase Agreement among
the Company, Dominion and certain of the Company's shareholders dated as of May
28, 1997, as amended from time to time.
Subsidiary: any corporation, partnership, limited liability
company or other entity of which more than 50% of the outstanding voting
interests (other than director's qualifying interests) is at the time owned by
the Company or by one or more Subsidiaries or by the Company and one or more
Subsidiaries.
Article 10. Setoffs, etc.
If the Company becomes insolvent, howsoever evidenced, or any Event of
Default occurs, any Indebtedness from Dominion to the Company or any Subsidiary
may, without regard to the value of the Collateral, be offset and applied toward
the payment of any Indebtedness from the Company to Dominion, whether or not
such Indebtedness, or any part thereof shall then be due.
20
<PAGE> 21
Article 11. Expenses; Indemnification.
(a) Whether or not the transactions contemplated hereby shall be
consummated, the Company agrees (i) to pay all reasonable expenses, including
reasonable fees and disbursements of counsel for Dominion, which Dominion has
incurred or may hereafter incur in connection with the preparation of this
Agreement, the Note, the Security Documents, the Warrant, the Warrant Purchase
Agreement and all other documents related hereto (including any amendment,
consent or waiver hereafter requested by the Company hereunder or thereunder)
and the transactions contemplated hereby or the enforcement of the rights of
Dominion hereunder or under the Note, the Warrant, the Warrant Purchase
Agreement or the Security Documents in the event of a default hereunder or
thereunder and (ii) to pay all taxes and fees (including interest and
penalties), including, without limitation, all recording and filing fees,
transfer and documentary stamp and similar taxes, which may be payable in
respect of the execution and delivery of this Agreement, the Note, the Warrant,
the Warrant Purchase Agreement, the Security Documents and all other documents
related hereto (including any amendment, consent or waiver hereafter requested
by the Company hereunder or thereunder) and to indemnify Dominion and hold
Dominion harmless against any loss or liability resulting from non-payment or
delay in payment of any such tax.
(b) The Company will indemnify Dominion, its directors, officers,
employees and each other Person, if any, who controls Dominion, and will hold
Dominion and such other Persons harmless from and against any and all claims,
damages, losses, liabilities, judgments and expenses (including without
limitation all reasonable fees and expenses of counsel and all expenses of
litigation or preparation therefor) which Dominion or such other Persons may
incur or which may be asserted against Dominion or such other Persons in
connection with or arising out of any investigation, litigation or proceeding
involving the Company or any shareholder or any Affiliate of the Company or any
such shareholder (including compliance with or contesting of any subpoenas or
other process issued against Dominion, or any director, officer or employee of
Dominion, or any Person, if any, who controls Dominion in any proceeding
involving the Company or any shareholder or any Affiliate of the Company or any
such shareholder), whether or not Dominion is party thereto, other than claims,
damages, losses, liabilities or judgments with respect to any matter as to which
Dominion or such other Person seeking indemnity shall have been finally
adjudicated to have acted with willful misconduct or gross negligence. Promptly
upon receipt by any indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the Company hereunder, notify the Company in writing of the
commencement thereof.
Article 12. Waivers.
Dominion's failure to insist upon the strict performance of any term,
condition or other provision of this Agreement, the Note, the Warrant, the
Warrant Purchase Agreement or the Security Documents or to exercise any right or
remedy hereunder or thereunder shall not constitute a waiver by Dominion of any
such term, condition or other provision or default or Event of Default in
connection therewith; and any waiver of any such term, condition or other
provision or of any such default or Event of Default shall not affect or alter
this Agreement, the Note, the Warrant, the Warrant Purchase Agreement or the
Security Documents and each and every term, condition and other provision of
this Agreement, the Note, the Warrant, the Warrant Purchase Agreement and the
Security Documents shall, in such event, continue in full force and effect and
shall be operative with respect to any other then existing or subsequent default
or Event of Default in connection therewith.
21
<PAGE> 22
Article 13. Miscellaneous.
13.1 Notices, etc. All notices and other communications hereunder shall
be in writing and shall be delivered by facsimile where confirmation or receipt
by the receiving party's receiver can be documented, or personally delivered by
hand or by reputable overnight courier or mailed by first class certified or
registered mail, postage prepaid, as follows:
(a) If to Dominion:
Dominion Fund IV, a Delaware Limited
Partnership
c/o Dominion Ventures, Inc.
44 Montgomery Street
Suite 4200
San Francisco, CA 94104
Attention: Michael Lee
with a copy to:
Roslyn G. Daum, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
(b) If to the Company:
Online Resources & Communications Corporation
7927 Jones Branch Drive
McLean, Virginia 22102
with a copy to:
Mark J. Wishner, Esq.
Michaels, Wishner & Bonner, P.C.
1140 Connecticut Avenue, N.W.
Suite 900
Washington, DC 20036
or to such other address or addresses as the party to whom such notice is
directed may have designated in writing to the other party hereto. A notice
shall be deemed to have been given upon receipt by the party to whom such notice
is directed, or, if receipt is refused, on the day on which delivery was
attempted.
13.2 Calculations, etc. Calculations hereunder shall be made and
financial data required hereby shall be prepared, both as to classification of
items and as to amounts, in accordance with generally accepted accounting
principles and practices which principles and practices shall be consistently
applied and in conformity with those used in the preparation of the financial
statements referred to herein.
13.3 Survival of Agreements, etc. This Agreement shall inure to the
benefit of Dominion and its successors and assigns including any subsequent
holder or holders of the Note, as the case may be, and the term "Dominion" shall
include any such holder or
22
<PAGE> 23
holders whenever the context permits. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the making of the Loan hereunder.
13.4 Counterparts, etc. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.
13.5 Entire Agreement, etc. This Agreement, together with the
agreements referred to herein, constitutes the entire contract between the
parties hereto and shall supersede and take the place of any other instrument
purporting to be an agreement of the parties hereto relating to the transactions
contemplated hereby. This Agreement may not be changed orally but only by an
agreement in writing signed by the party against whom any waiver, change,
modification or discharge is sought.
13.6 Governing Law; Jurisdiction; Waiver of Jury Trial. Each of this
Agreement, the Note and the Security Documents including the validity thereof
and the rights and obligations of the parties hereunder and thereunder, shall be
construed in accordance with and governed by the laws of The Commonwealth of
Massachusetts (without regard to its choice of law provisions). The Company, to
the extent that it may lawfully do so, hereby consents to service of process,
and to be sued, in The Commonwealth of Massachusetts and consents to the
jurisdiction of the courts of The Commonwealth of Massachusetts and the United
States District Court for the District of Massachusetts, as well as to the
jurisdiction of all courts to which an appeal may be taken from such courts, for
the purpose of any suit, action or other proceeding arising out of any of its
obligations hereunder or under the Note, the Warrant, the Warrant Purchase
Agreement or the Security Documents or with respect to the transactions
contemplated hereby or thereby, and expressly waives any and all objections it
may have as to venue in any such courts. The Company further agrees that a
summons and complaint commencing an action or proceeding in any of such courts
shall be properly served and shall confer personal jurisdiction if served
personally or by certified mail to it at its address provided in Section 13.1 or
as otherwise provided under the laws of The Commonwealth of Massachusetts. The
Company irrevocably waives all right to a trial by jury in any proceeding
hereafter instituted by or against the Company in respect of this Agreement, the
Note, the Security Documents or any other documents executed in connection
herewith or therewith.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
a sealed instrument as of the date first above written.
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By: [sig]
---------------------------------
Chief Executive Officer
DOMINION FUND IV, A DELAWARE
LIMITED PARTNERSHIP
By Dominion Management IV, L.L.C.
its General Partner
By: [sig]
---------------------------------
Michael Lee
Member
24
<PAGE> 25
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
Senior Secured Equipment Note
$2,000,000 June 3,1997
Online Resources & Communications Corporation, a Delaware corporation
(the "Company"), for value received, hereby promises to pay to Dominion Fund IV,
a Delaware Limited Partnership ("Dominion"), or order, in accordance with the
schedule described below, Two Million Dollars ($2,000,000) or such much thereof
which is advanced from time to time hereunder, with interest on the unpaid
principal amount hereof at a rate per month equal to 9% per annum.
The principal and interest on this Note shall be payable as follows:
Monthly payments of interest only at the rate of 9% (.75% per month) shall be
payable in arrears on the first day of each month commencing July 1, 1997 and
continuing through June 1, 1998. Thereafter, this Note shall be paid commencing
on July 1, 1998 in 36 equal monthly installments of principal and interest. All
principal and interest due under this Note shall be paid in full by June 1,
2001.
In the event the Company shall fail to make any payment of principal of
or interest on this Note when due, whether at maturity or at a date fixed for
the payment of any installment or prepayment thereof or by declaration,
acceleration or otherwise, the Company shall pay to the holder of this Note on
demand by such holder, interest on such unpaid principal and (to the extent
permitted by law) on such unpaid interest and additional interest from the date
due until paid in full at a rate equal to 2% per month; provided, that in no
event shall the amount contracted for and agreed to be paid by the Company as
interest on this Note exceed the highest lawful rate permissible under any law
applicable hereto.
This Note evidences the Loan under, and is subject to the provisions
of, a certain Loan Agreement dated as of May 28, 1997 (as amended from time to
time, the "Loan Agreement") by and between the Company and Dominion. The holder
of this Note is entitled to the benefits of the Loan Agreement and to the
benefits of the Security Documents referred to therein. Neither this reference
to such Loan Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Company to pay the principal of and
interest on this Note as provided herein. All payments of principal of and
interest on this Note shall be payable in immediately available funds at the
address of Dominion set forth in the Loan Agreement.
This Note may be prepaid at any time subject to the conditions set
forth in the Loan Agreement. In the event that the Company prepays all or any
portion of this Note, each prepayment of principal shall be accompanied by all
accrued but unpaid interest on the amount prepaid.
The maker and all endorsers of this Note hereby waive presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance or enforcement of this Note.
<PAGE> 26
This Note is governed by the laws of The Commonwealth of Massachusetts
without reference to its choice of law provisions and is executed as a sealed
instrument as of the date first above written.
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
By: [sig]
-----------------------------------------
President or CEO
<PAGE> 1
EXHIBIT 10.4
SECURITY AGREEMENT
THIS AGREEMENT, dated as of the 3rd day of June, 1997, by and between
Online Resources & Communications Corporation, a Delaware corporation having
its principal place of business at 7927 Jones Branch Drive, McLean, Virginia
22102 ("the Company"), and Dominion Fund IV, a Delaware Limited Partnership,
having an address at 44 Montgomery Street, Suite 4200, San Francisco, CA 94104
(the "Secured Party").
WITNESSETH:
WHEREAS, the Company and the Secured Party entered into a Loan
Agreement dated as of the date hereof (as amended from time to time, the "Loan
Agreement") pursuant to which the Secured Party agreed, subject to the terms
and conditions set forth therein, to make a loan to the Company (the "Loan"),
such Loan to be evidenced by a Promissory Note of the Company payable to the
order of the Secured Party (the "Note"); and
WHEREAS, the obligation of the Secured Party to make the Loan is
subject to the condition, among others, that the Company shall execute and
deliver this Agreement and grant the security interest hereinafter described;
NOW, THEREFORE, in consideration of the willingness of the Secured
Party to enter into the Loan Agreement and to agree, subject to the terms and
conditions set forth therein, to make the Loan to the Company pursuant thereto,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, it is hereby agreed as follows:
1. Security Interest. As security for the Secured Obligations
described in section 2 hereof, the Company hereby grants to the Secured Party a
security interest in and lien on all of the tangible and intangible personal
property and fixtures of the Company described below, whether now owned or
existing or hereafter acquired or arising, together with any and all additions
thereto and replacements and proceeds thereof (hereinafter referred to
collectively as the "Collateral"):
(a) all of the Company's tangible personal property, set
forth in Schedule 1 hereof as the same may be amended from time to time; and
(b) All of the Company's inventory, goods, raw materials,
supplies, work-in-process and finished goods (collectively, "Inventory")
whether now owned or hereafter acquired.
2. Secured Obligations. The security interest hereby granted
shall secure the due and punctual payment and performance of the following
liabilities and obligations of the Company (herein called the "Secured
Obligations"):
<PAGE> 2
(a) Principal of and interest on the Note; and
(b) Any and all other obligations of the Company to the
Secured Party under the Loan Agreement or under any agreement or instrument
relating thereto, all as amended from time to time.
3. Special Warranties and Covenants of Company. The Company
hereby warrants and covenants to the Secured Party that:
(a) The address shown at the beginning of this Agreement
is the principal place of business of the Company and all of the Company's
additional places of business, if any, and the locations of all of the
Collateral are listed in Schedule 2 attached hereto. The Company will not
change its principal or any other place of business, or the location of any
Collateral, or make any change in the Company's name or conduct the Company's
business operations under any fictitious business name or trade name, without,
in any such case, at least thirty (30) days' prior written notice to the
Secured Party.
(b) The Company is the owner of the Collateral free from
any lien, security interest or encumbrance and the Company will defend the
Collateral against all claims and demands of all persons at any time claiming
the same or any interest therein.
(c) Except as permitted by the Loan Agreement or
otherwise consented to in writing by the Secured Party, the Company will not
sell or otherwise dispose of any of the Collateral or any interest therein,
other than inventory sold in the ordinary course of business, nor will the
Company create, incur or permit to exist any mortgage, lien, charge,
encumbrance or security interest whatsoever with respect to the Collateral,
other than the liens permitted by Section 7.2 of the Loan Agreement.
(d) The Company will keep the Collateral in good order
and repair and adequately insured at all times in accordance with the
provisions of the Loan Agreement. The Company will pay promptly when due all
taxes and assessments on the Collateral or for its use or operation, except for
taxes and assessments permitted to be contested as provided in Section 6. of
the Loan Agreement. The Secured Party may at its option discharge any taxes,
liens, security interests or other encumbrances to which any Collateral is at
any time subject, and may, upon the failure of the Company so to do, purchase
insurance on any Collateral and pay for the repair, maintenance or preservation
thereof, and the Company agrees to reimburse the Secured Party on demand for
any reasonable payments or expenses incurred by the Secured Party pursuant to
the foregoing authorization and any unreimbursed amounts shall constitute
Secured Obligations for all purposes hereof.
- 2 -
<PAGE> 3
(e) The Company will promptly execute and deliver to the
Secured Party such financing statements, certificates and other documents or
instruments as may be necessary to enable the Secured Party to perfect or from
time to time renew the security interest granted hereby, including, without
limitation, such financing statements, certificates and other documents as may
be necessary to perfect a security interest in any additional Collateral
hereafter acquired by the Company or in any replacements or proceeds thereof.
The Company authorizes and appoints the Secured Party, in case of need, to
execute such financing statements, certificates and other documents in its
stead, with full power of substitution, as the Company's attorney in fact. The
Company further agrees that a carbon, photographic or other reproduction of a
security agreement or financing statement is sufficient as a financing
statement under this Agreement.
4. Fixtures, etc. It is the intention of the parties hereto that
none of the Collateral shall become fixtures and the Company will take all such
reasonable action or actions as may be necessary to prevent any of the
Collateral from becoming fixtures. Without limiting the generality of the
foregoing, the Company will, if requested by the Secured Party, use its best
efforts to obtain waivers of lien, in form satisfactory to the Secured Party,
from each lessor of real property on which any of the Collateral is or is to be
located.
5. Events of Default. The Company shall be in default under this
Agreement upon the happening of any of the following events or conditions
(herein called "Events of Default"):
(a) Default shall be made in the due and punctual payment
of any principal of or premium, if any, or interest on any of the Secured
Obligations when and as the same shall be due and payable (whether at maturity
or at a date fixed for any prepayment or installment or by declaration or
acceleration or otherwise) and such default shall continue beyond the
expiration of the applicable period of grace, if any; or
(b) Any other Event of Default (as defined or provided in
the Loan Agreement) shall occur.
