SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 22, 1999
OSAGE SYSTEMS GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-22808 95-4374983
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(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1661 East Camelback Road
Suite 245
Phoenix, AZ 85016
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(Address of principal executive office)
Registrant's telephone number, including area code: (602) 274-1299
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(Former name or former address, if changed since last report)
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Item 1. Changes in Control of Registrant
Change in Management and Board of Directors.
On November 22, 1999, Jack R. Leadbeater and David S. Olson resigned their
respective positions as officers and directors of Osage Systems Group, Inc. (the
"Company") in connection with (i) the concurrent sale of substantially all of
their equity interest in the Company pursuant to a Securities Purchase Agreement
dated October 8, 1999 by and among Messrs. Leadbeater, Olson, SPH Equities, Inc.
("SPH") or its designees, and Burton M. Bentley P.C. as Escrow Agent (the
"Purchase Agreement"), (ii) the surrender of all of their options to purchase
the Company's common stock and (iii) the concurrent financing transaction
described in Item 5 of this Report on Form 8-K. Mr. Leadbeater had been Chairman
and Chief Executive Officer, and Mr. Olson had been Director, President and
Secretary of the Company. Phil Carter was appointed Chairman and Chief Executive
Officer of the Company on November 22, 1999. Mr. Carter had previously served as
an officer and a director of the Company prior to his resignation on September
2, 1999. Following his resignation, Mr. Carter was appointed as the Company's
interim Chief Executive Officer on October 8, 1999. Also named to the Board of
Directors on November 22, 1999 were George Knight and Gerald T. Harrington. Mr.
Knight had previously served as a director prior to his resignation on September
3, 1999. Mr. Harrington has been nominated to serve as a director as the
designee of "Lancer" (as defined in Item 5 of this Report on Form 8-K). The
resignations of Messrs. Leadbeater and Olson from the Board of Directors, and
the subsequent appointment of Messrs. Carter, Knight and Harrington constituted
a change in the majority of the board members, and were disclosed on the
Company's Information Statement on Form 14(f) dated November 10, 1999.
Under the Purchase Agreement, Messrs. Leadbeater and Olson sold an
aggregate of 1,303,000 shares of the Company's common stock at $.30 per share
for an aggregate price of $393,900 to a number of unrelated third party
purchasers. With the exception of Founders Partners IV LLC, which purchased
300,000 of these shares, no other purchaser acquired more than approximately 1%
of the Company's outstanding securities. To the knowledge of the Company, all of
these shares were purchased with personal funds.
As a result of the sale of the shares and surrender of options by Messrs.
Leadbeater and Olson on November 22, 1999, their beneficial ownership of the
Company's common stock decreased from 13.5% and 12.4%, respectively, to the
nominal ownership of 100 shares each.
The Company entered into severance agreements with each of Messrs.
Leadbeater and Olson in conjunction with the Purchase Agreement. Under the
severance agreements, the Employment Agreements and Termination Benefits
Agreements the Company had with each of Messrs. Leadbeater and Olson were
terminated. The Company agreed to provide Messrs. Leadbeater and Olson with
severance benefits commencing on November 22, 1999 through December 22, 2000 in
the form of salary continuation at $17,500 per month. In addition, the Company
agreed to reimburse Messrs. Leadbeater and Olson for reasonable business
expenses incurred by them through November 22, 1999, and to repay loans
previously made to the Company by Messrs. Leadbeater and Olson. Pursuant to the
severance agreements, Messrs.
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Leadbeater and Olson also surrendered all of their options to purchase common
stock of the Company and agreed to restrictions on competing with the Company
until February 22, 2000 and soliciting the Company's customers and employees
until December 22, 2000. In consideration for these restrictive covenants, the
Company paid Mr. Leadbeater $159,360 and Mr. Olson $153,360. The severance
agreements also contained mutual releases of the Company and each of Messrs.
Leadbeater and Olson.
Item 5: Other Events
Financing Transaction.
Concurrent with the closing of the Purchase Agreement, the Company sold 10%
convertible subordinated debentures in the aggregate principal amount of
$3,000,000 and certain common stock purchase warrants to Michael Lauer and three
investment funds managed by him, Lancer Offshore, Inc., Lancer Partners, L.P.
and The Orbiter Fund, Ltd. (collectively, "Lancer"). The debentures and warrants
were sold for an aggregate purchase price of $3,000,000. Lancer is the Company's
largest institutional stockholder, with beneficial ownership of approximately
29.1% of the Company's outstanding securities as of the completion of this
transaction.
The principal amount of the debentures is payable on November 22, 2001 with
interest payable at the rate of ten percent (10%) per annum on a quarterly basis
commencing December 31, 1999. Interest may be paid in cash, or at the option of
Lancer, in shares of the Company's common stock priced at the "Conversion Price"
of the debenture. Provided stockholder approval is obtained, the debentures may,
at the election of Lancer, be convertible into shares of the Company's common
stock at the Conversion Price of $.30 per share. In the absence of stockholder
approval, the conversion feature of the debentures will not be effective. Once
stockholder approval of the conversion feature has been obtained and the resale
of the shares of common stock issuable upon the conversion of the debentures is
covered by an effective registration statement filed with the Securities and
Exchange Commission, the debentures shall automatically convert into shares of
the Company's common stock at the Conversion Price.
The debentures were privately offered as a unit, together with warrants
that, subject to certain vesting provisions, entitle Lancer to purchase twenty
million (20,000,000) shares of common stock of the Company at an exercise price
of $.30 per share. The warrants consist of 5-year warrants to purchase ten
million (10,000,000) shares of common stock of the Company (the "Long-Term
Warrants") and 90-day warrants to purchase ten million (10,000,000) shares of
common stock of the Company (the "Short-Term Warrants"). The Long-Term Warrants
shall vest only once stockholder approval of the transaction is obtained. The
Short-Term Warrants shall vest upon issuance, but only to the extent that the
shares issuable thereunder represent less than 20% of the shares of the
Company's outstanding common stock; provided, however, that the right to
exercise any of the Short-Term Warrants is expressly conditioned upon the prior
written consent of the Company. The right to exercise the Short-Term Warrants
for 20% or more of the Company's outstanding common stock is further conditioned
upon stockholder approval.
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As of November 22, 1999, Lancer has the right to exercise Short-Term
Warrants for approximately 2,000,000 shares of the Company's common stock,
resulting in Lancer beneficially owning approximately 29.1% of the number of
shares of common stock outstanding. In the event that the Company's stockholders
approve the conversion of the debentures and the vesting of the remaining
Short-Term Warrants and all of the Long-Term Warrants, the number of shares of
the Company's common stock outstanding could increase to approximately
40,013,526, and the percentage of shares of common stock outstanding that are
beneficially owned by Lancer would increase significantly. The Company will use
best efforts to hold a stockholders' meeting by April 2000 to solicit approval
of the conversion feature of the debentures and the vesting of the Long-Term
Warrants and, to the extent not already exerciseable, the Short-Term Warrants.
The Company granted Lancer certain registration rights for the shares of
common stock issuable upon conversion of the debentures and exercise of the
warrants sold on November 22, 1999. Pursuant to these registration rights, the
Company will include the resale of the shares in any registration statement
filed with the Securities and Exchange Commission following November 22, 1999
that relates to a public offering of the Company's securities by the Company or
any Company stockholder. In the event that Lancer's shares have not been
included in such a registration statement by November 22, 2000, the Company
shall file a registration statement including Lancer's shares by such date.
In connection with the sale of the debentures and warrants to Lancer, the
Company paid a investment banking fee to SPH Investments, Inc. of $180,000 in
cash (6% of the gross proceeds of the offering), and agreed to issue, subject to
certain conditions, five (5) year warrants to purchase 350,000 shares of the
Company's common stock at an exercise price of $.30 per share.