6. Rights and Remedies of Secured Party. Upon the occurrence of
any Event of Default, such default not having previously been remedied or
cured, the Secured Party shall have the following rights and remedies:
(a) All rights and remedies provided by law, including,
without limitation, those provided by the Uniform Commercial Code;
(b) All rights and remedies provided in this Agreement; and
- 3 -
<PAGE> 4
(c) All rights and remedies provided in the Loan
Agreement, or in the Note or in any other agreement, document or instrument
pertaining to the Secured Obligations.
7. Right of Secured Party to Dispose of Collateral, etc. Upon the
occurrence of any Event of Default, such default not having previously been
remedied or cured, but subject to the provisions of the Uniform Commercial Code
or other applicable law, the Secured Party shall have the right to take
possession of the Collateral and, in addition thereto, the right to enter upon
any premises on which the Collateral or any part thereof may be situated and
remove the same therefrom. The Secured Party may require the Company to make
the Collateral (to the extent the same is moveable) available to the Secured
Party at a place to be designated by the Secured Party which is reasonably
convenient to both parties. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, the Secured Party will give the Company at least ten (10) days' prior
written notice at the address of the Company set forth above (or at such other
address or addresses as the Company shall specify in writing to the Secured
Party) of the time and place of any public sale thereof or of the time after
which any private sale or any other intended disposition thereof is to be made.
Any such notice shall be deemed to meet any requirement hereunder or under any
applicable law (including the Uniform Commercial Code) that reasonable
notification be given of the time and place of such sale or other disposition.
After deducting all costs and expenses of collection, storage, custody, sale or
other disposition and delivery (including legal costs and attorneys' fees) and
all other charges against the Collateral, the residue of the proceeds of any
such sale or disposition shall be applied to the payment of the Secured
Obligations in such order of priority as the Secured Party shall determine and
any surplus shall be returned to the Company or to any person or party lawfully
entitled thereto (including, if applicable, any subordinated creditors of the
Company). Such sale of the Collateral shall be conducted in a commercially
reasonable manner. In the event the proceeds of any sale, lease or other
disposition of the Collateral hereunder are insufficient to pay all of the
Secured Obligations in full, the Company will be liable for the deficiency (to
the extent such sale of Collateral was conducted in a commercially reasonable
manner) together with interest thereon at the maximum rate provided in the
Note, and the cost and expenses of collection of such deficiency, including (to
the extent permitted by law), without limitation, reasonable attorneys' fees,
expenses and disbursements.
8. Right of Secured Party to Use and Operate Collateral, etc.
Upon the occurrence and during the continuance of any Event of Default, but
subject to the provisions of the Uniform Commercial Code or other applicable
law, the Secured Party shall have the right and power to take possession of all
or any part of the Collateral, and to exclude the Company and all persons
claiming under the Company wholly or partly
- 4 -
<PAGE> 5
therefrom, and thereafter to hold, store, and/or use, operate, manage and
control the same. Upon any such taking of possession, the Secured Party may,
from time to time, at the expense of the Company, make all such repairs,
replacements, alterations, additions and improvements to and of the Collateral
as the Secured Party may deem proper. In any such case the Secured Party shall
have the right to manage and control the Collateral and to carry on the
business and to exercise all rights and powers of the Company in respect
thereto as the Secured Party shall deem best, including the right to enter into
any and all such agreements with respect to the operation of the Collateral or
any part thereof as the Secured Party may see fit; and the Secured Party shall
be entitled to collect and receive all rents, issues, profits, fees, revenues
and other income of the same and every part thereof. Such rents, issues,
profits, fees, revenues and other income shall be applied to pay the expenses
of holding and operating the Collateral and of conducting the business thereof,
and of all maintenance, repairs, replacements, alterations, additions and
improvements, and to make all payments which the Secured Party may be required
or may elect to make, if any, for taxes, assessments, insurance and other
charges upon the Collateral or any part thereof, and all other payments which
the Secured Party may be required or authorized to make under any provision of
this Agreement (including legal costs and attorneys' fees). The remainder of
such rents, issues, profits, fees, revenues and other income shall be applied
to the payment of the Secured Obligations in such order of priority as the
Secured Party shall determine and, unless otherwise provided by law or by a
court of competent jurisdiction, any surplus shall be returned to the Company
or to any person or party lawfully entitled thereto (including, if applicable,
any subordinated creditors of the Company). Without limiting the generality of
the foregoing, the Secured Party shall have the right to apply for and have a
receiver appointed by a court of competent jurisdiction in any action taken by
the Secured Party to enforce its rights and remedies hereunder in order to
manage, protect and preserve the Collateral and continue the operation of the
business of the Company, or to sell or dispose of the Collateral, and to
collect all revenues and profits thereof and apply the same to the payment of
all expenses and other charges of such receivership, including the compensation
of the receiver, and to the payment of the Secured Obligations as aforesaid
until a sale or other disposition of such Collateral shall be finally made and
consummated.
9. (Intentionally Omitted]
10. Waivers, etc. The Company hereby waives presentment, demand,
notice, protest and, except as is otherwise provided herein, all other demands
and notices in connection with this Agreement or the enforcement of the Secured
Party's rights hereunder or in connection with any Secured Obligations or any
Collateral; consents to and waives notice of the granting of renewals,
extensions of time for payment or other indulgences to the Company or to any
account debtor in respect of any account receivable or to any other third
party, or substitution, release or surrender of any Collateral, the addition or
release of
- 5 -
<PAGE> 6
persons primarily or secondarily liable on any Secured Obligation or on any
account receivable or other Collateral, the acceptance of partial payments on
any Secured Obligation or on any account receivable or other Collateral and/or
the settlement or compromise thereof. No delay or omission on the part of the
Secured Party in exercising any right hereunder shall operate as a waiver of
such right or of any other right hereunder. Any waiver of any such right on any
one occasion shall not be construed as a bar to or waiver of any such right on
any future occasion. The Company further waives any right it may have under the
constitution of The Commonwealth of Massachusetts, the Commonwealth of Virginia
(or under the constitution of any other state in which any of the Collateral
may be located), or under the Constitution of the United States of America, to
notice (other than any requirement of notice provided herein) or to a judicial
hearing prior to the exercise of any right or remedy provided by this Agreement
to the Secured Party and waives its rights, if any, to set aside or invalidate
any sale duly consummated in accordance with the foregoing provisions hereof on
the grounds (if such be the case) that the sale was consummated without a prior
judicial hearing. The Company's waivers under this section have been made
voluntarily, intelligently and knowingly and after the Company has been
apprised and counseled by its attorneys as to the nature thereof and its
possible alternative rights.
11. Termination: Assignment, etc. This Agreement and the security
interest in the Collateral created hereby shall terminate after all of the
Secured Obligations have been paid and finally discharged in full (provided
that the Secured Party is no longer obligated to make loans under the Loan
Agreement). No waiver by the Secured Party or by any other holder of Secured
Obligations of any default shall be effective unless in writing nor operate as
a waiver of any other default or of the same default on a future occasion. In
the event of a sale or assignment by the Secured Party of all or any of the
Secured Obligations held by it, the Secured Party may assign or transfer its
rights and interest under this Agreement in whole or in part to the purchaser
or purchasers of such Secured Obligations, whereupon such purchaser or
purchasers shall become vested with all of the powers and rights of the Secured
Party hereunder, and the Secured Party shall thereafter be forever released and
fully discharged from any liability or responsibility hereunder with respect to
the rights and interest so assigned.
12. Reinstatement. Notwithstanding the provisions of section 11,
this Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any amount received by the Secured Party in respect of the
Secured Obligations is rescinded or must otherwise be restored or returned by
the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or upon the appointment of any intervenor or
conservator of, or trustee or similar official for, the Company or any
substantial part of its properties, or otherwise, all as though such payments
had not been made.
- 6 -
<PAGE> 7
13. Notices. Except as otherwise provided herein, all notices to
the Company or to the Secured Party shall be in writing and shall be deemed to
have been sufficiently given or served for all purposes hereof if delivered by
facsimile where confirmation of receipt by the receiving party's receiver can
be documented, or personally delivered by hand or by reputable overnight
courier or mailed by first class certified or registered mail, postage prepaid,
as follows:
(a) if to the Company, at the address set forth in the
Loan Agreement;
(b) if to the Secured Party, at the address set forth in
the Loan Agreement;
or at such other address as the party to whom such notice is directed may have
designated in writing to the other party hereto. A notice shall be deemed to
have been given upon receipt by the party to whom such notice is directed.
14. Miscellaneous. This Agreement shall inure to the benefit of
and be binding upon the Secured Party and the Company and their respective
successors and assigns, and the term "Secured Party" shall be deemed to include
any other holder or holders of any of the Secured Obligations. In case any
provision in this Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
15. Governing Law, jurisdiction, Waiver of Jury Trial. This
Agreement, including the validity hereof and the rights and obligations of the
parties hereunder, shall be construed in accordance with and governed by the
laws of The Commonwealth of Massachusetts (without regard to its choice of law
provisions). The Company, to the extent that it may lawfully do so, hereby
consents to service of process, and to be sued, in The Commonwealth of
Massachusetts and consents to the jurisdiction of the courts of The
Commonwealth of Massachusetts and the United States District Courts for the
District of Massachusetts, as well as to the jurisdiction of all courts to
which an appeal may be taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of its obligations hereunder or
with respect to the transactions contemplated hereby, and expressly waives any
and all objections it may have as to venue in any such courts. The Company
further agrees that a summons and complaint commencing an action or proceeding
in any of such courts shall be properly served and shall confer personal
jurisdiction if served personally or by certified mail to it at its address
provided in section 14 hereof or as otherwise provided under the laws of The
Commonwealth of Massachusetts. The Company irrevocably waives all right to a
trial by jury in any suit,
- 7 -
<PAGE> 8
action or other proceeding instituted by or against the Company in a respect of
its obligations hereunder or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date first above written.
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION
By [sig]
------------------------------------
Chairman CEO
DOMINION FUND IV, A DELAWARE
LIMITED PARTNERSHIP
By Dominion Management IV, L.L.C.
Its general partner
By [sig]
-----------------------------------
Michael Lee
Member
- 8 -
<PAGE> 9
SCHEDULE 1
All of the Company's Inventory and Equipment now held and hereafter
acquired including all Proceeds derived therefrom. The capitalized terms
referred to above shall have the same meanings as are given to those terms by
the Uniform Commercial Code as in effect in any jurisdiction in which any
financing statement pertaining to the above is filed.
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Schedule 2
Locations of Collateral
7923 and 7927 Jones Branch Drive
McLean, Virginia 22102
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EXHIBIT 10.5
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 31st day of March,
1998, is made and entered into on the terms and conditions hereinafter set
forth, by and between ONLINE RESOURCES & COMMUNICATIONS CORPORATION, a Delaware
corporation ("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee
corporation ("Lender").
RECITALS:
WHEREAS, Borrower has requested that Lender make available to Borrower a
term loan in the original principal amount of Six Million Dollars ($6,000,000)
(the "Loan") on the terms and conditions hereinafter set forth, and for the
purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower,
Borrower has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements of
Borrower, has agreed to make the Loan upon the terms and conditions hereinafter
set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms
and conditions contained herein, the Lender shall make the Loan to Borrower by
wire transfer in immediately available funds. The Loan shall be evidenced by a
Secured Promissory Note in the original principal amount of Six Million Dollars
($6,000,000), dated as of the date hereof, executed by Borrower in favor of
Lender (the "Note"). The Loan shall be payable in accordance with the terms of
the Note. The Note, this Agreement and any other instruments and documents
executed by Borrower, or any shareholder, member, partner, subsidiary or
affiliate of Borrower ("Affiliates"), now or hereafter evidencing, securing or
in any way related to the indebtedness evidenced by the Note are herein
individually referred to as a
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"Loan Document" and collectively referred to as the "Loan Documents." The term
"Obligations" as used herein shall refer to (a) the Loan to be made
concurrently or in connection with this Agreement, as evidenced by the Note,
and any renewals or extensions thereof, (b) the full and prompt payment and
performance of any and all other indebtednesses and other obligations of
Borrower to Lender, direct or contingent (including but not limited to
obligations incurred as indorser, guarantor or surety), however evidenced or
denominated, and however and whenever incurred, including but not limited to
indebtednesses incurred pursuant to any present or future commitment of Lender
to Borrower and (c) all future advances made by Lender for taxes, levies,
insurance and preservation of the Collateral and all attorneys' fees, court
costs and expenses of whatever kind incident to the collection of any of said
indebtedness or other obligations and the enforcement and protection of the
security interest created hereby or by the other Loan Documents.
1.2 Processing Fee. Borrower shall pay Lender a processing fee of One
Hundred Twenty Thousand Dollars ($120,000), Thirty Six Thousand Dollars
($36,000) of which has previously been paid to Lender and Eighty Four Thousand
Dollars ($84,000) of which shall be paid on the date the Loan is funded.
1.3 Prepayment. Borrower may prepay the indebtedness evidenced by the
Note in whole or in part at any time and from time to time, without penalty or
premium.
1.4 Purposes of Loan and Use of Proceeds. The purpose of the Loan shall
be: (i) to provide additional working capital to Borrower and (ii) to pay off
certain existing indebtedness in the principal amount not exceeding $150,000.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrower's Representations. Borrower hereby represents and warrants
to Lender as follows:
(a) Corporate Status. Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware; and has the corporate power to own and operate its properties,
to carry on its business as now conducted and to enter into and to
perform its obligations under this Agreement and the other Loan
Documents to which it is a party. Borrower is duly qualified to do
business and in good standing in each state in which a failure to be so
qualified would have a material adverse effect on Borrower's financial
condition or its ability to conduct its business in the manner now
conducted.
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(b) Subsidiaries. Borrower neither owns nor has an interest in,
directly or indirectly, any other corporation, partnership, joint
venture or other business organization ("Subsidiaries").
(c) Authorization. Borrower has full legal right, power and
authority to conduct its business and affairs. Borrower has full legal
right, power and authority to enter into and perform its obligations
under the Loan Documents, without the consent or approval of any other
person, firm, governmental agency or other legal entity. The execution
and delivery of this Agreement, the borrowing hereunder, the execution
and delivery of each Loan Document to which Borrower is a party, and the
performance by Borrower of its obligations thereunder are within the
corporate powers of Borrower and have been duly authorized by all
necessary corporate action properly taken and Borrower has received all
necessary governmental approvals, if any, that are required. The
officer(s) executing this Agreement, the Note and all of the other Loan
Documents to which Borrower is a party are duly authorized to act on
behalf of Borrower.
(d) Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other
similar laws affecting the rights of creditors generally or the
application of general equitable principles.
(e) Capitalization. Attached hereto as Schedule 2.1(e) as a table
showing the capitalization of Borrower, as of the date hereof, on a
fully diluted basis. As of the date hereof, Borrower does not have
outstanding any stock or securities convertible or exchangeable for any
shares of its Common Stock or Preferred Stock or containing any profit
participation features, and does not have outstanding any rights or
options to subscribe for or to purchase its Common Stock or Preferred
Stock or any stock appreciation rights or phantom stock plans, except as
set forth on Schedule 2.1(e) and the Warrant. Schedule 2.1(e) accurately
sets forth the following with respect to all outstanding options and
rights to acquire the Borrower's Common Stock or Preferred Stock: (i)
the total number of shares issuable upon exercise of all outstanding
options; and (ii) the range of exercise prices for all such outstanding
options. As of the date hereof, Borrower is not subject to any
obligation (contingent or otherwise) to repurchase, redeem, retire or
otherwise acquire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except as set
forth in the Warrant or on Schedule 2.1(e). As of the date hereof, all
of the outstanding shares of Borrower's capital stock are validly
issued, fully paid and
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nonassessable. Except as set forth on Schedule 2.1(e), there are no
statutory or contractual preemptive rights, rights of first refusal,
anti-dilution rights or any similar rights, held by stockholders or
option holders of Borrower, with respect to the issuance of the Warrant
or the issuance of the Common Stock upon exercise of the Warrant and all
such rights have been effectively waived with regard to the issuance of
the Warrant, the exercise of the Warrant and the issuance of the Common
Stock upon exercise of the Warrant. Borrower has not violated any
applicable federal or to its knowledge state securities laws in
connection with the offer, sale or issuance of any of its capital
stock, and the offer, sale and issuance of the Warrant hereunder do not
require registration under the Securities Act of 1933, as amended, or
any applicable state securities laws. To the best of Borrower's
knowledge, there are no agreements among Borrower's shareholders with
respect to any other aspect of Borrower's affairs, except as set forth
on Schedule 2.1(e).