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(c) Exhibits (referenced to Item 601 of Regulation S-K).
10.38 Severance Agreement dated October 8, 1999 by and between Osage Systems
Group, Inc. and Jack R. Leadbeater
10.39 Severance Agreement dated October 8, 1999 by and between Osage Systems
Group, Inc. and David S. Olson.
10.40 Securities Purchase Agreement by and among Osage Systems Group, Inc.,
Lancer Offshore, Inc., Lancer Partners, L.P., The Orbiter Fund, Ltd. and
Michael Lauer
10.41 Form of Convertible Subordinated Debenture issued by Osage Systems
Group, Inc. to Lancer Offshore, Inc., Lancer Partners, L.P., The Orbiter
Fund, Ltd. and Michael Lauer
10.42 Form of Long-Term Warrant issued by Osage Systems Group, Inc. to Lancer
Offshore, Inc., Lancer Partners, L.P., The Orbiter Fund, Ltd. and
Michael Lauer
10.43 Form of Short-Term Warrant issued by Osage Systems Group, Inc. to Lancer
Offshore, Inc., Lancer Partners, L.P., The Orbiter Fund, Ltd. and
Michael Lauer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 7, 1999 OSAGE SYSTEMS GROUP, INC.
By: /s/ Phil Carter
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Phil Carter
Chief Executive Officer
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EXHIBIT INDEX
Page Number in
Exhibit Rule 0-3(b)
Number Sequential
(Referenced to Numbering System
Item 601 of Where Exhibit Can
Reg. S-K) Be Found
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10.38 Severance Agreement dated October 8, 1999 by
and between Osage Systems Group, Inc. and Jack
R. Leadbeater
10.39 Severance Agreement dated October 8, 1999 by
and between Osage Systems Group, Inc. and David
S. Olson.
10.40 Securities Purchase Agreement by and among
Osage Systems Group, Inc., Lancer Offshore,
Inc., Lancer Partners, L.P., The Orbiter Fund,
Ltd. And Michael Lauer
10.41 Form of Convertible Subordinated Debenture
issued by Osage Systems Group, Inc. to Lancer
Offshore, Inc., Lancer Partners, L.P., The
Orbiter Fund, Ltd. and Michael Lauer
10.42 Form of Long-Term Warrant issued by Osage
Systems Group, Inc. to Lancer Offshore, Inc.,
Lancer Partners, L.P., The Orbiter Fund, Ltd.
and Michael Lauer
10.43 Form of Short-Term Warrant issued by Osage
Systems Group, Inc. to Lancer Offshore, Inc.,
Lancer Partners, L.P., The Orbiter Fund, Ltd.
and Michael Lauer
SEVERANCE AGREEMENT
This Severance Agreement ("Agreement") made effective as of October 8,
1999, is by and between Osage Systems Group, Inc., a Delaware corporation
("Osage"), and Jack R. Leadbeater, an individual resident of the State of
Arizona ("Leadbeater").
WITNESSETH:
WHEREAS, Osage and Leadbeater are party to a certain employment agreement
effective as of December 22, 1997 (the "Employment Agreement"), as amended
effective as of June 12, 1998, pursuant to which Osage employed Leadbeater as
its Chairman of the Board and Chief Executive Officer;
WHEREAS, Leadbeater also holds positions as an officer and director of
Osage's subsidiaries;
WHEREAS, Osage and Leadbeater are party to a certain termination benefits
agreement dated as of August 3, 1998 (the "Termination Benefits Agreement"),
pursuant to which Leadbeater would be entitled to receive additional benefits if
Leadbeater's employment with Osage was terminated under certain circumstances;
WHEREAS, Osage has granted Leadbeater options to purchase an aggregate
800,000 shares of Osage common stock (the "Options"), as set forth on Schedule A
attached hereto;
WHEREAS, Leadbeater is the record and beneficial owner of 664,000 shares of
Osage common stock (the "Shares");
WHEREAS, Osage and Leadbeater desire to terminate the employment
relationship between them on mutually acceptable terms;
WHEREAS, pursuant to the terms of a Securities Purchase Agreement dated as
of even date herewith by and among SPH Equities, Inc. or its designee(s) or
assignee(s) (the "Purchaser"), Leadbeater, David S. Olson and Burton M. Bentley,
P.C. as Escrow Agent (the "Securities Purchase Agreement"), Leadbeater has also
agreed that, in connection with the termination of his employment with Osage, he
shall sell all of the Shares to the Purchaser and surrender all of his Options
to Osage for cancellation; and
WHEREAS, the parties desire to settle fully all matters arising out of or
relating in any manner to the Employment Agreement, the Termination Benefits
Agreement and Leadbeater's employment with and severance of employment from
Osage;
NOW THEREFORE, in consideration of the promises and conditions set forth
herein, the sufficiency of which hereby is acknowledged, and intending to be
legally bound, Osage and Leadbeater agree as follows:
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1. Definitions. As used in this Agreement, the capitalized terms listed below
shall have the following meanings:
"Closing" means the closing under Securities Purchase Agreement.
"Closing Date" means the date on which the Closing takes place.
"Company" shall include Osage and each of its subsidiaries, affiliates,
controlling corporations and divisions, and each of their respective
predecessors and successors.
"Personnel" shall include all of the respective past, present and future
directors, officers, employees, representatives, attorneys, and assigns of the
Company.
2. Resignation and Termination of Employment. Effective on the Closing Date:
a. Leadbeater shall resign from all of the positions of officer and
director that he holds with the Company, including but not limited to Chairman
of the Board and Chief Executive Officer of Osage and member of the Compensation
Committee of Osage's Board of Directors, and his employment with the Company
shall terminate;
b. The Employment Agreement shall be null and void and of no further
effect;
c. The Termination Benefits Agreement shall be null and void and of no
further effect; and
d. Other than this Agreement and the Release entered into by and among,
inter alia, the Company and Leadbeater, any and all other agreements,
arrangements or understandings which Leadbeater has with the Company are
terminated and shall be void and of no further effect.
On or before the Closing Date, Leadbeater shall have vacated and removed
all of his personal items from his offices at the Company.
3. Severance. By virtue of the resignation and termination of employment
pursuant to the terms hereof and in consideration of the covenants and
agreements of the parties contained in this Agreement, Osage hereby agrees to
provide Leadbeater severance benefits commencing on the Closing Date until
December 22, 2000 in the form of salary continuation at $17,500.00 per month,
less all applicable income and other withholdings to the extent required under
applicable federal, state and local income and employment tax rules and
regulations (the "Severance Payment"). The Severance Payment is payable at
intervals consistent with Osage's current payroll practices. In the event of
Leadbeater's death prior to December 22, 2000, Osage shall continue to be
obligated to make the Severance Payment to Leadbeater's estate.
4. Reimbursement of Expenses and Repayment of Loan. In consideration of the
covenants and agreements of the parties contained in this Agreement, Osage
agrees to reimburse Leadbeater for all reasonable business expenses approved by
Osage and incurred by him in the promotion of Osage's business through the
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Closing Date (the "Reimbursable Expenses"), but only to the extent such expenses
are deductible to Osage pursuant to the Internal Revenue Code of 1986, as
amended, provided that Leadbeater has submitted appropriate receipts evidencing
the expenses. In addition, upon verification thereof, Osage shall repay
Leadbeater the principal sum of $83,326.42, plus accrued but unpaid interest
thereon through the date hereof in the amount of $162.04, for a total of
$83,488.44 (the "Loan Payable"), representing the balance of the promissory note
from Osage to Leadbeater in the original principal amount of $450,000. The sum
of Reimbursable Expenses and Loan Payable (collectively, the "Payables") shall
be payable in cash, certified check or wire transfer of immediately available
funds as follows:
a. On or before the ninety-first calendar day following the Closing Date
(the "First Payment Date"), Osage shall pay Leadbeater a sum equal to 25% of the
Payables; and
b. For every successive thirty day period following the First Payment Date,
Osage shall pay Leadbeater a sum equal to 25% of the remaining balance of the
Payables until the Payables are repaid in full.
c. The unpaid principal amount of the Payables due shall not accrue
interest following the date hereof. Notwithstanding the foregoing, in the event
that Osage fails to make the installment payments of the Payables on or before
the dates on which they are due pursuant to the terms of this Section 4, then
the portion of the Payables then due and payable shall accrue interest
thereafter at the rate of 15% per annum until paid in full.