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an accurate and
complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses,
formulas and applications theref or owned by Borrower or used or
required by Borrower in the operation of its business, title to each of
which is, except as set forth in Schedule 2.1(f) hereto, held by Borrower
free and clear of all adverse claims, liens, security agreements,
restrictions or other encumbrances. Except as set forth in Schedule
2.1(f), Borrower owns or possesses adequate (and will use its best
efforts to obtain as expediently as possible any additional) licenses or
other rights to use all patents, trademarks, trade names, service marks,
trade secrets or other intangible property rights and know-how necessary
to entitle Borrower to conduct its business as presently being
conducted. There is no infringement action, lawsuit, claim or complaint
which asserts that Borrower's operations violate or infringe the rights
or the trade names, trademarks, trademark registrations, service names,
service marks or copyrights of others with respect to any apparatus or
method of Borrower or any adversely held trademarks, trade names,
trademark registrations, service names, service marks or copyrights, and
Borrower is not in any way making use of any confidential information or
trade secrets of any person, except with the consent of such person.
Except as set forth in Schedule 2.1(f), Borrower has taken reasonable
steps to protect its proprietary information (except disclosure of
source codes pursuant to licensing agreements) and is the lawful owner
of the proprietary information free and clear of any claim of any third
party. As used herein, "proprietary information" includes without
limitation, (i) any computer programming language, software, hardware,
firmware or related documentation, inventions, technical and
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nontechnical data related thereto, and (ii) other documentation,
inventions and data related to patterns, plans, methods, techniques,
drawings, fiances, customer lists, suppliers, products, special pricing
and cost information, designs, processes, procedures, formulas, research
data owned or used by Borrower or marketing studies conducted by
Borrower, all of which Borrower considers to be commercially important
and competitively sensitive and which generally has not been disclosed
to third parties.
(g) No Conflicts. Consummation of the transactions contemplated
hereby and the performance of the obligations of Borrower under and by
virtue of the Loan Documents do not conflict with, and will not result
in any breach of, or constitute a default or trigger a lien under, any
mortgage, security deed or agreement, deed of trust, lease, bank loan or
credit agreement, corporate charter or bylaws, agreement or certificate
of limited partnership, partnership agreement, license, franchise or any
other instrument or agreement to which Borrower is a party or by which
Borrower or its respective properties may be bound or affected or to
which Borrower has not obtained an effective waiver.
(h) Litigation. There are no actions, suits, arbitrations,
administrative hearings or other proceedings pending, or, to the
knowledge of Borrower threatened, against or affecting Borrower or any
of Borrower's property or involving the validity or enforceability of
any of the Loan Documents at law or in equity, or before any
governmental or administrative agency. To Borrower's knowledge, Borrower
is not subject to any order, writ, injunction, decree or demand of any
court or any governmental authority.
(i) Financial Statements. The financial statements of Borrower dated
December 31, 1997 and March 31, 1998, which are attached hereto as
Schedule 2.1(i) (A), are true and correct in all material respects, have
been prepared on the basis of generally accepted accounting principles
consistently applied, and fairly present the financial condition of
Borrower as of the date(s) thereof. No material adverse change has
occurred in the financial condition of Borrower since the date(s)
thereof, and no additional borrowings have been made by Borrower since
the date(s) thereof other than as set forth on Schedule 2.1(i)(B).
(j) Other Agreements; No Defaults. Except as set forth on Schedule
2.1(j), Borrower is not a party to any indenture, loan or credit
agreement, lease or other agreement or instrument, or subject to any
charter or corporate restriction, that could have a material adverse
effect on the business, properties, assets, operations or
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conditions, financial or otherwise, of Borrower, or the ability of
Borrower to carry out its obligations under the Loan Documents to which
it is a party. Borrower is not in default in any respect in the
performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument
material to its business to which it is a party, including but not
limited to this Agreement and the other Loan Documents, and no other
default or event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of default
under any of same.
(k) Compliance With Law. Borrower has obtained all necessary
licenses, permits and approvals and authorizations necessary or required
in order to conduct its business and affairs as heretofore conducted and
as hereafter intended to be conducted. Borrower is in compliance with
all laws, regulations, decrees and orders applicable to it (including
but not limited to laws, regulations, decrees and orders relating to
environmental, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), except
to the extent that any noncompliance, in the aggregate, cannot
reasonably be expected to have a material adverse effect on its
business, operations, property or financial condition and will not
materially adversely affect Borrower's ability to perform its
obligations under the Loan Documents.
(l) Debt. Schedule 2.1(l) is a complete and correct list of all
credit agreements, indentures, purchase agreements, promissory notes and
other evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing
for or relating to extensions of credit (including agreements and
arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which the Borrower or any of its properties is
in any manner directly or contingently obligated and the maximum
principal or face amounts of the credit in question that are outstanding
and that can be outstanding are correctly stated, and all liens of any
nature given or agreed to be given as security therefor are correctly
described or indicated in Schedule 2.1(l).
(m) Taxes. Borrower has filed or caused to be filed all tax returns
that are required to be filed (except for returns that have been
appropriately extended), and has paid, or will pay when due, all taxes
shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on it by any
governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being
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contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved). No tax liens have been filed
against Borrower or any of its property.
(n) Certain Transactions. Except as set forth on Schedule 2.1(n)
hereto, Borrower is not indebted, directly or indirectly, to any of its
shareholders, officers or directors or to their respective spouses or
children, in any amount whatsoever, and none of said shareholders,
officers or directors or any members of their immediate families, are
indebted to Borrower or have any direct or indirect ownership interest
in any firm or corporation, with which Borrower has a business
relationship, or any firm or corporation which competes with Borrower,
except that shareholders, officers and/or directors of Borrower may own
no more than 4.9% of outstanding stock of publicly traded companies
which may compete with Borrower. No shareholder, officer or director or
any member of their immediate families, is, directly or indirectly,
interested in any material contract with Borrower. Borrower is not a
guarantor or indemnitor of any indebtedness of any other person, firm,
corporation or other legal entity.
(o) Statements Not False or Misleading. No representation or
warranty given as of the date hereof by Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by Borrower to Lender pursuant hereto, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading.
(p) Margin Regulations. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock.
No proceeds received pursuant to this Agreement will be used to purchase
or carry any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
(q) Significant Contracts. Schedule 2.1(q) is a complete and correct
list of all contracts, agreements and other documents pursuant to which
Borrower receives revenues in excess of $150,000 per fiscal year or has
committed to make expenditures in excess of $150,000 per fiscal year.
Each such contract, agreement and other document is in full force and
effect as of the date hereof and Borrower knows of no reason why such
contracts, agreements and other documents would not remain in full force
and effect pursuant to the terms thereof.
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(r) Environment. Borrower has duly complied with, and its business,
operations, assets, equipment, property, leaseholds or other facilities
are in compliance with, the provisions of all federal, state and local
environmental, health, and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder. Borrower has been issued
and will maintain all required federal, state and local permits,
licenses, certificates and approvals relating to (i) air emissions; (ii)
discharges to surface water or groundwater; (iii) noise emissions; (iv)
solid or liquid waste disposal; (v) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or wastes
(which shall include any and all such materials listed in any federal,
state or local law, code or ordinance and all rules and regulations
promulgated thereunder as hazardous or potentially hazardous); or (vi)
other environmental, health or safety matters. Borrower has not received
notice of, or knows of, or suspects facts which might constitute any
violations of any federal, state or local environmental, health or
safety laws, codes or ordinances, and any rules or regulations
promulgated thereunder with respect to its businesses, operations,
assets, equipment, property, leaseholds, or other facilities. To
Borrower's knowledge, except in accordance with a valid governmental
permit, license, certificate or approval, there has been no emission,
spill, release or discharge into or upon (i) the air; (ii) soils, or any
improvements located thereon; (iii) surface water or groundwater; or
(iv) the sewer, septic system or waste treatment, storage or disposal
system servicing the premises, of any toxic or hazardous substances or
wastes at or from the premises; and accordingly the premises of Borrower
are free of all such toxic or hazardous substances or wastes. There has
been no complaint, order, directive, claim, citation or notice by any
governmental authority or any person or entity with respect to (i) air
emissions; (ii) spills, releases or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system
or waste treatment, storage or disposal systems servicing the premises;
(iii) noise emissions; (iv) solid or liquid waste disposal; (v) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or waste; or (vi) other environmental, health or safety
matters affecting Borrower or its business, operations, assets,
equipment, property, leaseholds or other facilities. Borrower does not
have any indebtedness, obligation or liability (absolute or contingent,
matured or not matured), with respect to the storage, treatment, cleanup
or disposal of any solid wastes, hazardous wastes or other toxic or
hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current
regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
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(s) Fees/Commissions. Borrower has not agreed to pay any finder's
fee, commission, origination fee (except for the processing and
commitment fees due pursuant to Section 1.2 hereof) or other fee or
charge to any person or entity with respect to the Loan and investment
transactions contemplated hereunder.
(t) ERISA. Borrower is in compliance in all material respects with
all applicable provisions of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat.
829, 29 U.S.C.A. Section 1001 et seq. (1975), as amended form time to
time ("ERISA") Neither a reportable event nor a prohibited transaction
(as defined in ERISA) has occurred and is continuing with respect to any
pension plan that is subject to the requirements of ERISA (a "Plan"); no
notice of intent to terminate a Plan has been filed nor has any Plan
been terminated; no circumstances exist which constitute grounds
entitling the Pension Benefit Guaranty Corporation (together with any
entity succeeding to or all of its functions, the "PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a Plan,
nor has the PBGC instituted any such proceedings; neither Borrower nor
any commonly controlled entity (as defined in ERISA) has completely or
partially withdrawn from a multiemployer plan (as defined in ERISA);
Borrower and each commonly controlled entity has met its minimum funding
requirements under ERISA with respect to all of its Plans and the
present fair market value of all Plan property exceeds the present value
of all vested benefits under each Plan, as determined on the most recent
valuation date of the Plan and in accordance with the provisions of
ERISA and the regulations thereunder for calculating the potential
liability of Borrower or any commonly controlled entity to the PBGC or
the Plan under Title IV or ERISA; and neither Borrower nor any commonly
controlled entity has incurred any liability to the PBGC under ERISA.
(u) Title to Properties. Borrower has good, indefeasible and
insurable title to, or valid leasehold interests in, all its real
properties and good title to its other assets, free and clear of all
liens other than Permitted Liens (as defined in Section 3.15 hereof).
(v) Limited Offering of Note and Warrant. Neither Borrower nor
anyone acting on its behalf has offered the Note, the Warrant or any
similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof,
with, any person other than Lender and not more than 35 other
institutional investors. Neither Borrower nor anyone acting on its
behalf has taken, or will take, any action which would subject the
issuance or sale of the Note and Warrant
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to Section 5 of the Securities Act of 1933, as amended, or the
registration or qualification provisions of the blue sky laws of any
state.
(w) Registration Rights. Except as set forth on Schedule 2.1(w),
Borrower is not under any obligation to register under the Securities
Act of 1933, as amended, or the Trust Indenture Act of 1939, as amended,
any of its presently outstanding securities or any of its securities
that may subsequently be issued.
(x) Employees. Borrower has no current labor problems or disputes
which have resulted or Borrower reasonably believes could be expected to
have a material adverse effect on the operations, properties or
financial condition of Borrower, or Borrower's ability to perform its
obligations hereunder.
(y) Issuance Taxes. All taxes imposed on Borrower in connection with
the issuance, sale and delivery of the Note, the Warrant and the capital
stock issuable upon exercise of the Warrant have been or will be fully
paid, and all laws imposing such taxes have been or will be fully
satisfied by Borrower.
(z) Solvency. As of the date hereof and giving effect to the making
of the Loan, Borrower (i) has capital sufficient to carry on its
business and transactions and all business and transactions in which it
is about to engage and is able to pay its debts as they mature, (ii)
owns property having a value, both at fair valuation and at present fair
saleable value, greater than the amount required to pay its probable
liabilities (including contingencies), and (iii) does not believe that
it will incur debts or liabilities beyond its ability to pay such debts
or liabilities as they mature.
(aa) Location of Properties, Places of Business. The only
jurisdictions in which Borrower maintains any tangible personal property
or carries on business are as listed in Schedule 2.l(aa) hereto. All
billings for the supply of goods and services by Borrower are made from,
and require payment to be made to, the chief executive office of the
Borrower.
(ab) Year 2000 Compatibility. Borrower has reviewed its financial
accounting systems and other computer systems for year 2000
compatibility and has not identified any issued that could have a
material adverse effect on Borrower's business, operations, property or
financial condition.
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ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Borrower to
Lender, direct or contingent, however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtedness incurred pursuant
to any present or future commitment of Lender to Borrower, together with
interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof.
3.2 Financial Statements and Reports. Borrower shall furnish to Lender
(a) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of Borrower, an unaudited balance sheet of Borrower as
of the close of such fiscal year, an unaudited statement of operations of
Borrower as of the close of such fiscal year and an unaudited statement of cash
flows for Borrower for such fiscal year, prepared in accordance with generally
accepted accounting principles consistently applied and accompanied by a
certificate of the President, Chief Executive Officer or Chief Financial
Officer of Borrower, stating that to the best of the knowledge of such officer,
Borrower has kept, observed, performed and fulfilled each covenant, term and
condition of this Agreement and the other Loan Documents during the preceding
fiscal year and that no Event of Default has occurred and is continuing (or if
an Event of Default has occurred and is continuing, specifying the nature of
same, the period of existence of same and the action Borrower proposes to take
in connection therewith), (b) as soon as practicable and in any event within
one hundred fifty (150) days after the end of each fiscal year of Borrower, an
audited balance sheet of Borrower as of the close of such fiscal year, an
audited statement of operations of Borrower as of the close of such fiscal year
and an audited statement of cash flows for Borrower for such fiscal year,
prepared in accordance with generally accepted accounting principles
consistently applied and accompanied by an audit report prepared by an
independent certified public accountant acceptable to Lender showing the
financial condition of Borrower at the close of such fiscal year and the
results of its operations during such fiscal year and accompanied by a
certificate of the President, Chief Executive Officer or Chief Financial
Officer of Borrower, stating that to the best of the knowledge of such officer,
Borrower has kept, observed, performed and fulfilled each covenant, term and
condition of this Agreement and the other Loan Documents during the preceding
fiscal year and that no Event of Default has occurred and is continuing (or if
an Event of Default has
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occurred and is continuing, specifying the nature of same, the period of
existence of same and the action Borrower proposes to take in connection
therewith), (c) within thirty (30) days of the end of each calendar month, a
status report indicating the financial performance of Borrower during such
month and the financial position of Borrower as of the end of such month in the
format required by Lender (which format will be delivered to Borrower on a
diskette), (d) within thirty (30) days of the end of each quarter, a balance
sheet of Borrower as of the close of such quarter and a statement of operations
of Borrower as of the close of such quarter, all in reasonable detail, and
prepared substantially in accordance with generally accepted accounting
principles consistently applied (except for the absence of footnotes and
subject to year-end adjustments), and (e) with reasonable promptness, such
other financial data, including without limitation, accounts receivable agings,
as Lender may reasonably request.
3.3 Maintenance of Books and Records; Inspection. Borrower shall
maintain its books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and after reasonable notice from
Lender permit Lender, its officers and employees and any professionals
designated by Lender in writing, at Borrower's expense, to visit and inspect
any of its properties, corporate books and financial records, and to discuss
its accounts, affairs and finances with Borrower or the principal officers of
Borrower during reasonable business hours, all at such times as Lender may
reasonably request; provided that no such inspection shall materially interfere
with the conduct of Borrower's business.
3.4 Insurance. Without limiting any of the requirements of any of the
other Loan Documents, Borrower shall maintain, in amounts customary for
entities engaged in comparable business activities, (a) to the extent required
by applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to
be unreasonably withheld or delayed), and (b) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts
as are customary in Borrower's business. Borrower will make reasonable efforts
to obtain and maintain public liability insurance in an amount, and at a cost,
deemed reasonable to the Borrower's Board of Directors. At the request of
Lender, Borrower will deliver forthwith a certificate specifying the details of
such insurance in effect.
3.5 Taxes and Assessments. Borrower shall (a) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (b) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower upon its
income and profits or
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upon any properties belonging to it, prior to the date on which penalties
attach thereto, and (c) pay all taxes, assessments and governmental charges or
levies that, if unpaid, might become a lien or charge upon any of its
properties; provided, however, that Borrower in good faith may contest any such
tax, assessment, governmental charge or levy described in the foregoing clauses
(b) and (c) so long as appropriate reserves in accordance with generally
accepted accounting principles are maintained with respect thereto.
3.6 Corporate Existence. Borrower shall maintain its corporate existence
and good standing in the state of its incorporation, and its qualification and
good standing as a foreign corporation in each jurisdiction in which such
qualification is necessary pursuant to applicable law.
3.7 Compliance with Law and Other Agreements. Except where the failure
to do so would not materially adversely affect Borrower's operations,
properties, financial condition or its ability to fulfill its obligations under
the Loan Documents, Borrower shall maintain its business operations and
property owned or used in connection therewith in compliance with (a) all
applicable federal, state and local laws, regulations and ordinances governing
such business operations and the use and ownership of such property, and (b)
all agreements, licenses, franchises, indentures and mortgages to which
Borrower is a party or by which Borrower or any of its properties is bound.
Without limiting the foregoing, Borrower shall pay all of its indebtedness
promptly in accordance with the terms thereof.
3.8 Notice of Default; Perceived Breach. Borrower shall give written
notice to Lender of the occurrence of any default, event of default or Event of
Default under this Agreement or any other Loan Document promptly upon the
occurrence thereof. Borrower agrees to give Lender prompt written notice of any
action or inaction by or on behalf of Lender in connection with this Agreement
or the Obligations that Borrower believes may be actionable against Lender or a
defense to payment of any or all Obligations for any reason, including, but not
limited to, commission of a tort or violation of any contractual duty or duty
implied by law.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (a) any actions, suits or proceedings, instituted by any persons
whomsoever against Borrower or affecting any of the assets of Borrower wherein
the amount at issue is in excess of One Hundred Fifty Thousand and No/l00ths
Dollars ($150,000.00) and (b) any dispute, not resolved within one hundred
twenty (120) days of the commencement thereof, between Borrower on the one hand
and any governmental regulatory body on the other hand, which dispute might
materially interfere with the normal operations of Borrower.
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3.10 Conduct of Business. Borrower will continue to engage in a business
of the same general type and manner as conducted by it on the date of this
Agreement. Borrower shall notify Lender within thirty (30) days of acquiring
any intellectual property registrable in the United States Patent and Trademark
Office. Borrower agrees to execute and deliver to Lender any and all documents
or other instruments that Lender deems reasonably necessary to perfect and
continue perfection of a security interest in such intellectual property.
3.11 ERISA Plan. If Borrower has in effect, or hereafter institutes, a
Plan that is subject to the requirements of ERISA, then the following warranty
and covenants shall be applicable during such period as any such Plan shall be
in effect: (a) Borrower hereby warrants that no fact that might constitute
grounds for the involuntary termination of the Plan, or for the appointment by
the appropriate United States District Court of a trustee to administer the
Plan, exists at the time of execution of this Agreement; (b) Borrower hereby
covenants that throughout the existence of the Plan, Borrower's contributions
under the Plan will meet the minimum funding standards required by ERISA and
Borrower will not institute a distress termination of the Plan; and (c)
Borrower covenants that it will send to Lender a copy of any notice of a
reportable event (as defined in ERISA) required by ERISA to be filed with the
Labor Department or the Pension Benefit Guaranty Corporation, at the time that
such notice is so filed.
3.12 Dividends. Distributions, Stock Rights, etc. Without the prior
written consent of Lender, Borrower shall not declare or pay any dividend of
any kind (other than stock dividends payable to all holders of any class of
capital stock), in cash or in property, on any class of the capital stock of
Borrower, or purchase, redeem, retire or otherwise acquire for value any shares
of such stock, nor make any distribution of any kind in cash or property in
respect thereof, nor make any return of capital of shareholders, nor make any
payments in cash or property in respect of any stock options, stock bonus or
similar plan nor grant any preemptive rights with respect to the capital stock
of Borrower. Notwithstanding the foregoing, Borrower may periodically redeem
stock or options of former employees provided such amount does not exceed
$10,000 for each such former employee.
3.13 Guaranties; Loans; Payment of Debt. Except for the types of
liabilities described on Schedule 3.13, without the prior written consent of
Lender, Borrower shall not guarantee nor be liable in any manner, whether
directly or indirectly, or become contingently liable after the date of this
Agreement in connection with the obligations or indebtedness of any person or
entity whatsoever, except for the endorsement of negotiable instruments payable
to Borrower for deposit or collection in the ordinary course of business.
Without the prior written consent
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of Lender, Borrower shall not (a) make any loan, advance or extension of credit
to any person other than in the normal course of its business, or (b) make any
payment on any subordinated debt other than trade payables incurred in the
ordinary course of Borrower's business except for the regularly scheduled
payments for the indebtedness described on Schedule 2.1(1).
3.14 Debt. Without the prior written consent of Lender, Borrower shall
not create, incur, assume or suffer to exist indebtedness of any description
whatsoever, excluding:
(a) the indebtedness evidenced by the Note;
(b) the endorsement of negotiable instruments payable to Borrower
for deposit or collection in the ordinary course of business;
(c) trade payables incurred in the ordinary course of business
(each of which, individually, does not exceed $150,000);
(d) the indebtedness listed on Schedule 2.1(1) hereto;
(e) capital lease indebtedness in an amount not to exceed $600,000
per year; and
(f) purchase money indebtedness in an amount not to exceed $500,000
per year; provided, however, the installment indebtedness to ISF, Inc.
in connection with the license to acquire certain software from Forte
Software shall not apply against this limitation.
Notwithstanding the foregoing, Lender shall not unreasonably withhold its
consent for indebtedness and liens subordinate to the Loan and all collateral
securing the Loan; provided that: (i) such subordinate indebtedness does not
have terms materially more favorable than the terms of the Loan (including
without limitation a maturity date earlier than the maturity of the Loan, (ii)
the principal amount of such subordinate indebtedness does not exceed
$4,000,000, (iii) such subordinate indebtedness and all liens securing such
indebtedness are subordinate to the Loan and all liens in favor of Lender on
all collateral securing the Loan and (iv) the holder of such subordinate
indebtedness enters into an intercreditor agreement with Lender in a form
reasonably acceptable to Lender.
3.15 No Liens. Without prior the written consent of Lender, Borrower
shall not create, incur, assume or suffer to exist any lien, security interest,
security title, mortgage, deed of trust or other encumbrance upon or with
respect to any of its assets, now owned or hereafter acquired, except the
following permitted liens (the "Permitted Liens"):
(a) liens in favor of Lender;
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(b) liens for taxes or assessments or other governmental charges or
levies if not yet due and payable;
(c) liens on leased equipment granted in connection with the
leasing of such equipment in favor of the lessor of such equipment;
(d) liens described on Schedule 2.1(1) and for indebtedness
described in 3.14(e) and (f) hereto (provided, however, that Borrower
shall cause the liens described on Schedule 2.1(1) in favor of 21st
Century Communications Partnerships, LP, 21st Century Communications T-E
Partnerships, LP, 21st Century Communications Foreign Partnerships, LP
and Applewood Associates, LP to be released and the indebtedness secured
thereby to be repaid in full or converted to Series C Preferred Stock of
Borrower within thirty (30) days of the Closing Date).
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender which consent shall not be unreasonably withheld,
Borrower shall not (a) be a party to any merger, consolidation or corporate
reorganization, nor (b) purchase or otherwise acquire all or substantially all
of the assets or stock of, or any partnership or joint venture interest in, any
other person, firm or entity, nor (c) sell, transfer, convey, or lease all or
any substantial part of its assets, nor (d) create any Subsidiaries nor convey
any of its assets to any Subsidiary.
3.17 Transactions With Affiliates. Borrower shall not enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in a comparable arm's length transaction with a person
not an affiliate. For the purposes of this Section 3.17, "affiliate" shall mean
a person, corporation, partnership or other entity controlling, controlled by
or under common control with Borrower.
3.18 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
its premises; immediately contain and remove the same, in compliance with all
applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining
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<PAGE> 17
thereto; and at Lender's request, and at Borrower's expense, provide a report
of a qualified environmental engineer, satisfactory in scope, form, and content
to Lender, and such other and further assurances reasonably satisfactory to
Lender that the condition has been corrected.
3.19 Landlord Consents. Borrower shall use its best efforts to obtain a
Landlord Consent and Subordination of Lien, in a form reasonably satisfactory
to Lender, from each landlord from whom Borrower now or hereafter may lease
space.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the Loan on
the date hereof (the "Closing Date") is subject to the fulfillment, on or prior
to the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and
conditions required by this Agreement.
(b) Lender shall have received an opinion of the Borrower's counsel,
Michaels, Wishner & Bonner, dated the Closing Date, in form and
substance satisfactory to Lender's counsel, Chambliss, Bahner & Stophel,
P.C.
(c) Borrower shall have delivered to Lender a Note executed by
Borrower, in form and substance satisfactory to Lender.
(d) Borrower shall have delivered to Lender a Stock Purchase Warrant
executed by Borrower, in form and substance satisfactory to Lender, and
the related Warrant Valuation Letter executed by Borrower.
(e) Borrower shall have delivered to Lender a Security Agreement and
related UCC-l Financing Statement(s), executed by Borrower, each of
which is in form and substance satisfactory to Lender.
(f) Borrower shall have delivered to Lender an Intellectual Property
Security Agreement executed by Borrower, in form and substance
satisfactory to Lender.
(g) Borrower shall have delivered to Lender an Authorization
Agreement for Pre-Authorized Payments (Debit) executed by Borrower, in
form and substance satisfactory to Lender.
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(h) Borrower shall have delivered to Lender copies of the corporate
charter and other publicly filed organizational documents of Borrower,
certified by the Secretary of State or other appropriate public official
in the jurisdiction in which Borrower is incorporated.
(i) Borrower shall have delivered to Lender certified (as of the
date of this Agreement) copies of all corporate action taken by
Borrower, including resolutions of its Board of Directors, authorizing
the execution, delivery and performance of the Loan Documents.
(j) Borrower shall have delivered to Lender a certificate as to the
legal existence and good standing of the Borrower, issued by the
Secretary of State or other appropriate public official in the
jurisdiction in which the Borrower is incorporated.
(k) Borrower shall have delivered to Lender certificates of the
Secretaries of State or other appropriate public officials as to
Borrower's qualification to do business and good standing in each
jurisdiction in which a failure to be so qualified would have a material
adverse effect on its financial condition or its ability to conduct its
business in the manner now conducted and as hereafter intended to be
conducted.
(l) Borrower shall have delivered to Lender a BIDCO Report completed
and executed by Borrower.
(m) Borrower shall have delivered to Lender an Escrow Agreement
executed by Borrower, in form and substance satisfactory to Lender.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest on the
indebtedness evidenced by the Note in accordance with the terms of the
Note, which default is not cured within ten (10) days;
(b) Any misrepresentation by Borrower to any material matter
hereunder or under any of the other Loan Documents, or delivery by
Borrower of any schedule, statement, resolution, report, certificate,
notice or writing to Lender that is untrue in any material respect on
the date as of which the facts set forth therein are stated or
certified;
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(c) Failure of Borrower to perform any of its obligations, covenants
or agreements under this Agreement, the Note or any of the other Loan
Documents;
(d) Borrower (i) shall generally not pay or shall be unable to pay
its debts as such debts become due, or (ii) shall make an assignment for
the benefit of creditors or petition or apply to any tribunal for the
appointment of a custodian, receiver or trustee for it or a substantial
part of its assets, or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect, or (iv) shall have had any such petition or
application filed or any such proceeding commenced against it that is
not dismissed within thirty (30) days, or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or
a substantial part of its assets, or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more;
(e) Borrower shall be liquidated, dissolved, partitioned or
terminated, or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under any of the other
Loan Documents and, if subject to a cure right, such default or event of
default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment or performance of
any obligation now or hereafter owed to Lender in connection with any
other indebtedness of Borrower now or hereafter owed to Lender;
(h) Borrower shall have defaulted and continue to be in default in
the timely payment of or performance of any covenant relating to any
other indebtedness or obligation, which in the aggregate exceeds One
Hundred Fifty Thousand and No/l00ths Dollars ($150,000.00) or materially
adversely affects Borrower's operations, properties or financial
condition; or
(i) Matthew Lawlor shall no longer be significantly involved in the
management and/or daily operations of Borrower.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a
"Curable Default"), the occurrence of such
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Curable Default shall not constitute an Event of Default hereunder if such
Curable Default is fully cured and/or corrected within thirty (30) days (ten
(10) days, if such Curable Default may be cured by payment of a sum of money)
of notice thereof to Borrower given in accordance with the provisions hereof;
provided, however, that this provision shall not require notice to Borrower and
an opportunity to cure any Curable Default of which Borrower has had actual
knowledge for the requisite number of days set forth.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any Event
of Default described in subsection 5.1(d), the indebtedness evidenced by the
Note as well as any and all other indebtedness of Borrower to Lender shall be
immediately due and payable in full; and upon the occurrence of any other Event
of Default described above, Lender at any time thereafter may at its option
accelerate the maturity of the indebtedness evidenced by the Note as well as
any and all other indebtedness of Borrower to Lender; all without notice of any
kind. Upon the occurrence of any such Event of Default and the acceleration of
the maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any and all
rights and remedies possessed by Lender pursuant to the terms of the
Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or
by statute. No delay or omission by Lender to exercise any right, power or
remedy accruing upon the occurrence of any Event of Default shall exhaust or
impair any such right, power or remedy or shall be construed to be a waiver of
any such Event of Default or an acquiescence therein, and every right, power
and remedy given by this Agreement and the other Loan Documents to Lender may
be exercised from time to time and as often as may be deemed expedient by
Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy or remedies exercised, if none is
specified, or if the remedy is provided by this Agreement, then as follows:
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First, to the costs and expenses, including without limitation
reasonable attorneys' fees and disbursements, incurred by Lender in
connection with the exercise of its remedies;
Second, to the expenses of curing the default that has occurred, in
the event that Lender elects, in its sole discretion, to cure the
default that has occurred;
Third, to the payment of the Obligations of Borrower, including but
not limited to the payment of the principal of and interest on the
indebtedness evidenced by the Note, in such order of priority as Lender
shall determine in its sole discretion; and
Fourth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the payment in full by Borrower of the Obligations, at
which time Lender shall cancel the Note and deliver it to Borrower; provided,
however, that the indemnities provided in Section 7.15 shall survive the
termination of this Agreement.
ARTICLE 7
MISCELLANEOUS
7.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorneys' fees), with interest thereon at the highest
default rate provided in the Note, shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure
to the benefit of their respective heirs, legal
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representatives, successors-in-title and assigns, whether so expressed or not.
7.3 Costs and Expenses. Borrower agrees to pay all reasonable costs and
expenses incurred by Lender in connection with the making of the Loan,
including but not limited to filing fees, recording taxes and reasonable
attorneys' fees, promptly upon demand of Lender. Borrower further agrees to pay
all premiums for insurance required to be maintained by Borrower pursuant to
the terms of the Loan Documents and all of the out-of-pocket costs and expenses
incurred by Lender in connection with the collection of the Loan, amendment to
the Loan Documents, or prepayment of the Loan, including but not limited to
reasonable attorneys' fees, promptly upon demand of Lender.