5. Agreements of the Parties. In consideration of the mutual obligations and
covenants contained herein, the parties expressly agree as follows:
a. No Fringe Benefits. Effective as of Closing Date, except as specifically
provided herein, Leadbeater hereby forfeits all of his rights, interests and
remedies under the Employment Agreement, including, without limitation, any
rights to receive fringe benefits such as medical insurance benefits for himself
or his family members, life and disability insurance coverage, automobile
allowances, country club memberships and the right to participate in Osage's
pension, stock option, retirement, accident and life insurance, and other
employee benefit programs. Leadbeater's COBRA benefits will not be forfeited.
b. Surrender of Options. On the Closing Date, Leadbeater shall surrender
and forfeit all rights to purchase the Options and shall deliver to Osage for
cancellation all original option certificates representing the Options.
c. Resignation; Transitional Assistance. Leadbeater acknowledges that
effective on the Closing Date he resigns from Osage as Chief Executive Officer
and Chairman of the Board and all other positions as an officer or director that
he holds with Osage's subsidiaries. In order to facilitate the transition in the
Company's management following his resignation, Leadbeater agrees to provide
assistance to the Company on a temporary, limited basis as follows:
i. Commencing as of the Closing Date and for a period of thirty
calendar days thereafter, he will fully cooperate with the Company and its
Personnel on a full-time basis, if requested by Osage, to assist and advise
on all matters related to the business of the Company. In the event that
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Osage requests Leadbeater to travel outside the State of Arizona in order
to fulfill his obligations under this Section 5(c)(i), Osage shall bear the
cost of all reasonable travel, transportation, lodging and food expenses
incurred by Leadbeater during the course of fulfilling such obligations for
which Leadbeater submits appropriate receipts. Leadbeater shall not be
required to travel outside of the continental United States to fulfill his
obligations under this Section 5(c)(i), unless he otherwise consents to
same.
ii. At the request of Osage, Leadbeater shall also provide up to five
hours per month of consulting services to the Company commencing at the
expiration of the thirty day period referenced in Section 5(c)(i) above and
for a period of six months thereafter for no remuneration. Leadbeater shall
not be required to travel outside of the State of Arizona to fulfill his
obligations under this Section 5(c)(ii), unless he otherwise consents to
same.
d. Termination of Guarantees. Osage shall use its best efforts to secure
the termination of any and all guarantees of Leadbeater of financial obligations
of the Company, as the same are listed on Schedule 5(d) attached hereto (the
"Guarantees"). If and to the extent that Osage is unable to secure the
termination of the Guarantees, Osage agrees to defend, indemnify and hold
harmless Leadbeater from and against his liability under the Guarantees.
e. Transfer of Life Insurance Policy. As soon as practicable after the
Closing Date, Osage shall transfer to Leadbeater the term life insurance policy
it maintained on the life of Leadbeater during the term of his Employment
Agreement, and Osage shall be terminated as a beneficiary under such policy.
Upon the date that Osage is terminated as a beneficiary under the policy, the
premiums on such insurance shall be the obligation of Leadbeater.
f. Directors and Officers Insurance. Osage agrees to extend coverage of
Leadbeater under all of its directors and officers errors and omissions
insurance and liability insurance policies in effect as of September 30, 1999
for a period of up to one year after the Closing Date (the "Extended
Insurance"), provided the same can be obtained at reasonable, customary and
standard rates. The insurance premiums for the Extended Insurance shall be paid
50% by Osage, 25% by Leadbeater and 25% David S. Olson.
g. Leadbeater's Personal Expenses. Leadbeater agrees to reimburse the
Company for personal expenses incurred by the Company on his or his family's
behalf which do not qualify as ordinary and necessary business expenses under
IRS guidelines, if any, as follows (collectively referred to as the "Personal
Expenses"):
i. all such expenses incurred on or after the date hereof;
ii. all such expenses incurred prior to the date hereof which the
Company has not paid;
iii. those expenses incurred prior to the date hereof but after
December 31, 1998 which the Company has paid and which exceed Ten Thousand
Dollars ($10,000) in the aggregate; provided, however, that with respect to
the expenses described in this subsection (iii), Leadbeater shall be
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obligated to reimburse the Company only the amount by which the expenses
described in this subsection (iii) exceed Ten Thousand Dollars ($10,000).
Personal Expenses shall also include any payments made by the Company under
the Employment Agreement for fringe benefits, including without limitation, the
monthly Ancala country club membership dues, that cover periods following the
Closing Date. Leadbeater further agrees to refrain from charging any items of
Personal Expense to the account of the Company. Personal Expenses do not include
the annual Ancala country club membership fees paid by the Company for the
period January 1, 1998 through December 31, 1999. If, ten (10) business days
after Osage gives Leadbeater notice of any Personal Expenses due hereunder, such
Personal Expenses remain unreimbursed, Osage may offset against any payment due
Leadbeater hereunder (including, without limitation, the Severance Payment and
the Payables), any of the Personal Expenses for which it has not been
reimbursed. If the Company shall determine that certain expenses incurred and
paid for by the Company on behalf of Leadbeater or his family do not qualify as
ordinary and necessary business expenses under applicable IRS guidelines, such
determination shall not be cause for declaring a default under this Agreement
and the Company's sole remedy as a result of such determination shall be to
collect from Leadbeater the dollar amount for any such disqualified items that
it is entitled to under subsections (i), (ii) and (iii) above.
h. Return of Company Materials. Leadbeater shall deliver to Osage, on or
before the Closing, any and all files, memoranda, documents, records, employee
files, minutes of Board meetings, keys, credit cards, cellular phones, cars,
items of personal property, computer hardware, software or other apparatus,
machinery or equipment, or any other materials which belong to the Company, that
are in Leadbeater's possession or control.
6. Releases.
a. Release by Leadbeater. Except for the Company's obligations set forth
herein, Leadbeater, on behalf of himself and his heirs and personal
representatives, hereby fully, irrevocably and unconditionally releases and
discharges the Company from any and all manner of claims, complaints, demands,
causes of action, obligations, liabilities, and expenses (including attorneys'
fees and costs), of every kind, known or unknown, either at law or in equity
(collectively, the "Claims"), including but not limited to those Claims arising
from Leadbeater's employment with or severance of employment from the Company,
including any claim relating to the Employment Agreement or benefits due
thereunder, the Termination Benefits Agreement, or any claim arising under any
federal, state or local employment discrimination or fair employment practices
law, such as the federal Age Discrimination in Employment Act, as amended, the
Civil Rights Act of 1991, Title VII of the Civil Rights Act of 1964, as amended,
the Americans With Disabilities Act, the Employee Retirement Income Security Act
of 1974, as amended, any applicable state laws, regulations or ordinances
governing employment issues and any common law claims alleging intentional or
negligent infliction of emotional distress, and/or claims for attorneys' fees or
claims growing out of any legal restrictions on Osage's right to terminate its
employees. It is expressly agreed and understood that this release is a GENERAL
RELEASE.