7.4 Assignment. The Note, this Agreement and the other Loan Documents
may be endorsed, assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed
of the rights and powers of Lender under all of the same to the extent
transferred and assigned. Lender may grant participations in all or any portion
of its interest in the indebtedness evidenced by the Note, and in such event
Borrower shall continue to make payments due under the Loan Documents to Lender
and Lender shall have the sole responsibility of allocating and forwarding such
payments in the appropriate manner and amounts. Borrower shall not assign any
of its rights nor delegate any of its duties hereunder or under any of the
other Loan Documents without the prior written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each and
every covenant, agreement and obligation of Borrower hereunder and under all of
the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and other charges agreed
to be paid to Lender for the use of the money advanced or to be advanced
hereunder exceed the maximum amounts collectible under applicable laws in
effect from time to time. It is understood and agreed by the parties that, if
for any reason whatsoever the interest or loan charges paid or contracted to be
paid by Borrower in respect of the indebtedness evidenced by the Note
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shall exceed the maximum amounts collectible under applicable laws in effect
from time to time, then ipso facto, the obligation to pay such interest and/or
loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by
Lender that exceed such maximum amounts shall be applied to the reduction of
the principal balance of the indebtedness evidenced by the Note and/or refunded
to Borrower so that at no time shall the interest or loan charges paid or
payable in respect of the indebtedness evidenced by the Note exceed the maximum
amounts permitted from time to time by applicable law.
7.8 Article and Section Headings; Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at the address
set forth below, or at such other address as may be supplied in writing and of
which receipt has been acknowledged in writing. The date of personal delivery
or telecopy or two (2) business days after the date of mailing (or the next
business day after delivery to such courier service), as the case may be, shall
be the date of such notice, election or demand. For the purposes of this
Agreement:
The Address of Lender is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Brent Ray
Telecopy No.: 615/726-1208
with a copy to: Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: J. Patrick Murphy, Esq.
Telecopy No.: 423/265-9574
The Address of Borrower is: Online Resources & Communications
Corporation
7600 Colshire Drive
McLean, VA 22102
Attention: George Northup
Telecopy No.: 703/394-5107
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with a copy to: Michaels, Wishner & Bonner
1140 Connecticut Avenue, Suite 900
Washington, D.C. 20003
Attention: Mark Wishner, Esq.
Telecopy No.: (202) 775-0854
7.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by
Borrower were not based upon any fact or material provided by Lender, nor was
Borrower induced or influenced to enter into this Agreement or the other Loan
Documents by any representation, statement, analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
7.12 Survival of Representations and Warranties. All representations and
warranties contained herein or in any of the Loan Documents or made by or
furnished on behalf of Borrower in connection herewith or in any Loan Documents
shall survive the execution and delivery of this Agreement and the other Loan
Documents.
7.13 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.14 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that Borrower, Lender and their respective agents have participated in
the preparation hereof.
7.15 General Indemnification. Borrower agrees to indemnify Lender, its
officers, directors, employees and agents (individually, an "Indemnified Party"
and collectively, the "Indemnified Parties") and each of them and agrees to
hold each
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of them harmless from and against any and all losses, liabilities, damages,
costs, expenses and claims of any and every kind whatsoever (except those
arising solely by reason of the gross negligence or wilful misconduct of an
Indemnified Party) which may be imposed on, incurred by, or asserted against
the Indemnified Parties or any of them arising by reason of any action or
inaction or omission to any act legally required of Borrower (including as
required pursuant hereto or pursuant to any other Loan Document).
7.16 Standard of Care; Limitation of Damages. Lender shall be liable to
Borrower only for matters arising from this Agreement or otherwise related to
the Obligations resulting from Lender's gross negligence or wilful misconduct,
and liability for all other matters is hereby waived. Lender shall not in any
event be liable to Borrower for special or consequential damages arising from
this Agreement or otherwise related to the Obligations.
7.17 Consent to Jurisdiction; Exclusive Venue. Borrower hereby
irrevocably consents to the jurisdiction of the United States District Court
for the Middle District of Tennessee and of all Tennessee state courts sitting
in Davidson County, Tennessee, for the purpose of any litigation to which
Lender may be a party and which concerns this Agreement or the Obligations. It
is further agreed that venue for any such action shall lie exclusively with
courts sitting in Davidson County, Tennessee, unless Lender agrees to the
contrary in writing.
7.18 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR
OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: [sig]
-------------------------
Title TREASURER
-----------------------
BORROWER:
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation
By: [sig]
-------------------------
Title CHAIRMAN AND CEO
-----------------------
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FIRST AMENDMENT TO
LOAN AGREEMENT AND LOAN DOCUMENTS
THIS FIRST AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS ("Amendment")
30th dated as of the day of June, 1998, is made and entered into on the terms
and conditions hereinafter set forth, by and between ONLINE RESOURCES &
COMMUNICATIONS CORPORATION, a Delaware corporation, ("Borrower"), and SIRROM
CAPITAL CORPORATION, a Tennessee corporation ("Lender").
RECITALS:
WHEREAS, Lender has previously made a term loan to Borrower in the
original principal amount of Six Million and No/l00ths Dollars ($6,000,000)
(the "Original Loan") on the terms and conditions set forth in that certain
Loan Agreement dated March 31, 1998, by and between Lender and Borrower (the
Loan Agreement as now or hereafter amended, is hereinafter referred to as the
"Loan Agreement"); and
WHEREAS, the Original Loan is further evidenced and secured by certain
agreements, documents and instruments as more particularly described in the
Loan Agreement and defined therein as the "Loan Documents"; and
WHEREAS, Borrower desires to borrow from Lender and Lender desires to lend
to Borrower an additional Two Million and No/l00ths Dollars ($2,000,000.00)
(the "Additional Loan") pursuant to a Secured Promissory Note of even date
herewith by Borrower in favor of Lender, on the terms and conditions set forth
in the Loan Agreement, secured by the Loan Documents, including (a) a security
interest in certain tangible and intangible personal property granted pursuant
to that certain Security Agreement dated March 31, 1998 between Borrower and
Lender, and (b) a security interest in certain intellectual property pursuant
to the Intellectual Property Security Agreement dated March 31, 1998, between
Borrower and Lender; and
WHEREAS, this Amendment shall amend the Loan Documents.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed thereto in the Loan Agreement.
<PAGE> 28
2. The second sentence of Section [1.1] of the Agreement is hereby
amended to read in its entirety as follows:
The Loan shall be evidenced by (i) a Secured Promissory Note (the
"First Note") in the original principal amount of Six Million and
No/l00ths Dollars ($6,000,000), dated March 31, 1998, executed by
Borrower in favor of Lender, substantially in the form attached hereto as
Exhibit A and incorporated herein by this reference and (ii) a Secured
Promissory Note (the "Second Note") in the original principal amount of
Two Million and No/100ths Dollars ($2,000,000.00) of even date herewith,
executed by Borrower in favor of Lender, substantially in the form of
Exhibit A attached to the First Amendment to Loan Agreement and Loan
Documents and incorporated herein by this reference (the First Note and
Second Note shall be referred to collectively as the "Note").
3. The obligations of Borrower in connection with and/or relating to the
Additional Loan are further evidenced and/or secured by the Loan Documents.
4. Borrower hereby represents and warrants to Lender that all of the
representations made in Section 2 of the Loan Agreement are true and correct as
of the date hereof, except as modified or supplemented by Schedule A attached
hereto and incorporated herein by this reference.
5. Borrower hereby represents and warrants to Lender that the address (es)
set forth on Schedule B attached hereto and incorporated herein by this
reference is the principal place of Borrower's business and the location of all
tangible collateral and the place where the records concerning all intangible
collateral are kept and/or maintained.
6. Borrower shall pay to Lender a processing fee of $40,000 ($20,000 of
which has previously been paid and $20,000 of which shall be paid upon funding)
and all expenses of Lender incurred in connection with the Additional Loan upon
the funding of the Additional Loan.
7. Borrower hereby certifies to Lender that it shall use the proceeds of
the Additional Loan for working capital.
8. The obligation of Lender to fund the Additional Loan on the date
hereof is subject to Borrower's delivery to Lender of each of the following:
(a) a Secured Promissory Note executed by Borrower, in form and
substance satisfactory to Lender;
2
<PAGE> 29
(b) a Stock Purchase Warrant executed by Borrower and a related
Warrant Valuation Letter, in form and substance satisfactory to Lender;
(c) an opinion of Borrower's counsel Michaels, Wishner & Bonner, in
form and substance satisfactory to Lender's counsel;
(d) the BIDCO Report completed by Borrower, in form and substance
satisfactory to Lender;
(e) an Authorization Agreement for Pre-Authorized Payments (Debit);
(f) an Escrow Agreement executed by Borrower, in form and substance
satisfactory to Lender;
(g) the written consents of the holders of at least 50% of Borrower's
Series C Preferred Stock and of Dominion Fund IV to the transactions
contemplated by the Additional Loan, in form and substance satisfactory
to Lender.
9. Borrower warrants and represents that (a) the Loan Documents are
valid, binding and enforceable against Borrower according to their terms,
subject to principles of equity and laws applicable to the rights of creditors
generally, including bankruptcy laws, and (b) no default or Event of Default
presently exists under the Loan Documents and no condition presently exists
which, with the giving of notice, the passing of time, or both, would cause
such a default or Event of Default. Borrower further acknowledges that
Borrower's obligations evidenced by the Loan Documents are not subject to any
counterclaim, defense or right of setoff existing as of the date hereof, and
Borrower hereby releases Lender from any claim, known or unknown, that Borrower
May have against Lender as of the execution of this Amendment.
10. The terms "Loan Document" and "Loan Documents" as defined in the
Loan Agreement are amended to include this Amendment.
11. This Amendment may be executed in any number of counterparts and by
different parties to this Amendment in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Amendment.
12. Except as modified and amended hereby, the Loan Documents shall
remain in full force and effect.
3
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be executed by their duly authorized officers, as
of the day and year first above written.
BORROWER: LENDER:
ONLINE RESOURCES & SIRROM CAPITAL CORPORATION,
COMMUNICATIONS CORPORATION, a Tennessee corporation
a Delaware corporation
By: [sig]
By: [sig] -----------------------------
----------------------------- Title: VICE PRESIDENT
Title: CHAIRMAN AND CEO --------------------------
--------------------------
4
<PAGE> 31
SECURED PROMISSORY NOTE
$2,000,000.00 June 30, 1998
FOR VALUE RECEIVED, the undersigned, ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation ("Maker"), promises to pay to the order of
SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Payee"; Payee and any
subsequent holder[s] hereof are hereinafter referred to collectively as
"Holder"), at the office of Payee at Sirrom Capital Corporation, P.O. Box
30378, Nashville, TN 37241-0378, or at such other place as Holder may designate
to Maker in writing from time to time, the principal sum of TWO MILLION AND
NO/l00ths DOLLARS ($2,000,000.00), together with interest on the outstanding
principal balance hereof from the date hereof at the rate of twelve and
three-quarters percent (12.75%) per annum (computed on the basis of a 360-day
year).
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on
the first (1st) day of August, 1998, and subsequent installments being payable
on the first (1st) day of each succeeding month thereafter until March 30, 2003
(the "Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without premium or penalty. Any such
prepayments shall be credited first to any accrued and unpaid interest and then
to the outstanding principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any Event of Default shall occur under and as defined in that
certain Loan Agreement dated March 31, 1998 between Maker and Payee, as amended
by that certain First Amendment to Loan Agreement and Loan Documents of even
date herewith (the "Loan Agreement"), which Event of Default is not cured
following the giving of any applicable notice and within any applicable cure
period set forth in the Loan Agreement, then, and in such event, the entire
outstanding principal balance of the indebtedness evidenced hereby, together
with any other sums advanced hereunder, under the Loan Agreement and/or under
any other instrument or document now or hereafter evidencing, securing or in any
way relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall, at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the stipulated date of maturity. Upon the occurrence of any Event of Default
as set forth herein, at the option of Holder and without notice to Maker, all
accrued and
<PAGE> 32
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall
bear interest thereafter until the earlier of the date the Event of Default is
cured or this Note is paid at an annual rate (the "Default Rate") equal to the
lesser of (i) the rate that is seven percentage points (7.0%) in excess of the
above-specified interest rate, or (ii) the maximum rate of interest allowed to
be charged under applicable law (the "Maximum Rate"), regardless of whether or
not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such Event of Default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
reasonable attorneys' fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of an Event
of Default hereunder, acceptance of a past-due installment or other indulgences
granted from time to time, shall be construed as a novation of this Note or as
a waiver of such right of acceleration or of the right of Holder thereafter to
insist upon strict compliance with the terms of this Note or to prevent the
exercise of such right of acceleration or any other right granted hereunder or
by applicable law. No extension of the time for payment of the indebtedness
evidenced hereby or any installment due hereunder, made by agreement with any
person now or hereafter liable for payment of the indebtedness evidenced
hereby, shall operate to release, discharge, modify, change or affect the
original liability of Maker hereunder or that of any other person now or
hereafter liable for payment of the indebtedness evidenced hereby, either in
whole or in part, unless Holder agrees otherwise in writing. This Note may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee, as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration
of maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder
2
<PAGE> 33
exceed the Maximum Rate. If, from any circumstances whatsoever, the fulfillment
of any provision of this Note or any other agreement or instrument now or
hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control
every other provision in any and all other agreements and instruments existing
or hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.
Maker hereby irrevocably consents to the jurisdiction of the United
States District Court for the Middle District of Tennessee and of all Tennessee
state courts sitting in Davidson County, Tennessee, for the purpose of any
litigation to which Lender may be a party and which concerns this Note or the
indebtedness evidenced hereby. It is further agreed that venue for any such
action shall lie exclusively with courts sitting in Davidson County, Tennessee,
unless Holder agrees to the contrary in writing.
HOLDER AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF
COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR
COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY,
ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation
By: [sig]
-----------------------------
Title: Chairman & CEO/
--------------------------
3
<PAGE> 34
FIRST AMENDMENT TO
LOAN AGREEMENT AND LOAN DOCUMENTS
THIS FIRST AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS ("Amendment")
dated as of the 30th day of June, 1998, is made and entered into on the terms
and conditions hereinafter set forth, by and between ONLINE RESOURCES &
COMMUNICATIONS CORPORATION, a Delaware corporation, ("Borrower"), and SIRROM
CAPITAL CORPORATION, a Tennessee corporation ("Lender").
RECITALS:
WHEREAS, Lender has previously made a term loan to Borrower in the
original principal amount of Six Million and No/l00ths Dollars ($6,000,000)
(the "Original Loan") on the terms and conditions set forth in that certain
Loan Agreement dated March 31, 1998, by and between Lender and Borrower (the
Loan Agreement as now or hereafter amended, is hereinafter referred to as the
"Loan Agreement"); and
WHEREAS, the Original Loan is further evidenced and secured by certain
agreements, documents and instruments as more particularly described in the
Loan Agreement and defined therein as the "Loan Documents"; and
WHEREAS, Borrower desires to borrow from Lender and Lender desires to
lend to Borrower an additional Two Million and No/l00ths Dollars
($2,000,000.00) (the "Additional Loan") pursuant to a Secured Promissory Note
of even date herewith by Borrower in favor of Lender, on the terms and
conditions set forth in the Loan Agreement, secured by the Loan Documents,
including (a) a security interest in certain tangible and intangible personal
property granted pursuant to that certain Security Agreement dated March 31,
1998 between Borrower and Lender, and (b) a security interest in certain
intellectual property pursuant to the Intellectual Property Security Agreement
dated March 31, 1998, between Borrower and Lender; and
WHEREAS, this Amendment shall amend the Loan Documents.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed thereto in the Loan Agreement.
<PAGE> 35
2. The second sentence of Section [1.1] of the Agreement is hereby
amended to read in its entirety as follows:
The Loan shall be evidenced by (i) a Secured Promissory Note (the
"First Note") in the original principal amount of Six Million and
No/l00ths Dollars ($6,000,000), dated March 31, 1998, executed by
Borrower in favor of Lender, substantially in the form attached hereto
as Exhibit A and incorporated herein by this reference and (ii) a
Secured Promissory Note (the "Second Note") in the original principal
amount of Two Million and No/l00ths Dollars ($2,000,000.00) of even date
herewith, executed by Borrower in favor of Lender, substantially in the
form of Exhibit A attached to the First Amendment to Loan Agreement and
Loan Documents and incorporated herein by this reference (the First Note
and Second Note shall be referred to collectively as the "Note").