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In addition, and not in limitation of the foregoing, Leadbeater hereby
forever releases and discharges the Company from any liability or obligation to
reinstate or reemploy him in any employment capacity.
Leadbeater acknowledges that his waiver and release of rights and claims as
set forth in this Agreement are in exchange for valuable consideration which he
would not otherwise be entitled to receive.
b. Release by the Company. Except for Leadbeater's obligations set forth
herein, the Company hereby fully, irrevocably and unconditionally releases and
discharges Leadbeater, his heirs and personal representatives from any and all
manner of claims, complaints, demands, causes of action, obligations,
liabilities, and expenses (including attorneys' fees and costs), of every kind,
known or unknown, either at law or in equity (collectively, the "Claims"),
including but not limited to those Claims in connection with Leadbeater's status
as an employee, shareholder, officer or director of the Company. It is expressly
agreed and understood that this release is a GENERAL RELEASE.
The Company acknowledges that its waiver and release of rights and claims
as set forth in this Agreement are in exchange for valuable consideration which
it would not otherwise be entitled to receive.
7. Covenants Not to Sue.
a. Covenant of Leadbeater. Leadbeater represents and warrants that he has
not filed, nor has he assigned to any third person, any complaints, charges or
claims for relief against the Company with any local, state or federal court or
administrative agency. Leadbeater further agrees and covenants not to sue or to
bring, or assign to any third person, any claims or charges against the Company
with respect to any matter arising before, on or after the date of this
Agreement or covered by the release set forth in Section 6(a), above, and not to
assert against the Company in any action, suit, litigation or proceeding any
matter arising before, on or after the date of this Agreement or covered by the
release set forth in Section 6(a) above.
b. Covenant of the Company. The Company represents and warrants that it has
not filed, nor has it assigned to any third person, any complaints, charges or
claims for relief against Leadbeater with any local, state or federal court or
administrative agency. The Company further agrees and covenants not to sue or to
bring, or assign to any third person, any claims or charges against Leadbeater
with respect to any matter arising before, on or after the date of this
Agreement or covered by the release set forth in Section 6(b), above, and not to
assert against Leadbeater in any action, suit, litigation or proceeding any
matter arising before, on or after the date of this Agreement or covered by the
release set forth in Section 6(b) above.
8. Representations and Warranties of Leadbeater. In order to induce Osage to
enter into this Agreement, Leadbeater hereby represents and warrants to Osage as
follows:
a. Shares and Options. Immediately prior to Closing, Leadbeater owned
664,000 Shares and Options to purchase an aggregate 800,000 shares of Osage
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common stock. Leadbeater represents to Osage that none of the Shares or Options
has been pledged, assigned, transferred or otherwise disposed of as of the
Closing Date. Other than as expressly set forth in this Section 8(a) and except
for 100 shares of Osage common stock originally issued to Leadbeater and
contained in a commemorative plaque, Leadbeater is not a beneficial or record
owner of any securities of the Company or any instruments convertible into
securities of the Company.
b. No Issuances of Securities. Since June 29, 1999, Osage has not issued or
incurred an obligation to issue shares of Osage Common Stock, options, warrants,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which Osage or any subsidiary is or may become bound to issue
additional shares of Common Stock or securities or rights convertible into or
exchangeable for Common Stock, except to:
i. Leadbeater (other than the Options being surrendered in accordance
with the terms of this Agreement), David S. Olson, John Iorillo or Mark
Weiss;
ii. the shares of Common Stock issued on August 11, 1999 to Michael
Ehrensberger and Robert Carlson in connection with Osage's acquisition of
the assets of Leveraged Solutions, Inc.; or
iii. any other person other than in the ordinary course of business or
pursuant to employee stock option plans in effect as of June 9, 1999.
c. Guarantees. Other than the Guarantees listed on Schedule 5(d) hereof,
Leadbeater has not guaranteed any of the Company's obligations. The Company has
not guaranteed any of Leadbeater's personal obligations.
d. Securities Filings. To the best of his knowledge and belief, all of
Osage's reports and registration statements filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (in the aggregate, the "Securities
Filings"), were true and correct when made, and did not include any untrue
statements of material fact or omit to state any material facts required to be
stated therein or necessary to make statements therein not misleading, and
accurately set forth all material relevant information relative to contracts or
arrangements of the Company, in addition to any transactions or dealings between
Leadbeater and the Company or between the Company and any affiliates, customers,
suppliers or business associates of Leadbeater. Furthermore, Leadbeater has
disclosed to Osage all material relevant information concerning any transactions
or dealings between the Company, Leadbeater or any affiliates or business
associates of Leadbeater.
e. Representations in the Securities Purchase Agreement. Each of the
representations and warranties made by Leadbeater in the Securities Purchase
Agreement is incorporated herein by reference.
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The foregoing representations and warranties shall be deemed to be in
the nature of an obligation of Leadbeater in so far as the falsehood of same
shall be deemed to be a breach by Leadbeater of his obligations hereunder.
9. Restrictive Covenants. In consideration of the Severance Payment, Leadbeater
hereby covenants and agrees as follows:
a. Confidential Information. Leadbeater acknowledges that: (a) during the
course of his employment with Osage he had access to and was entrusted in a
fiduciary capacity with confidential and proprietary information of the Company
including, but not limited to, trade secrets, know-how, inventions; financial
matters; business plans; pricing of products and services; names of suppliers,
personnel, customers and potential customers; bids; contracts; computer
programs; special hardware or software; service or product hardware or software
programs, however embodied; and information about or belonging to customers,
potential customers, suppliers or others; manuals; ideas; improvements;
inventions or other information or materials relating to the Company's affairs
(collectively referred to herein as the "Confidential Information"); (b) that
the Confidential Information is the property of the Company and constitutes a
major asset of the Company; (c) that the use, misappropriation or disclosure of
the Confidential Information would constitute a breach of trust and would cause
irreparable injury to the Company; and (d) that it is essential to the
protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Leadbeater neither disclose the Confidential Information to others nor use the
Confidential Information to his own advantage or to the advantage of others.
Notwithstanding the above, the term "Confidential Information" shall not be
deemed to include information that is otherwise generally publicly available
(other than through disclosure by Leadbeater) or information that Leadbeater is
required to disclose by virtue of law or court order.
b. Non-Disclosure and Return of Confidential Information. In recognition
and consideration of the compensation and fringe benefits Leadbeater received as
an employee of Osage and other good and valuable consideration, Leadbeater
expressly agrees that he shall not disclose, use or make available any
Confidential Information to any third party. Leadbeater shall return to the
Company all Confidential Information and other property of the Company on the
date hereof.
c. Covenant Not To Compete. Leadbeater covenants and agrees that, for and
in consideration of the Severance Payment and the Restrictive Covenant Payment
(as such term is defined in Section 9(g) below) to be received hereunder, the
sufficiency of which is hereby acknowledged, during the ninety day period
following the Closing Date, Leadbeater shall not, within any state in which the
Company has a place of business, engage, directly or indirectly, whether as
principal or as agent, officer, director, employee, consultant, shareholder, or
otherwise, alone or in association with any other person, corporation or other
entity, in any "Competing Business". For the purposes of this Agreement, the
term "Competing Business" shall mean any person, corporation or other entity
that is engaged in a business that competes with, or is engaged in, one or more
of the same lines of business as the Company as of the date hereof.