3. The obligations of Borrower in connection with and/or relating to the
Additional Loan are further evidenced and/or secured by the Loan Documents.
4. Borrower hereby represents and warrants to Lender that all of the
representations made in Section 2 of the Loan Agreement are true and correct as
of the date hereof, except as modified or supplemented by Schedule A attached
hereto and incorporated herein by this reference.
5. Borrower hereby represents and warrants to Lender that the address (es)
set forth on Schedule B attached hereto and incorporated herein by this
reference is the principal place of Borrower's business and the location of all
tangible collateral and the place where the records concerning all intangible
collateral are kept and/or maintained.
6. Borrower shall pay to Lender a processing fee of $40,000 ($20,000 of
which has previously been paid and $20,000 of which shall be paid upon funding)
and all expenses of Lender incurred in connection with the Additional Loan upon
the funding of the Additional Loan.
7. Borrower hereby certifies to Lender that it shall use the proceeds of
the Additional Loan for working capital.
8. The obligation of Lender to fund the Additional Loan on the date
hereof is subject to Borrower's delivery to Lender of each of the following:
(a) a Secured Promissory Note executed by Borrower, in form and
substance satisfactory to Lender;
2
<PAGE> 36
(b) a stock Purchase Warrant executed by Borrower and a related
warrant valuation Letter, in form and substance satisfactory to Lender;
(c) an opinion of Borrower's counsel Michaels, Wishner & Bonner, in
form and substance satisfactory to Lender's counsel;
(d) the BIDCO Report completed by Borrower, in form and substance
satisfactory to Lender;
(e) an Authorization Agreement for Pre-authorized
Payments (Debit);
(f) an Escrow Agreement executed by Borrower, in form and substance
satisfactory to lender;
(g) the written consents of the holders of at least 50% of Borrower's
Series C Preferred Stock and of Dominion Fund IV to the transactions
contemplated by the Additional Loan, in form and substance satisfactory
to Lender.
9. Borrower warrants and represents that (a) the Loan Documents are
valid, binding and enforceable against Borrower according to their terms,
subject to principles of equity and laws applicable to the rights of creditors
generally, including bankruptcy laws, and (b) no default or Event of Default
presently exists under the Loan Documents and no condition presently exists
which, with the giving of notice, the passing of time, or both, would cause
such a default or Event of Default. Borrower further acknowledges that
Borrower's obligations evidenced by the Loan Documents are not subject to any
counterclaim, defense or right of setoff existing as of the date hereof, and
Borrower hereby releases Lender from any claim, known or unknown, that Borrower
may have against Lender as of the execution of this Amendment.
10. The terms "Loan Document" and "Loan Documents" as defined in the
Loan Agreement are amended to include this Amendment.
11. This Amendment may be executed in any number of counterparts and by
different parties to this Amendment in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Amendment.
12. Except as modified and amended hereby, the Loan Documents shall
remain in full force and effect.
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this amendment, or
have caused this amendment to be executed by their duly authorized officers, as
of the day and year first above written.
BORROWER: LENDER:
ONLINE RESOURCES & SIRROM CAPITAL CORPORATION,
COMMUNICATIONS CORPORATION, a Tennessee corporation
a Delaware corporation
By: [sig] By: [sig]
------------------------------ ------------------------------
Title: Chairman & CEO Title: Vice President
--------------------------- ---------------------------
4
<PAGE> 1
EXHIBIT 10.6
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the 31st day of
March, 1998, by and between ONLINE RESOURCES & COMMUNICATIONS CORPORATION, a
Delaware corporation ("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee
corporation ("Lender").
RECITALS:
WHEREAS, Lender is making a loan (the "Loan") in the amount of
$6,000,000 to Borrower, pursuant to that certain Loan Agreement of even date
herewith by and between Borrower and Lender, as it may be amended, modified or
extended from time to time (the "Loan Agreement"); and
WHEREAS, in connection with the making of the Loan, Lender desires to
obtain from Borrower and Borrower desires to grant to Lender a security
interest in certain collateral more particularly described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Security Interest. Borrower hereby grants to Lender a
security interest in the following described property (collectively, the
"Collateral"):
(a) presently existing and hereafter arising accounts, contract
rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods or the rendition of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing (collectively, "Accounts");
(b) present and future general intangibles and other personal
property (including choses or things in action, goodwill, patents,
trade names, trademarks, servicemarks, copyrights, blueprints,
drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, monies due under any royalty or
licensing agreements, infringement claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims) other
than goods and Accounts, and Borrower's
<PAGE> 2
Books relating to any of the foregoing (collectively, "General
Intangibles");
(c) present and future letters of credit, notes, drafts,
instruments, certificated and uncertificated securities, documents,
leases, and chattel paper, and Borrower's Books relating to any of the
foregoing (collectively, "Negotiable Collateral");
(d) present and future inventory in which Borrower has any interest,
including goods held for sale or lease or to be furnished under a
contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing
any of the above, and Borrower's Books relating to any of the foregoing
(collectively, "Inventory");
(e) present and hereafter acquired machinery, machine tools, motors,
equipment, furniture, furnishings, fixtures, vehicles (including motor
vehicles and trailers), tools, parts, dies, jigs, goods (other than
consumer goods or farm products), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing,
wherever located (collectively, "Equipment");
(f) books and records including: ledgers; records indicating,
summarizing, or evidencing Borrower's assets or liabilities, or the
collateral; all information relating to Borrower's business operations
or financial condition; and all computer programs, disc or tape files,
printouts, funds or other computer prepared information, and the
equipment containing such information (collectively, "Borrower's
Books");
(g) substitutions, replacements, additions, accessions, proceeds,
products to or of any of the foregoing, including, but not limited to,
proceeds of insurance covering any of the foregoing, or any portion
thereof, and any and all Accounts, General Intangibles, Negotiables,
Collateral, Inventory, Equipment, money, deposits, accounts, or other
tangible or intangible property resulting from the sale or other
disposition of the accounts, General Intangibles, Negotiable
Collateral, Inventory, Equipment, or any portion thereof or interest
therein and the proceeds thereof.
2. Secured Indebtedness. The security interest granted hereby shall
secure the prompt payment of the Obligations (as defined in the Loan Agreement)
and the prompt performance of each of the covenants and duties under the Loan
Documents (as defined in the Loan Agreement).
<PAGE> 3
3. Representations and Warranties of Borrower. Borrower represents,
warrants and agrees as follows:
(a) Except as set forth on Schedule 3(a) hereto (the "Permitted
Encumbrances"), Borrower is the owner of the Collateral free and clear
of any liens and security interests. Borrower will defend the
Collateral against the claims and demands of all persons other than the
holders of the Permitted Encumbrances.
(b) The address set forth on Schedule 3(b) hereto is Borrower's
principal place(s) of business and the location of all tangible
Collateral and the place where the records concerning all intangible
Collateral are kept and/or maintained.
(c) Borrower will pay all costs of filing of financing, continuation
and termination statements with respect to the security interests
created hereby, and Lender is authorized to do all things that it deems
necessary to perfect and continue perfection of the security interests
created hereby and to protect the Collateral.
4. Agreements With Respect to the Collateral. Borrower covenants and
agrees with Lender as follows:
(a) Borrower will not permit any of the Collateral to be removed
from the location specified herein, except for temporary periods, in
the normal and customary use thereof, without the prior written consent
of Lender.
(b) Borrower shall notify Lender in writing of any change in the
location of Borrower's principal place of business (or residence) or
the location of any tangible Collateral or the place(s) where the
records concerning all intangible Collateral and kept or maintained.
(c) Borrower will keep the Collateral in good condition and repair
and will pay and discharge all taxes, levies and other impositions
levied thereon as well as the cost of repairs to or maintenance of
same, and will not permit anything to be done that may impair the value
of any of the Collateral. If Borrower fails to pay such sums, Lender
may do so for Borrower's account and add the amount thereof to the
Obligations.
(d) Until the occurrence of an Event of Default, Borrower shall be
entitled to possession of the Collateral and to use the same in any
lawful manner, provided that such use does not cause excessive wear and
tear to the Collateral, cause it to decline in value at an excessive
rate, or violate the terms of any policy of insurance thereon.
3
<PAGE> 4
(e) Borrower will not sell, exchange, lease or otherwise dispose of
any of the Collateral or any interest therein without the prior written
consent of Lender. Notwithstanding the foregoing, so long as an Event
of Default has not occurred, Borrower shall have the right to process
and sell Borrower's inventory in the regular course of business and to
sell obsolete Collateral. Lender's security interest hereunder shall
attach to all proceeds of all sales or other dispositions of the
Collateral. If at any time any such proceeds shall be represented by
any instruments, chattel paper or documents of title, then such
instruments, chattel paper or documents of title shall be promptly
delivered to Lender and subject to the security interest granted
hereby. If at any time any of Borrower's inventory is represented by
any document of title, such document of title will be delivered
promptly to Lender and subject to the security interest granted hereby.
(f) Borrower will not allow the Collateral to be attached to real
estate in such manner as to become a fixture or a part of any real
estate.
(g) Borrower will at all times keep the Collateral insured against
all insurable hazards in amounts equal to the full cash value of the
Collateral. Such insurance shall be in such companies as may be
acceptable to Lender, with provisions satisfactory to Lender for
payment of all losses thereunder to Lender as its interests may appear.
If required by Lender, Borrower shall deposit the policies with Lender.
Any money received by Lender under said policies may be applied to the
payment of the Obligations, whether or not due and payable, or at
Lender's option may be delivered by Lender to Borrower for the purpose
of repairing or restoring the Collateral. Borrower assigns to Lender
all right to receive proceeds of insurance not exceeding the amounts
secured hereby, directs any insurer to pay all proceeds directly to
Lender, and appoints Lender Borrower's attorney-in-fact to endorse any
draft or check made payable to Borrower in order to collect the
benefits of such insurance. If Borrower fails to keep the Collateral
insured as required by Lender, Lender shall have the right to obtain
such insurance at Borrower's expense and add the cost thereof to the
Obligations.
(h) Borrower will not permit any liens or security interests other
than those created by this Agreement and the Permitted Encumbrances to
attach to any of the Collateral, nor permit any of the Collateral to be
levied upon under any legal process, nor permit anything to be done
that may impair the security intended to be afforded by this Agreement,
nor permit any tangible Collateral to become attached to or commingled
with other goods without the prior written consent of Lender.
4
<PAGE> 5
5. Remedies Upon Default. Upon an Event of Default under and as defined
in the Loan Agreement, Lender may pursue any or all of the following remedies,
without any notice to Borrower except as required below:
(a) Lender may give written notice of default to Borrower, following
which Borrower shall not dispose of, conceal, transfer, sell or
encumber any of the Collateral (including, but not limited to, cash
proceeds) without Lender's prior written consent, even if such
disposition is otherwise permitted hereunder in the ordinary course of
business. Any such disposition, concealment, transfer or sale after the
giving of such notice shall constitute a wrongful conversion of the
Collateral. Lender may obtain a temporary restraining order or other
equitable relief to enforce Borrower's obligation to refrain from so
impairing Lender's Collateral.
(b) Lender may take possession of any or all of the Collateral.
Borrower hereby consents to Lender's entry into any of Borrower's
premises to repossess Collateral, and specifically consents to Lender's
forcible entry thereto as long as Lender causes no significant damage
to the premises in the process of entry (drilling of locks, cutting of
chains and the like do not in themselves cause "significant" damage for
the purposes hereof) and provided that Lender accomplishes such entry
without a breach of the peace.
(c) Lender may dispose of the Collateral at private or public sale.
Any required notice of sale shall be deemed commercially reasonable if
given at least five (5) days prior to sale. Lender may adjourn any
public or private sale to a different time or place without notice or
publication of such adjournment, and may adjourn any sale either before
or after offers are received. The Collateral may be sold in such lots
as Lender may elect, in its sole discretion. Lender may take such
action as it may deem necessary to repair, protect, or maintain the
Collateral pending its disposition.
(d) Lender may recover any of all proceeds of accounts from any bank
or other custodian who may have possession thereof. Borrower hereby
authorizes and directs all custodians of Borrower's assets to comply
with any demand for payment made by Lender pursuant to this Agreement,
without the need of confirmation from Borrower and without making any
inquiry as to the existence of an Event of Default or any other matter.
Lender may engage a collection agent to collect accounts for a
reasonable percentage commission or for any other reasonable
compensation arrangement.
5
<PAGE> 6
(e) Lender may notify any or all account debtors that subsequent
payments must be made directly to Lender or its designated agent. Such
notice may be made over Lender's signature or over Borrower's name with
no signature or both, in Lender's discretion. Borrower hereby
authorizes and directs all existing or future account debtors to comply
with any such notice given by Lender, without the need of confirmation
from Borrower and without making any inquiry as to the existence of an
Event of Default or as to any other matter.
(f) Lender may, but shall not be obligated to, take such measures as
Lender may deem necessary in order to collect any or all of the
accounts. Without limiting the foregoing, Lender may institute any
administrative or judicial action that it may deem necessary in the
course of collecting and enforcing any or all of the accounts. Any
administrative or judicial action or other action taken by Lender in
the course of collecting the accounts may be taken by Lender in its own
name or in Borrower's name. Lender may compromise any disputed claims
and may otherwise enter into settlements with account debtors or
obligors under the accounts, which compromises or settlements shall be
binding upon Borrower. Lender shall have no duty to pursue collection
of any account, and may abandon efforts to collect any account after
such efforts are initiated.
(g) Lender may, with respect to any account involving uncompleted
performance by Borrower, and with respect to any general intangible or
other Collateral whose value may be preserved by additional performance
on Borrower's part, take such action as Lender may deem appropriate
including, but not limited, to performing or causing the performance of
any obligation of Borrower thereunder, the making of payments to
prevent defaults thereunder, and the granting of adequate assurances to
other parties thereto with respect to future performance. Lender's
action with respect to any such accounts or general intangibles shall
not render Lender liable for further performance thereunder unless
Lender so agrees in writing.
(h) Lender may exercise its lien upon and right of setoff against
any monies, items, credits, deposits or instruments that Lender may
have in its possession and that belong to Borrower or to any other
person or entity liable for the payment of any or all of the
Obligations.
(i) Lender may exercise any right that it may have under any other
document evidencing or securing the Obligations or otherwise available
to Lender at law or equity.
6
<PAGE> 7
6. Audits and Examinations. Lender shall have the right, at any time,
by its own auditors, accountants or other agents, to examine or audit any of
the books and records of Borrower, or the Collateral, all of which will be made
available upon request. Such accountants or other representatives of Lender
will be permitted to make any verification of the existence of the Collateral
or accuracy of the records that Lender deems necessary or proper. Any
reasonable expenses incurred by Lender in making such examination, inspection,
verification or audit shall be paid by Borrower promptly on demand and shall
constitute part of the Obligations.
7. Termination Statement. Upon receipt of proper written demand
following the payment in full of the Obligations and termination of any
commitment of Lender to make any future advances to Borrower, Lender at its
option, shall send a termination statement with respect to any financing
statement filed to perfect Lender's security interests in any of the Collateral
to Borrower or cause such termination statement to be filed with the
appropriate filing officer(s).
8. Power of Attorney. Borrower hereby constitutes Lender or its
designee, as Borrower's attorney-in-fact with power, upon the occurrence and
during the continuance of an Event of Default, to endorse Borrower's name upon
any notes, acceptances, checks, drafts, money orders, or other evidences of
payment or Collateral that may come into either its or Lender's possession; to
sign the name of Borrower on any invoice or bill of lading relating to any of
the accounts receivable, drafts against customers, assignments and
verifications of accounts receivable and notices to customers; to send
verifications of accounts receivable; to notify the Post Office authorities to
change the address for delivery of mail addressed to Borrower to such address
as Lender may designate; to execute any of the documents referred to in Section
3(c) hereof in order to perfect and/or maintain the security interests and
liens granted herein by Borrower to Lender; to do all other acts and things
necessary to carry out the purposes of and remedies provided under this
Agreement. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for any acts of
commission or omission (other than acts of gross negligence or willful
misconduct), nor for any error of judgment or mistake of fact or law. This
power being coupled with an interest is irrevocable until all of the
Obligations are paid in full and any and all promissory notes executed in
connection therewith are terminated and satisfied.
9. Binding Effect. This Agreement shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower's heirs,
representatives, successors and assigns.
7
<PAGE> 8
10. Severability. If any provision of this Agreement is held invalid,
such invalidity shall not affect the validity or enforceability of the
remaining provisions of this Agreement.
11. Governing Law and Amendments. This Agreement shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
12. Survival of Representations and Warranties. All representations and
warranties contained herein or made by or furnished on behalf of Borrower in
connection herewith shall survive the execution and delivery of this Agreement.
13. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
14. Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that Borrower, Lender and their respective agents have participated in
the preparation hereof.
15. Consent to Jurisdiction; Exclusive Venue. Borrower hereby
irrevocably consents to the Jurisdiction of the United States District Court
for the Middle District of Tennessee and of all Tennessee state courts sitting
in Davidson County, Tennessee, for the purpose of any litigation to which
Lender may be a party and which concerns this Agreement or the Obligations. It
is further agreed that venue for any such action shall lie exclusively with
courts sitting in Davidson County, Tennessee, unless Lender agrees to the
contrary in writing.
16. Waiver of Trial by Jury. LENDER AND BORROWER HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR
OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
8
<PAGE> 9
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement,
or have caused this Agreement to be executed as of the date first above
written.
BORROWER:
--------
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation
By: [sig]
--------------------------------
TITLE: CHAIRMAN & CEO
-----------------------------
LENDER:
------
SIRROM CAPITAL CORPORATION,
a Tennessee Corporation
BY: [sig]
-------------------------------
TITLE: TREASURER
----------------------------
9
<PAGE> 10
SECURED PROMISSORY NOTE
$6,000,000.00 March 31, 1998
FOR VALUE RECEIVED, the undersigned, ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation ("Maker"), promises to pay to the order of
SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Payee"; Payee and any
subsequent holder[s] hereof are hereinafter referred to collectively as
"Holder"), at the office of Payee at Sirrom Capital Corporation, P.O. Box
30378, Nashville, TN 37241-0378, or at such other place as Holder may designate
to Maker in writing from time to time, the principal sum of SIX MILLION AND
NO/l00THS DOLLARS ($6,000,000.00), together with interest on the outstanding
principal balance hereof from the date hereof at the rate of twelve and
three-quarters percent (12.75%) per annum (computed on the basis of a 360-day
year).
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on
the first (1st) day of May, 1998, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until March 30, 2003
(the "Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without premium or penalty. Any such
prepayments shall be credited first to any accrued and unpaid interest and then
to the outstanding principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any Event of Default shall occur under and as defined in that
certain Loan Agreement of even date herewith, between Maker and Payee (the
"Loan Agreement"), which Event of Default is not cured following the giving of
any applicable notice and within any applicable cure period set forth in the
Loan Agreement, then, and in such event, the entire outstanding principal
balance of the indebtedness evidenced hereby, together with any other sums
advanced hereunder, under the Loan Agreement and/or under any other instrument
or document now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby, together with all unpaid interest accrued
thereon, shall, at the option of Holder and without notice to Maker, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any Event of Default as set
forth herein, at the option of Holder and without notice to Maker, all accrued
and unpaid interest, if any, shall be added to the outstanding principal
balance hereof, and the entire
<PAGE> 11
outstanding principal balance, as so adjusted, shall bear interest thereafter
until the earlier of the date the Event of Default is cured or this Note is
paid at an annual rate (the "Default Rate") equal to the lesser of (i) the rate
that is seven percentage points (7.0%) in excess of the above-specified
interest rate, or (ii) the maximum rate of interest allowed to be charged under
applicable law (the "Maximum Rate"), regardless of whether or not there has
been an acceleration of the payment of principal as set forth herein. All such
interest shall be paid at the time of and as a condition precedent to the
curing of any such Event of Default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
reasonable attorneys' fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of an Event
of Default hereunder, acceptance of a past-due installment or other indulgences
granted from time to time, shall be construed as a novation of this Note or as
a waiver of such right of acceleration or of the right of Holder thereafter to
insist upon strict compliance with the terms of this Note or to prevent the
exercise of such right of acceleration or any other right granted hereunder or
by applicable law. No extension of the time for payment of the indebtedness
evidenced hereby or any installment due hereunder, made by agreement with any
person now or hereafter liable for payment of the indebtedness evidenced
hereby, shall operate to release, discharge, modify, change or affect the
original liability of Maker hereunder or that of any other person now or
hereafter liable for payment of the indebtedness evidenced hereby, either in
whole or in part, unless Holder agrees otherwise in writing. This Note may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee, as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration
of maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder
2
<PAGE> 12
exceed the Maximum Rate. If, from any circumstances whatsoever, the fulfillment
of any provision of this Note or any other agreement or instrument now or
hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control
every other provision in any and all other agreements and instruments existing
or hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.
Maker hereby irrevocably consents to the jurisdiction of the United
States District Court for the Middle District of Tennessee and of all Tennessee
state courts sitting in Davidson County, Tennessee, for the purpose of any
litigation to which Lender may be a party and which concerns this Note or the
indebtedness evidenced hereby. It is further agreed that venue for any such
action shall lie exclusively with courts sitting in Davidson County, Tennessee,
unless Holder agrees to the contrary in writing.
HOLDER AND MAKER HEREBY KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF
COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR
COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE, AT LAW OR IN EQUITY,
ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
ONLINE RESOURCES & COMMUNICATIONS
CORPORATION, a Delaware corporation
By: [sig]
-------------------------------
Title: CHAIRMAN & CEO
----------------------------
3
<PAGE> 1
EXHIBIT 10.7
FORM OF
ONLINE RESOURCES & COMMUNICATIONS CORPORATION
1999 STOCK OPTION PLAN
1. DEFINITIONS.
(a) "Affiliate" means (i) a member of a controlled group of
corporations of which the Company is a member or (ii) an unincorporated trade or
business which is under common control with the Company as determined in
accordance with Section 414(c) of the Code and the regulations issued
thereunder. For purposes hereof, a "controlled group of corporations" shall mean
a controlled group of corporations as defined in Section 1563(a) of the Code
determined without regard to Section 1563(a)(4) and (e)(3)(C).
(b) "Alternate Option Payment Mechanism" refers to one of several
methods available to a Participant to fund the exercise of a stock option set
out in Section 10 hereof. These mechanisms include:
broker assisted cashless exercise and stock for stock exchange.
(c) "Award" means a grant of one or some combination of one or more
Non-statutory Stock Options, Incentive Stock Options and Limited Rights under
the provisions of this Plan.
(d) "Board of Directors" or "Board" means the board of directors of the
Company.
(e) "Change in Control" means a change in control of the Company of a
nature that; (i) would be required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Exchange Act; or (ii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the Company's outstanding securities except for any securities of the Company
purchased by any tax qualified employee benefit plan of the Company; or (B)
individuals who constitute the Board of Directors of the Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Company or similar transaction occurs in which the Company is not
the resulting entity.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
(g) "Committee" means a committee consisting of the entire Board of
Directors or consisting solely of two or more members of the Board of Directors
who are defined as Non-Employee Directors as such term is defined under Rule
16b-3(b)(3)(i) under the Exchange Act as promulgated by the Securities and
Exchange Commission.
(h) "Common Stock" means the Common Stock of the Company, par value,
$.0001 per share or any stock exchanged for shares of Common Stock pursuant to
Section 14 hereof.
(i) "Company" means Online Resources & Communications Corporation.
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Participant to perform the work
customarily assigned to him or, in the case of a Director, to serve on the
Board. Additionally, a medical doctor selected or approved by the Board of
Directors must advise the Committee that it is either not possible to determine
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said Participant's
lifetime.
(l) "Effective Date" means ________________, the effective date of the
Plan.
(m) "Employee" means any person who is currently employed by the
Company or an Affiliate, including officers, but such term shall not include
Outside Directors.
(n) "Employee Participant" means an Employee who holds an outstanding
Award under the terms of the Plan.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Exercise Price" means the purchase price per share of Common Stock
deliverable upon the exercise of each Option in order for the option to be
exchanged for shares of Common Stock.
(q) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the last transaction price of the Common Stock quoted
for such date by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or the closing price reported by the New York Stock
Exchange ("NYSE") or any other stock exchange (as published by the Wall Street
Journal, if published) on such date or if the Common Stock was not traded on
such date, on the next preceding day on which the Common Stock was traded
thereon or the last previous date on which a sale is reported. If the Common
Stock is not traded on the NASDAQ, the NYSE or any other stock exchange, the
Fair Market Value of the Common Stock is the value so determined by the Board in
good faith.
<PAGE> 3
(r) "Incentive Stock Option" means an Option granted by the Committee
to a Participant, which Option is designated by the Committee as an Incentive
Stock Option pursuant to Section 7 hereof and is intended to be such under
Section 422 of the Code.
(s) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 8 hereof.
(t) "Non-statutory Stock Option" means an Option to a Participant
pursuant to Section 6 hereof, which is not designated by the Committee as an
Incentive Stock Option or which is redesignated by the Committee as a
Non-statutory Stock Option or which is designated as an Incentive Stock Option
under Section 7 hereof, but does not meet the requirements of such under Section
422 of the Code.
(u) "Option" means the right to buy a fixed amount of Common Stock at
the Exercise Price within a limited period of time designated as the term of the
option as granted under Section 6 or 7 hereof.
(v) "Outside Director" means a member of the Board of Directors of the
Company or its Affiliates, who is not also an Employee.
(w) "Outside Director Participant" means an Outside Director who holds
an outstanding Award under the terms of the Plan.
(x) "Participant(s)" means collectively an Employee Participant and/or
an Outside Director Participant who hold(s) outstanding Awards under the terms
of the Plan.
(y) "Performance Goal" is a specific condition or goal which may be set
by the Committee as a prerequisite to the vesting of a Stock Award in accordance
with Section 9(b) hereof.
(z) "Plan" means the Online Resources & Communications Corporation 1999
Stock Option Plan.
<PAGE> 4
(aa) "Retirement" with respect to an Employee Participant means
termination of employment which constitutes retirement under any tax qualified
plan maintained by the Company. However, "Retirement" will not be deemed to have
occurred for purposes of this Plan if a Participant continues to serve as a
consultant to or on the Board of Directors of the Company or its Affiliates even
if such Participant is receiving retirement benefits under any retirement plan
of the Company or its Affiliates. With respect to an Outside Director
Participant, "Retirement" means the termination of service from the Board of
Directors of the Company or its Affiliates following written notice to the Board
as a whole of such Outside Director's intention to retire, except that an
Outside Director Participant shall not be deemed to have "retired" for purposes
of the Plan in the event he continues to serve as a consultant to the Board or
as an advisory director or director emeritus, including pursuant to any
retirement plan of the Company.
(bb) "Termination for Cause" shall mean, in the case of a Director,
removal from the Board of Directors, or, in the case of an Employee, termination
of employment, in both such cases as determined by the Board of Directors,
because of Participant's personal dishonesty, incompetence, willful misconduct,
conduct damaging the reputation of the Company, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or in the case of an employee without a written employment
agreement with the Company, any other grounds provided for under employment
policies of the Company in effect at the Effective Date or as amended from time
to time.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to grant awards to Employees
and establish such rules and regulations as it deems necessary for the proper
administration of the Plan and to make whatever determinations and
interpretations in connection with the Plan it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all Employee Participants and Outside Director Participants in the
Plan and on their legal representatives and beneficiaries.
(b) Awards to Outside Directors of the Company or its Affiliates shall
be granted by the Board of Directors or the Committee, pursuant to the terms of
this Plan.
3. TYPES OF AWARDS AND RELATED RIGHTS.
The following Awards and related rights as described below in
Paragraphs 6 through 8 hereof may be granted under the Plan:
(a) Non-statutory Stock Options
(b) Incentive Stock Options
<PAGE> 5
(c) Limited Rights
4. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 14 hereof, the maximum
number of shares of Common Stock reserved for Awards under the Plan is
[________] shares which number may not be in excess of [__] % of the outstanding
shares of the Common Stock determined immediately as of the Effective Date.
These shares of Common Stock may be either authorized but unissued shares or
authorized shares previously issued and acquired or reacquired by the Company.
To the extent that Options are granted under the Plan, the shares underlying
such Awards will be unavailable for any other use including future grants under
the Plan except that, to the extent that Options terminate, expire, or are
forfeited without having vested or without having been exercised (or in cases
where a Limited Right has been granted in connection with an option, the amount
of such Limited Right received in lieu of the exercise of such option), new
Awards may be made with respect to those shares underlying such terminated,
expired or forfeited Options.
5. ELIGIBILITY.
Subject to the terms herein, all Employees and Outside Directors shall
be eligible to receive Awards under the Plan. In addition, the Committee may
grant eligibility to consultants and advisors of the Company or an Affiliate, as
it sees fit.
6. NON-STATUTORY STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded under the Plan, from time to time,
grant Non-statutory Stock Options to Employees and Outside Directors, upon such
terms and conditions as the Committee may determine and grant Non-statutory
Stock Options in exchange for and upon surrender of previously granted Awards
under this Plan under such terms and conditions as the Committee may determine.
Non-statutory Stock Options granted under this Plan are subject to the following
terms and conditions:
(a) Exercise Price. The Exercise Price of each Non-statutory Stock
Option shall be determined by the Committee. Such Exercise Price shall not be
less than 85% of the Fair Market Value of the Company's Common Stock on the Date
of Grant. Shares of Common Stock underlying a Non-statutory Stock Option may be
purchased only upon full payment of the Exercise Price or upon operation of an
Alternate Option Payment Mechanism set out in Section 10 hereof.
(b) Terms of Non-statutory Stock Options. The term during which each
Non-statutory Stock Option may be exercised shall be determined by the
Committee, but in no event shall a Non-statutory Stock Option be exercisable in
whole or in part more than 10 years from the Date of Grant. The Committee shall
determine the date on which each Non-statutory Stock Option shall become
exercisable. The shares of Common Stock underlying each Non-statutory Stock
Option
<PAGE> 6
installment may be purchased in whole or in part by the Participant at any time
during the term of such Non-statutory Stock Option after such installment
becomes exercisable. The Committee may, in its sole discretion, accelerate the
time at which any Non-statutory Stock Option may be exercised in whole or in
part. The acceleration of any Non-statutory Stock Option under the authority of
this paragraph shall create no right, expectation or reliance on the part of any
other Participant or that certain Participant regarding any other unaccelerated
Non-statutory Stock Options. Unless determined otherwise by the Committee and
except in the event of the Participant's death or pursuant to a domestic
relations order, a Non-statutory Stock Option is not transferable and may be
exercisable in the Participant's lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Non-statutory Stock Option is
transferable by will or the laws of descent and distribution.
The Committee may, however, in its sole discretion, permit
transferability or assignment of a Non-statutory Stock Option if such transfer
or assignment is, in its sole determination, for valid estate planning purposes
and such transfer or assignment is permitted under the Code and Rule 16b-3 under
the Exchange Act. For purposes of this Section 6(b), a transfer for valid estate
planning purposes includes, but is not limited to: (a) a transfer to a revocable
intervivos trust as to which the Participant is both the settlor and trustee, or
(b) a transfer for no consideration to: (i) any member of the Participant's
Immediate Family, (ii) any trust solely for the benefit of members of the
Participant's Immediate Family, (iii) any partnership whose only partners are
members of the Participant's Immediate Family, and (iv) any limited liability
corporation or corporate entity whose only members or equity owners are members
of the Participant's Immediate Family. For purposes of this Section 6(b),
"Immediate Family" includes, but is not necessarily limited to, a Participant's
parents, grandparents, spouse, children, grandchildren, siblings (including half
brothers and sisters), and individuals who are family members by adoption.