8
<PAGE>
d. Non-Solicitation of Customers and Employees. In consideration of the
Severance Payment and the Restrictive Covenant Payment, Leadbeater agrees that,
commencing as of the Closing Date and ending on December 22, 2000, he shall not,
directly or indirectly:
i. solicit, service, trade with or sell to any customer with whom the
Company has transacted business within the past twelve (12) months
("Customers");
ii. request that any customer or supplier cancel, limit or postpone
their business with the Company; or
iii. hire, solicit for employment, influence or induce, or attempt to
hire, solicit, influence or induce, any employee of the Company or
independent contractor retained by the Company to leave the Company for any
reason whatsoever, to terminate his relationship with the Company, or
assist or participate in the hiring of any employee of the Company to work
for another entity.
e. Effect of Default. In the event that Osage has not made a payment of the
Severance Payment within five (5) business days after receiving notice from
Leadbeater of failure to make such payment when due under Section 3, then the
restrictive covenants set forth in Sections 9(c) and 9(d) above shall be void
and of no further effect.
f. Limitations on Restrictive Covenants. The restrictive covenants
contained in Sections 9(c) and 9(d) shall not apply with respect to the
following actions of Leadbeater or his affiliates:
i. offering a service or product to Customers that (A) is
substantially different from and does not compete with products or services
offered by the Company currently or within the past year and (B) does not
serve to replace or supplement a service or product or type of service or
product offered by the Company currently or within the past year; or
ii. soliciting, servicing, trading with or selling to any Customer
with whom the Company has transacted less than $5,000 of business within
the past twelve (12) months.
g. Restrictive Covenant Payment. In consideration of the restrictive
covenants of Leadbeater contained in Sections 9(c) and (d) above, Osage shall
pay Leadbeater the lump sum of $159,360 (the "Restrictive Covenant Payment"),
which is payable in full on the Closing Date in cash, certified check or wire
transfer of immediately available funds.
h. Non-Disparagement. The Company and Leadbeater agree not to engage in any
conduct or make or publish any negative, critical, disparaging, slanderous, or
libelous statement about the other or their respective business interests,
unless (and then only to the extent) required by law.
10. Injunctive Relief. Leadbeater acknowledges that any breach by him of Section
9 of this Agreement would substantially and materially impair and irreparably
harm the Company's business and goodwill, that such impairment and harm would be
difficult to measure and, therefore, total compensation in solely monetary terms
would be inadequate. Leadbeater therefore agrees that in the event of any breach
or threatened breach by him of Section 9, the Company shall be entitled, in
9
<PAGE>
addition to monetary damages or other remedies, to equitable relief, including
injunctive relief, and payment by Leadbeater of all costs and expenses incurred
by the Company in enforcing said paragraph against Leadbeater, including
attorneys' fees incurred by the Company. Any action for damages, injunctive or
other relief arising out of or relating to any of the provisions of this Section
10 shall be brought and prosecuted only in the courts of, or located in, the
Phoenix, Arizona, and the parties hereto consent to the jurisdiction and venue
of said courts.
11. Breach. The parties agree that in the event one party breaches any part or
parts of this Agreement, legal proceedings may be instituted against that party
for breach of contract or any other action in law or at equity. The
nonprevailing party in such legal proceedings shall reimburse the prevailing
party for the reasonable costs and expenses, including attorneys' fees,
incurred.
12. Non-Disclosure. (a) The nature and terms of this Agreement, all of the
discussions leading to this Agreement, or any subsidiary undertakings required
by this Agreement, shall not be disclosed by either of the parties hereto, or
their officers, agents, employees, attorneys, or any other representative,
without the prior written consent of Osage and Leadbeater, except when legally
required to do so. Leadbeater and Osage expressly covenant that the terms of
this Agreement are strictly confidential, and expressly agree not to discuss or
disclose any of the terms of this Agreement with or to any person, except when
legally required to do so.
13. Jurisdiction. Any action arising out of or relating to any of the provisions
of this Agreement may be brought and prosecuted only in the courts of, or
located in Phoenix, Arizona, and in the event of such election, the parties
hereto consent to the jurisdiction and venue of such courts. The Agreement shall
be construed according to its plain language and not strictly for or against any
party hereto.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws.
15. Captions. Captions herein are inserted for convenience, do not constitute a
part of this Agreement, and shall not be admissible for the purpose of proving
the intent of the parties.
16. Counterparts; Facsimile Signatures. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement it shall not be necessary to produce
more than one such counterpart. This Agreement may further be executed by
facsimile transmission, and the facsimile signatures may be deemed original
signatures for all purposes, including for purposes of the Best Evidence Rule
and all other rules or doctrines of similar effect.
17. Notice. All notices, requests, consents or other communications required or
permitted hereunder shall be in writing and shall be hand delivered, mailed
first class postage prepaid, registered or certified mail, or delivered via a
nationally recognized overnight courier to the following addresses:
10
<PAGE>
If to Leadbeater:
12221 East Laurel Lane
Scottsdale, AZ 85259
with a copy to:
Burton M. Bentley, Esquire
7878 N. 16th Street, Suite 110
Phoenix, AZ 85020
If to Osage:
Phil Carter
Osage Systems Group, Inc.
1661 East Camelback Road
Suite 245
Phoenix, Arizona 85016
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
Unless specified otherwise, such notices and other communications shall for
all purposes of this Agreement be treated as being effective upon being
delivered personally or, if sent by mail, five days after the same has been
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed as set forth above, and postage prepaid, or if sent by
nationally recognized overnight courier, the next business day after the same
has been deposited with such courier.
18. Survival of Representations and Warranties. Representations and warranties
contained herein shall survive the execution and delivery of this Agreement.
19. Expenses. The parties hereto shall be responsible for their own expenses
incurred by them in connection with preparation and negotiation of this
Agreement, including the fees and expenses of their respective counsel and
accountants.
20. Entire Agreement. This Agreement, together with the Securities Purchase
Agreement and the "Release" identified in the Securities Purchase Agreement,
contains and constitutes the entire understanding and agreement between the
parties hereto respecting the subject matter hereof and supersedes and cancels
all previous negotiations, agreements, commitments, and writings in connection
11
<PAGE>
herewith. Neither of the parties hereto has relied upon any representation made
by or on behalf of the other party and the same are not enforceable except to
the extent set forth in writing in this Agreement.
21. Acknowledgment of Certain Rights. Leadbeater and Osage affirm that the only
consideration for signing this Agreement are the terms stated herein, and that
no other promises or agreements of any kind have been made to or with either of
them by any person or entity whatsoever to cause them to sign this Agreement.
Leadbeater states and represents that he has been provided the opportunity for
at least 21 days to review and consider this Agreement, that he fully
understands the meaning and intent of this Agreement and that he has had an
opportunity to discuss and review the terms of this Agreement fully with his
attorney. Leadbeater further states and represents that he has carefully read
this Agreement, understands the contents hereof, freely and voluntarily assents
to all the terms and conditions hereof, and signs the same as his own free act.
Finally, Leadbeater understands and the parties agree that, for a period of
seven days following the execution of this Agreement, Leadbeater may revoke the
Agreement, and the Agreement shall not become effective until those seven days
have passed.
IN WITNESS WHEREOF, all parties have set their hands and seals to this
Agreement as of the date written above.
/s/ Jack R. Leadbeater
----------------------------------------
Jack R. Leadbeater
Osage Systems Group, Inc.
By: /s/ Phil Carter
-------------------------------------
Phil Carter,
Interim Chief Executive Officer
12
<PAGE>
Schedule A
Options
<TABLE>
<CAPTION>
Date of
Number Grant Expiration Date Exercise Price Option #
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
19,057 12-19-97 12-19-2000 3.00 1997-16
- -----------------------------------------------------------------------------------------
664,000 6-11-98 12-19-2003 4.50 1998-3
- -----------------------------------------------------------------------------------------
116,943 8-25-99 8-25-2009 $1.437
- -----------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Schedule 5(d)
Guarantees
None.