Nothing contained in this Section 6(b) shall be construed to require the
Committee to give its approval to any transfer or assignment of any
Non-statutory Stock Option or portion thereof, and approval to transfer or
assign any Non-statutory Stock Option or portion thereof does not mean that such
approval will be given with respect to any other Non-statutory Stock Option or
portion thereof. The transferee or assignee of any Non-statutory Stock Option
shall be subject to all of the terms and conditions applicable to such
Non-statutory Stock Option immediately prior to the transfer or assignment and
shall be subject to any other conditions proscribed by the Committee with
respect to such Non-statutory Stock Option.
(c) NSO Agreement. The terms and conditions of any Non-statutory Stock
Option granted shall be evidenced by an agreement (the "NSO Agreement") which
shall be subject to the terms and conditions of the Plan.
(d) Termination of Employment or Service. Unless otherwise determined
by the Committee, upon the termination of a Participant's employment or service
for any reason other than Disability, death or Termination for Cause, the
Participant's Non-statutory Stock Options shall be exercisable only as to those
shares that were immediately exercisable by the Participant at the date of
termination and only for a period of three months following termination, except
that in the event of termination upon Retirement, such Non-statutory Stock
Options shall be exercisable for a period
<PAGE> 7
of one year. Notwithstanding any provisions set forth herein or contained in any
NSO Agreement relating to an award of a Non-statutory Stock Option, in the event
of a Change in Control or in the event of termination of the Participant's
employment or service for Disability or death, all Non-statutory Stock Options
held by such Participant shall immediately vest and be exercisable for one year
after such termination of service, and, in the event of a Termination for Cause,
all rights under the Participant's Non-statutory Stock Options shall expire
immediately upon such Termination for Cause.
7. INCENTIVE STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded under the Plan, from time to time,
grant Incentive Stock Options to Employees upon such terms and conditions as the
Committee may determine. Incentive Stock Options granted pursuant to the Plan
shall be subject to the following terms and conditions:
(a) Exercise Price. The Exercise Price of each Incentive Stock Option
shall be not less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant. However, if at the time an Incentive Stock Option is granted to
an Employee Participant, such Employee Participant owns Common Stock
representing more than 10% of the total combined voting securities of the
Company (or, under Section 424(d) of the Code, is deemed to own Common Stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company, by reason of the ownership of such classes of stock,
directly or indirectly, by or for any brother, sister, spouse, ancestor or
lineal descendent of such Employee Participant, or by or for any corporation,
partnership, estate or trust of which such Employee Participant is a
shareholder, partner or beneficiary) ("10% Owner"), the Exercise Price per share
of Common Stock deliverable upon the exercise of each Incentive Stock Option
shall not be less than 110% of the Fair Market Value of the Common Stock on the
Date of Grant. Shares may be purchased only upon payment of the full Exercise
Price or upon operation of an Alternate Option Payment Mechanism set out in
Section 10 hereof.
(b) Amounts of Incentive Stock Options. Incentive Stock Options may be
granted to any Employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with the terms of Section 422 of the Code.
In the case of an Option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the Option is granted) of
the Common Stock with respect to which Incentive Stock Options granted are
exercisable for the first time by the Employee Participant during any calendar
year (under all plans of the Employee Participant's employer corporation and its
parent and subsidiary corporations) shall not exceed $100,000. The provisions of
this Section 7(b) shall be construed and applied in accordance with Section
422(d) of the Code and the regulations, if any, promulgated thereunder. To the
extent an Award of an Incentive Stock Option under this Section 7 exceeds this
$100,000 limit, the portion of the Award in excess of such limit shall be deemed
a Non-statutory Stock Option. The Committee shall have discretion to redesignate
Options granted as Incentive Stock Options as Non-Statutory Stock Options. Such
Non-statutory Stock Options shall be subject to Section 6 hereof.
<PAGE> 8
(c) Terms of Incentive Stock Options. The term during which each
Incentive Stock Option may be exercised shall be determined by the Committee,
but in no event shall an Incentive Stock Option be exercisable in whole or in
part more than 10 years from the Date of Grant. If at the time an Incentive
Stock Option is granted to an Employee Participant who is a 10% Owner, the
Incentive Stock Option granted to such Employee Participant shall not be
exercisable after the expiration of five years from the Date of Grant. No
Incentive Stock Option is transferable except by will or the laws of descent and
distribution and is exercisable in his or her lifetime only by the Employee
Participant to whom it is granted. The designation of a beneficiary does not
constitute a transfer.
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable. The shares comprising each installment of the
Incentive Stock Option may be purchased in whole or in part at any time during
the term of such Option after such installment becomes exercisable. The
Committee may, in its sole discretion, accelerate the time at which any
Incentive Stock Option may be exercised in whole or in part. The acceleration of
any Incentive Stock Option under the authority of this paragraph shall not
create a right, expectation or reliance on the part of any other Participant or
that certain Participant regarding any other unaccelerated Incentive Stock
Options.
(d) ISO Agreement. The terms and conditions of any Incentive Stock
Option granted shall be evidenced by an agreement (the "ISO Agreement") which
shall be subject to the terms and conditions of the Plan.
(e) Termination of Employment. Unless otherwise determined by the
Committee, upon the termination of an Employee Participant's employment for any
reason other than Disability, death or Termination for Cause, the Employee
Participant's Incentive Stock Options shall be exercisable only as to those
shares that were immediately exercisable by the Participant at the date of
termination and only for a period of three months following termination, except
that in the event of termination upon Retirement, such Incentive Stock Options
shall be exercisable for a period of one year. Notwithstanding any provision set
forth herein or contained in any ISO Agreement relating to an award of an
Incentive Stock Option, in the event of a Change in Control or in the event of
termination of the Employee Participant's employment for Disability or death,
all Incentive Stock Options held by such Employee Participant shall immediately
vest and be exercisable for one year after such termination, and, in the event
of Termination for Cause, all rights under the Employee Participant's Incentive
Stock Options shall expire immediately upon termination. No Incentive Stock
Option shall be eligible for treatment as an Incentive Stock Option in the event
such Incentive Stock Option is exercised more than three months following the
date of Participant's cessation of employment. In no event shall an Incentive
Stock Option be exercisable beyond the expiration of the Incentive Stock Option
term.
(f) Compliance with Code. The Incentive Stock Options granted under
this Section 7 are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Code,
<PAGE> 9
but the Company makes no warranty as to the qualification of any Option as an
incentive stock option within the meaning of Section 422 of the Code. All
Options that do not so qualify shall be treated as Non-statutory Stock Options.
8. LIMITED RIGHT.
Simultaneously with the grant of any Option to an Employee or Outside
Director, the Committee may grant a Limited Right with respect to all or some of
the shares covered by such Option. Limited Rights granted under this Plan are
subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be
exercisable in whole or in part before the expiration of six months from the
Date of Grant of the Limited Right. A Limited Right may be exercised only in the
event of a Change in Control.
The Limited Right may be exercised only when the underlying
Option is eligible to be exercised, and only when the Fair Market Value of the
underlying shares on the day of exercise is greater than the Exercise Price of
the underlying Option.
Upon exercise of a Limited Right, the underlying Option shall
cease to be exercisable. Upon exercise or termination of an Option, any related
Limited Rights shall terminate. The Limited Rights may be for no more than 100%
of the difference between the purchase price and the Fair Market Value of the
Common Stock subject to the underlying option. The Limited Right is transferable
only when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder
shall promptly receive from the Company an amount of cash equal to the
difference between the Exercise Price of the underlying option and the Fair
Market Value of the Common Stock subject to the underlying Option on the date
the Limited Right is exercised, multiplied by the number of shares with respect
to which such Limited Right is exercised. Payments shall be less any applicable
tax withholding as set forth in Section 15 hereof.
9. PAYOUT ALTERNATIVES
Payments due to a Participant upon the exercise of an Award, may be
made subject to the following terms and conditions:
(a) Discretion of the Committee. The Committee has the sole discretion
to determine what form of payment (whether monetary, Common Stock, a combination
of payout alternatives or otherwise) it shall use in making distributions of
payments for all Awards. If the Committee requests any or all Participants to
make an election as to form of distribution or payment, it shall not be
considered bound by the election.
<PAGE> 10
(b) Payment in the form of Common Stock. Any shares of Common Stock
tendered in satisfaction of an obligation arising under this Plan shall be
valued at the Fair Market Value of the Common Stock on the day preceding the
date of the issuance of such stock to the Participant.
(c) Deferred Payments. The Committee, in its discretion, may permit a
Participant to elect to defer receipt of all or any part of any cash or stock
payment under the Plan, or the Committee may determine to defer receipt by some
or all Participants, of all or part of any such payment. The Committee shall
determine the terms and conditions of any such deferral, including the period of
deferral, the manner of deferral, and the method for measuring appreciation on
deferred amounts until their payout.
10. ALTERNATE OPTION PAYMENT MECHANISM
The Committee has sole discretion to determine what form of payment it
will accept for the exercise of an Option. The Committee may indicate acceptable
forms in the ISO or NSO Agreement covering such Options or may reserve its
decision to the time of exercise. No Option is to be considered exercised until
payment in full is accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by
certified check.
(b) Borrowed Funds. To the extent permitted by law, the Committee may
permit all or a portion of the exercise price of an Option to be paid through
borrowed funds.
(c) Exchange of Common Stock.
(i) The Committee may permit payment by the tendering of
previously acquired shares of Common Stock. This includes the use of "pyramiding
transactions" whereby some number of Options are exercised; then the shares
gained through the exercise are tendered back to the Company as payment for a
greater number of Options. This transaction may be repeated as needed to
exercise all of the Options available.
(ii) Any shares of Common Stock tendered in payment of the
exercise price of an Option shall be valued at the Fair Market Value of the
Common Stock on the date prior to the date of exercise.
11. RIGHTS OF A SHAREHOLDER: NONTRANSFERABILITY.
No Participant shall have any rights as a shareholder with respect to
any shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such shares. Nothing in this Plan or in any Award granted
confers on any person any right to continue in the employ or service of the
Company or its Affiliates or interferes in any way with the right of the Company
or its Affiliates to terminate a Participant's services as an officer or other
employee at any time.
<PAGE> 11
Except as permitted under the Code (with respect to Incentive Stock
Options) and the rules promulgated pursuant to Section 16(b) of the Exchange Act
or any successor statutes or rules, no Award under the Plan shall be
transferable by the Participant other than by will or the laws of intestate
succession or pursuant to a domestic relations order or unless determined
otherwise by the Committee.
12. AGREEMENT WITH GRANTEES.
Each Award will be evidenced by a written agreement(s) (whether
constituting an NSO Agreement, ISO Agreement, or any combination thereof),
executed by the Participant and the Company or its Affiliates that describes the
conditions for receiving the Awards including the date of Award, the Exercise
Price, the terms or other applicable periods, and other terms and conditions as
may be required or imposed by the Plan, the Committee, or the Board of
Directors, and may describe or specify tax law considerations or applicable
securities law considerations.
13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any Award to which the
Participant would then be entitled. Such designation will be made upon forms
supplied by and delivered to the Company and may be revoked in writing. If a
Participant fails effectively to designate a beneficiary, then the Participant's
estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Company, or in the event a capital
distribution is made, the Committee will make such adjustments to Awards to
prevent dilution, diminution or enlargement of the rights of the Participant, as
the Committee deems appropriate, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of
Common Stock or other securities that may underlie future
Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock or other securities underlying Awards already
made under the Plan;
(c) adjustments in the exercise price of outstanding Incentive
and/or Non-statutory Stock Options, or any Limited Rights
attached to such Options.
<PAGE> 12
Alternatively, the Committee could provide the participant with a cash
benefit for shares underlying vested, but unexercised options, in order to
achieve the aforementioned effect. All awards under this Plan shall be binding
upon any successors or assigns of the Company.
15. TAX WITHHOLDING.
Awards under this Plan shall be subject to tax withholding to the
extent required by any governmental authority. Any withholding shall comply with
Rule 16b-3 or any amendment or successive rule. Shares of Common Stock withheld
to pay for tax withholding amounts shall be valued at their Fair Market Value on
the date the Award is deemed taxable to the Participant.
16. AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time, subject
to applicable rules and regulations, modify or amend the Plan, or any Award
granted under the Plan, in any respect, prospectively or retroactively; provided
however, that provisions governing grants of Incentive Stock Options, unless
permitted by the rules and regulations or staff pronouncements promulgated under
the Code shall be submitted for shareholder approval to the extent required by
such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by
shareholders shall be effective only as to the specific amendment or
modification requiring such ratification. Other provisions, sections, and
subsections of this Plan will remain in full force and effect.
No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon being presented to shareholders
for ratification for the purpose of obtaining preferential tax treatment for
Incentive Stock Options. The failure to obtain shareholder ratification for such
purposes will not affect the validity of the Plan and the Options thereunder,
provided, however, that if the Plan is not ratified, the Plan shall remain in
full force and effect, and any Incentive Stock Options granted under the Plan
shall be deemed to be Non-statutory Stock Options.
18. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the
earlier of: (i) ten (10) years after the Effective Date; (ii) the issuance of a
number of shares of Common Stock pursuant to the exercise of Options which
together with the exercise of Limited Rights is equivalent to the maximum number
of shares reserved under the Plan as set forth in Section 4. The Board of
Directors has the right to suspend or terminate the Plan at any time, provided
that no such action will, without the
<PAGE> 13
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
19. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the State
of Delaware and applicable federal law.
20. DELEGATION OF AUTHORITY
The Committee may delegate all authority for: the determination of
forms of payment to be made by or received by the Plan; the execution of Award
agreements; the determination of Fair Market Value; and the determination of all
other aspects of administration of the Plan to the executive officer(s) of the
Company. The Committee may rely on the descriptions, representations, reports
and estimates provided to it by the management of the Company for determinations
to be made pursuant to the Plan, including the attainment of performance goals.
However, only the Committee or a portion of the Committee may certify the
attainment of a performance goal.
<PAGE> 14
IN WITNESS WHEREOF, Online Resources & Communications Corporation has
established this Plan to be executed by its duly authorized executive officer
and the corporate seal to be affixed and duly attested, effective as of the ____
day of _____________, 1999.
[CORPORATE SEAL] ONLINE RESOURCES &
COMMUNICATIONS CORPORATION
__________________________________ By: __________________________________
Date Chairman of the Board
ADOPTED BY THE BOARD OF DIRECTORS:
__________________________________ By: __________________________________
Date Secretary
APPROVED BY SHAREHOLDERS:
__________________________________ By: __________________________________
Date Secretary
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 26, 1999, in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-74777) and related Prospectus of
Online Resources & Communications Corporation dated April 26, 1999.
/s/ Ernst & Young LLP
Vienna, Virginia
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS INCLUDED IN THE
COMPANY'S FORM S-1 FOR THE YEAR ENDING DECEMBER 31, 1998 AND FOR THE PERIOD
ENDING MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 3,471,620 5,006,189
<SECURITIES> 0 0
<RECEIVABLES> 985,585 1,053,815
<ALLOWANCES> 52,000 52,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,727,437 6,736,349
<PP&E> 5,469,848 5,663,247
<DEPRECIATION> 2,303,829 2,540,940
<TOTAL-ASSETS> 9,421,428 10,345,891
<CURRENT-LIABILITIES> 5,147,061 4,563,906
<BONDS> 0 0
25,776,254 32,105,196
7,950 7,950
<COMMON> 1,138 1,159
<OTHER-SE> (31,197,864) (35,690,815)
<TOTAL-LIABILITY-AND-EQUITY> 9,421,428 10,345,891
<SALES> 4,326,104 819,740
<TOTAL-REVENUES> 4,326,104 819,740
<CGS> 6,289,462 1,368,803
<TOTAL-COSTS> 6,289,462 1,368,803
<OTHER-EXPENSES> (15,437) (9,629)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,146,614 74,241
<INCOME-PRETAX> (11,558,469) (2,423,059)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (11,558,469) (2,423,059)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,558,469) (2,423,059)
<EPS-PRIMARY> (1.36) (0.40)
<EPS-DILUTED> (1.36) (0.40)
</TABLE>