14
SEVERANCE AGREEMENT
This Severance Agreement ("Agreement") made effective as of October 8,
1999, is by and between Osage Systems Group, Inc., a Delaware corporation
("Osage"), and David S. Olson, an individual resident of the State of Arizona
("Olson").
WITNESSETH:
WHEREAS, Osage and Olson are party to a certain employment agreement
effective as of December 22, 1997 (the "Employment Agreement"), as amended
effective as of June 12, 1998, pursuant to which Osage employed Olson as its
President and Chief Operating Officer from December 22, 1997 to January 4, 1999,
and as President and Secretary from January 5, 1999 to the present;
WHEREAS, Olson also holds positions as an officer and director of Osage's
subsidiaries;
WHEREAS, Osage and Olson are party to a certain termination benefits
agreement dated as of August 3, 1998 (the "Termination Benefits Agreement"),
pursuant to which Olson would be entitled to receive additional benefits if
Olson's employment with Osage was terminated under certain circumstances;
WHEREAS, Osage has granted Olson options to purchase an aggregate 683,037
shares of Osage common stock (the "Options"), as set forth on Schedule A
attached hereto;
WHEREAS, Olson is the record and beneficial owner of 639,000 shares of
Osage common stock (the "Shares");
WHEREAS, Osage and Olson desire to terminate the employment relationship
between them on mutually acceptable terms;
WHEREAS, pursuant to the terms of a Securities Purchase Agreement dated as
of even date herewith by and among SPH Equities, Inc. or its designee(s) or
assignee(s) (the "Purchaser"), Olson, Jack R. Leadbeater and Burton M. Bentley,
P.C. as Escrow Agent (the "Securities Purchase Agreement"), Olson has also
agreed that, in connection with the termination of his employment with Osage, he
shall sell all of the Shares to the Purchaser and surrender all of his Options
to Osage for cancellation; and
WHEREAS, the parties desire to settle fully all matters arising out of or
relating in any manner to the Employment Agreement, the Termination Benefits
Agreement and Olson's employment with and severance of employment from Osage;
NOW THEREFORE, in consideration of the promises and conditions set forth
herein, the sufficiency of which hereby is acknowledged, and intending to be
legally bound, Osage and Olson agree as follows:
1
<PAGE>
1. Definitions. As used in this Agreement, the capitalized terms listed below
shall have the following meanings:
"Closing" means the closing under the Securities Purchase Agreement.
"Closing Date" means the date on which the Closing takes place.
"Company" shall include Osage and each of its subsidiaries, affiliates,
controlling corporations and divisions, and each of their respective
predecessors and successors.
"Personnel" shall include all of the respective past, present and future
directors, officers, employees, representatives, attorneys, and assigns of the
Company.
2. Resignation and Termination of Employment. Effective on the Closing Date:
a. Olson shall resign from all of the positions of officer and director
that he holds with the Company, including but not limited to President and
Secretary of Osage and member of the Compensation Committee of Osage's Board of
Directors, and his employment with the Company shall terminate;
b. The Employment Agreement shall be null and void and of no further
effect;
c. The Termination Benefits Agreement shall be null and void and of no
further effect; and
d. Other than this Agreement and the Release entered into by and among,
inter alia, the Company and Olson, any and all other agreements, arrangements or
understandings which Olson has with the Company are terminated and shall be void
and of no further effect.
On or before the Closing Date, Olson shall have vacated and removed all of
his personal items from his offices at the Company.
3. Severance. By virtue of the resignation and termination of employment
pursuant to the terms hereof and in consideration of the covenants and
agreements of the parties contained in this Agreement, Osage hereby agrees to
provide Olson severance benefits commencing on the Closing Date until December
22, 2000 in the form of salary continuation at $17,500.00 per month, less all
applicable income and other withholdings to the extent required under applicable
federal, state and local income and employment tax rules and regulations (the
"Severance Payment"). The Severance Payment is payable at intervals consistent
with Osage's current payroll practices. In the event of Olson's death prior to
December 22, 2000, Osage shall continue to be obligated to make the Severance
Payment to Olson's estate.
4. Reimbursement of Expenses and Repayment of Loan. In consideration of the
covenants and agreements of the parties contained in this Agreement, Osage
agrees to reimburse Olson for all reasonable business expenses approved by Osage
and incurred by him in the promotion of Osage's business through the Closing
Date (the "Reimbursable Expenses"), but only to the extent
2
<PAGE>
such expenses are deductible to Osage pursuant to the Internal Revenue Code of
1986, as amended, provided that Olson has submitted appropriate receipts
evidencing the expenses. In addition, upon verification thereof, Osage shall
repay Olson the principal sum of $7,733.32, plus accrued but unpaid interest
thereon through the date hereof in the amount of $15.04 for a total of $7,748.36
(the "Loan Payable"), representing the balance of the promissory note from Osage
to Olson in the original principal amount of $190,000. The sum of Reimbursable
Expenses and Loan Payable (collectively, the "Payables") shall be payable in
cash, certified check or wire transfer of immediately available funds as
follows:
a. On or before the ninety-first calendar day following the Closing Date
(the "First Payment Date"), Osage shall pay Olson a sum equal to 25% of the
Payables; and
b. For every successive thirty day period following the First Payment Date,
Osage shall pay Olson a sum equal to 25% of the remaining balance of the
Payables until the Payables are repaid in full.
c. The unpaid principal amount of the Payables due shall not accrue
interest following the date hereof. Notwithstanding the foregoing, in the event
that Osage fails to make the installment payments of the Payables on or before
the dates on which they are due pursuant to the terms of this Section 4, then
the portion of the Payables then due and payable shall accrue interest
thereafter at the rate of 15% per annum until paid in full.
5. Agreements of the Parties. In consideration of the mutual obligations and
covenants contained herein, the parties expressly agree as follows:
a. No Fringe Benefits. Effective as of Closing Date, except as specifically
provided herein, Olson hereby forfeits all of his rights, interests and remedies
under the Employment Agreement, including, without limitation, any rights to
receive fringe benefits such as medical insurance benefits for himself or his
family members, life and disability insurance coverage, automobile allowances,
country club memberships and the right to participate in Osage's pension, stock
option, retirement, accident and life insurance, and other employee benefit
programs. Olson's COBRA benefits shall not be forfeited.
b. Surrender of Options. On the Closing Date, Olson shall surrender and
forfeit all rights to purchase the Options and shall deliver to Osage for
cancellation all original option certificates representing the Options.
c. Resignation; Transitional Assistance. Olson acknowledges that effective
on the Closing Date he resigns from Osage as President, Secretary and director
and all other positions as an officer or director that he holds with Osage's
subsidiaries. In order to facilitate the transition in the Company's management
following his resignation, Olson agrees to provide assistance to the Company on
a temporary, limited basis as follows:
i. Commencing as of the Closing Date and for a period of thirty
calendar days thereafter, he will fully cooperate with the Company and its
Personnel on a full-time basis, if requested by Osage, to assist and advise on
all matters related to the business of the Company.
3
<PAGE>
In the event that Osage requests Olson to travel outside the State of Arizona in
order to fulfill his obligations under this Section 5(c)(i), Osage shall bear
the cost of all reasonable travel, transportation, lodging and food expenses
incurred by Olson during the course of fulfilling such obligations for which
Olson submits appropriate receipts. Olson shall not be required to travel
outside of the continental United States to fulfill his obligations under this
Section 5(c)(i), unless he otherwise consents to same.
ii. At the request of Osage, Olson shall also provide up to five hours
per month of consulting services to the Company commencing at the expiration of
the thirty day period referenced in Section 5(c)(i) above and for a period of
six months thereafter for no remuneration. Olson shall not be required to travel
outside of the State of Arizona to fulfill his obligations under this Section
5(c)(ii), unless he otherwise consents to same.
d. Termination of Guarantees. Osage shall use its best efforts to secure
the termination of any and all guarantees of Olson of financial obligations of
the Company, as the same are listed on Schedule 5(d) attached hereto (the
"Guarantees"). If and to the extent that Osage is unable to secure the
termination of the Guarantees, Osage agrees to defend, indemnify and hold
harmless Olson from and against his liability under the Guarantees.
e. Transfer of Life Insurance Policy. As soon as practicable after the
Closing Date, Osage shall transfer to Olson the term life insurance policy it
maintained on the life of Olson during the term of his Employment Agreement, and
Osage shall be terminated as a beneficiary under such policy. Upon the date that
Osage is terminated as a beneficiary under the policy, the premiums on such
insurance shall be the obligation of Olson.
f. Directors and Officers Insurance. Osage agrees to extend coverage of
Olson under all of its directors and officers errors and omissions insurance and
liability insurance policies in effect as of September 30, 1999 for a period of
up to one year after the Closing Date (the "Extended Insurance"), provided the
same can be obtained at reasonable, customary and standard rates. The insurance
premiums for the Extended Insurance shall be paid 50% by Osage, 25% by Olson and
25% Jack R. Leadbeater.
g. Olson's Personal Expenses. Olson agrees to reimburse the Company for
personal expenses incurred by the Company on his or his family's behalf which do
not qualify as ordinary and necessary business expenses under IRS guidelines, if
any, as follows (collectively referred to as the "Personal Expenses"):
i. all such expenses incurred on or after the date hereof;
ii. all such expenses incurred prior to the date hereof which the
Company has not paid;
iii. those expenses incurred prior to the date hereof but after
December 31, 1998 which the Company has paid and which exceed Ten Thousand
Dollars ($10,000) in the aggregate; provided, however, that with respect to the
expenses described in this subsection (iii),
4
<PAGE>
Olson shall be obligated to reimburse the Company only the amount by which the
expenses described in this subsection (iii) exceed Ten Thousand Dollars
($10,000).
Personal Expenses shall also include any payments made by the Company under
the Employment Agreement for fringe benefits, including without limitation, the
monthly Ancala country club membership dues, that cover periods following the
Closing Date. Olson further agrees to refrain from charging any items of
Personal Expense to the account of the Company. Personal Expenses do not include
the annual Ancala country club membership fees paid by the Company for the
period January 1, 1998 through December 31, 1999. If, ten (10) business days
after Osage gives Olson notice of any Personal Expenses due hereunder, such
Personal Expenses remain unreimbursed, Osage may offset against any payment due
Leadbeater hereunder (including, without limitation, the Severance Payment and
the Payables), any of the Personal Expenses for which it has not been
reimbursed. If the Company shall determine that certain expenses incurred and
paid for by the Company on behalf of Olson or his family do not qualify as
ordinary and necessary business expenses under applicable IRS guidelines, such
determination shall not be cause for declaring a default under this Agreement
and the Company's sole remedy as a result of such determination shall be to
collect from Olson the dollar amount for any such disqualified items that it is
entitled to under subsections (i), (ii) and (iii) above.
h. Return of Company Materials. Olson shall deliver to Osage, on or before
the Closing, any and all files, memoranda, documents, records, employee files,
minutes of Board meetings, keys, credit cards, cellular phones, cars, items of
personal property, computer hardware, software or other apparatus, machinery or
equipment, or any other materials which belong to the Company, that are in
Olson's possession or control.
6. Releases.
a. Release by Olson. Except for the Company's obligations set forth herein,
Olson, on behalf of himself and his heirs and personal representatives, hereby
fully, irrevocably and unconditionally releases and discharges the Company from
any and all manner of claims, complaints, demands, causes of action,
obligations, liabilities, and expenses (including attorneys' fees and costs), of
every kind, known or unknown, either at law or in equity (collectively, the
"Claims"), including but not limited to those Claims arising from Olson's
employment with or severance of employment from the Company, including any claim
relating to the Employment Agreement or benefits due thereunder, the Termination
Benefits Agreement, or any claim arising under any federal, state or local
employment discrimination or fair employment practices law, such as the federal
Age Discrimination in Employment Act, as amended, the Civil Rights Act of 1991,
Title VII of the Civil Rights Act of 1964, as amended, the Americans With
Disabilities Act, the Employee Retirement Income Security Act of 1974, as
amended, any applicable state laws, regulations or ordinances governing
employment issues and any common law claims alleging intentional or negligent
infliction of emotional distress, and/or claims for attorneys' fees or claims
growing out of any legal restrictions on Osage's right to terminate its
employees. It is expressly agreed and understood that this release is a GENERAL
RELEASE.
5
<PAGE>
In addition, and not in limitation of the foregoing, Olson hereby forever
releases and discharges the Company from any liability or obligation to
reinstate or reemploy him in any employment capacity.
Olson acknowledges that his waiver and release of rights and claims as set
forth in this Agreement are in exchange for valuable consideration which he
would not otherwise be entitled to receive.
b. Release by the Company. Except for Olson's obligations set forth herein,
the Company hereby fully, irrevocably and unconditionally releases and
discharges Olson, his heirs and personal representatives from any and all manner
of claims, complaints, demands, causes of action, obligations, liabilities, and
expenses (including attorneys' fees and costs), of every kind, known or unknown,
either at law or in equity (collectively, the "Claims"), including but not
limited to those Claims in connection with Olson's status as an employee,
shareholder, officer or director of the Company. It is expressly agreed and
understood that this release is a GENERAL RELEASE.
The Company acknowledges that its waiver and release of rights and claims
as set forth in this Agreement are in exchange for valuable consideration which
it would not otherwise be entitled to receive.
7. Covenants Not to Sue.
a. Covenant of Olson. Olson represents and warrants that he has not filed,
nor has he assigned to any third person, any complaints, charges or claims for
relief against the Company with any local, state or federal court or
administrative agency. Olson further agrees and covenants not to sue or to
bring, or assign to any third person, any claims or charges against the Company
with respect to any matter arising before, on or after the date of this
Agreement or covered by the release set forth in Section 6(a), above, and not to
assert against the Company in any action, suit, litigation or proceeding any
matter arising before, on or after the date of this Agreement or covered by the
release set forth in Section 6(a) above.
b. Covenant of the Company. The Company represents and warrants that it has
not filed, nor has it assigned to any third person, any complaints, charges or
claims for relief against Olson with any local, state or federal court or
administrative agency. The Company further agrees and covenants not to sue or to
bring, or assign to any third person, any claims or charges against Olson with
respect to any matter arising before, on or after the date of this Agreement or
covered by the release set forth in Section 6(b), above, and not to assert
against Olson in any action, suit, litigation or proceeding any matter arising
before, on or after the date of this Agreement or covered by the release set
forth in Section 6(b) above.
8. Representations and Warranties of Olson. In order to induce Osage to enter
into this Agreement, Olson hereby represents and warrants to Osage as follows:
a. Shares and Options. Immediately prior to Closing, Olson owned 639,000
Shares and Options to purchase an aggregate 683,057 shares of Osage common
stock. Olson represents to
6
<PAGE>
Osage that none of the Shares or Options has been pledged, assigned, transferred
or otherwise disposed of as of the Closing Date. Other than as expressly set
forth in this Section 8(a), and except for 100 shares of Osage common stock
originally issued to Olson and contained in a commemorative plaque, Olson is not
a beneficial or record owner of any securities of the Company or any instruments
convertible into securities of the Company.
b. No Issuances of Securities. Since June 29, 1999, Osage has not issued or
incurred an obligation to issue shares of Osage Common Stock, options, warrants,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which Osage or any subsidiary is or may become bound to issue
additional shares of Common Stock or securities or rights convertible into or
exchangeable for Common Stock, except to:
i. Olson (other than the Options being surrendered in accordance with
the terms of this Agreement), Jack R. Leadbeater, John Iorillo or Mark Weiss;
ii. the shares of Common Stock issued on August 11, 1999 to Michael
Ehrensberger and Robert Carlson in connection with Osage's acquisition of the
assets of Leveraged Solutions, Inc.; or
iii. any other person other than in the ordinary course of business or
pursuant to employee stock option plans in effect as of June 9, 1999.
c. Guarantees. Other than the Guarantees listed on Schedule 5(d) hereof,
Olson has not guaranteed any of the Company's obligations. The Company has not
guaranteed any of Olson's personal obligations.
d. Securities Filings. To the best of his knowledge and belief, all of
Osage's reports and registration statements filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (in the aggregate, the "Securities
Filings"), were true and correct when made, and did not include any untrue
statements of material fact or omit to state any material facts required to be
stated therein or necessary to make statements therein not misleading, and
accurately set forth all material relevant information relative to contracts or
arrangements of the Company, in addition to any transactions or dealings between
Olson and the Company or between the Company and any affiliates, customers,
suppliers or business associates of Olson. Furthermore, Olson has disclosed to
Osage all material relevant information concerning any transactions or dealings
between the Company, Olson or any affiliates or business associates of Olson.
e. Representations in the Securities Purchase Agreement. Each of the
representations and warranties made by Olson in the Securities Purchase
Agreement is incorporated herein by reference.
7
<PAGE>
The foregoing representations and warranties shall be deemed to be in the
nature of an obligation of Olson in so far as the falsehood of same shall be
deemed to be a breach by Olson of his obligations hereunder.
9. Restrictive Covenants. In consideration of the Severance Payment, Olson
hereby covenants and agrees as follows:
a. Confidential Information. Olson acknowledges that: (a) during the course
of his employment with Osage he had access to and was entrusted in a fiduciary
capacity with confidential and proprietary information of the Company including,
but not limited to, trade secrets, know-how, inventions; financial matters;
business plans; pricing of products and services; names of suppliers, personnel,
customers and potential customers; bids; contracts; computer programs; special
hardware or software; service or product hardware or software programs, however
embodied; and information about or belonging to customers, potential customers,
suppliers or others; manuals; ideas; improvements; inventions or other
information or materials relating to the Company's affairs (collectively
referred to herein as the "Confidential Information"); (b) that the Confidential
Information is the property of the Company and constitutes a major asset of the
Company; (c) that the use, misappropriation or disclosure of the Confidential
Information would constitute a breach of trust and would cause irreparable
injury to the Company; and (d) that it is essential to the protection of the
Company's goodwill and to the maintenance of the Company's competitive position
that the Confidential Information be kept secret and that Olson neither disclose
the Confidential Information to others nor use the Confidential Information to
his own advantage or to the advantage of others. Notwithstanding the above, the
term "Confidential Information" shall not be deemed to include information that
is otherwise generally publicly available (other than through disclosure by
Olson) or information that Olson is required to disclose by virtue of law or
court order.
b. Non-Disclosure and Return of Confidential Information. In recognition
and consideration of the compensation and fringe benefits Olson received as an
employee of Osage and other good and valuable consideration, Olson expressly
agrees that he shall not disclose, use or make available any Confidential
Information to any third party. Olson shall return to the Company all
Confidential Information and other property of the Company on the date hereof.
c. Covenant Not To Compete. Olson covenants and agrees that, for and in
consideration of the Severance Payment and the Restrictive Covenant Payment (as
such term is defined in Section 9(g) below) to be received hereunder, the
sufficiency of which is hereby acknowledged, during the ninety day period
following the Closing Date, Olson shall not, within any state in which the
Company has a place of business, engage, directly or indirectly, whether as
principal or as agent, officer, director, employee, consultant, shareholder, or
otherwise, alone or in association with any other person, corporation or other
entity, in any "Competing Business". For the purposes of this Agreement, the
term "Competing Business" shall mean any person, corporation or other entity
that is engaged in a business that competes with, or is engaged in, one or more
of the same lines of business as the Company as of the date hereof.
8
<PAGE>
d. Non-Solicitation of Customers and Employees. In consideration of the
Severance Payment and the Restrictive Covenant Payment, Olson agrees that,
commencing as of the Closing Date and ending on December 22, 2000, he shall not,
directly or indirectly:
i. solicit, service, trade with or sell to any customer with whom the
Company has transacted business within the past twelve (12) months
("Customers");
ii. request that any customer or supplier cancel, limit or postpone
their business with the Company; or
iii. hire, solicit for employment, influence or induce, or attempt to
hire, solicit, influence or induce, any employee of the Company or independent
contractor retained by the Company to leave the Company for any reason
whatsoever, to terminate his relationship with the Company, or assist or
participate in the hiring of any employee of the Company to work for another
entity.
e. Effect of Default. In the event that Osage has not made a payment of the
Severance Payment within five (5) business days after receiving notice from
Olson of failure to make such payment when due under Section 3, then the
restrictive covenants set forth in Sections 9(c) and 9(d) above shall be void
and of no further effect.
f. Limitations on Restrictive Covenants. The restrictive covenants
contained in Sections 9(c) and 9(d) shall not apply with respect to the
following actions of Olson or his affiliates:
i. offering a service or product to Customers that (A) is
substantially different from and does not compete with products or services
offered by the Company currently or within the past year and (B) does not serve
to replace or supplement a service or product or type of service or product
offered by the Company currently or within the past year; or
ii. soliciting, servicing, trading with or selling to any Customer
with whom the Company has transacted less than $5,000 of business within the
past twelve (12) months.
g. Restrictive Covenant Payment. In consideration of the restrictive
covenants of Olson contained in Sections 9(c) and (d) above, Osage shall pay
Olson the lump sum of $153,360 (the "Restrictive Covenant Payment"), which is
payable in full on the Closing Date in cash, certified check or wire transfer of
immediately available funds.
h. Non-Disparagement. The Company and Olson agree not to engage in any
conduct or make or publish any negative, critical, disparaging, slanderous, or
libelous statement about the other or their respective business interests,
unless (and then only to the extent) required by law.
10. Injunctive Relief. Olson acknowledges that any breach by him of Section 9 of
this Agreement would substantially and materially impair and irreparably harm
the Company's business and goodwill, that such impairment and harm would be
difficult to measure and, therefore, total compensation in solely monetary terms
would be inadequate. Olson therefore agrees that in the event of any breach or
threatened breach by him of Section 9, the Company shall be entitled, in
addition to monetary damages or other remedies, to equitable relief, including
9
<PAGE>
injunctive relief, and payment by Olson of all costs and expenses incurred by
the Company in enforcing said paragraph against Olson, including attorneys' fees
incurred by the Company. Any action for damages, injunctive or other relief
arising out of or relating to any of the provisions of this Section 10 shall be
brought and prosecuted only in the courts of, or located in, the Phoenix,
Arizona, and the parties hereto consent to the jurisdiction and venue of said
courts.
11. Breach. The parties agree that in the event one party breaches any part or
parts of this Agreement, legal proceedings may be instituted against that party
for breach of contract or any other action in law or at equity. The
nonprevailing party in such legal proceedings shall reimburse the prevailing
party for the reasonable costs and expenses, including attorneys' fees,
incurred.
12. Non-Disclosure. (a) The nature and terms of this Agreement, all of the
discussions leading to this Agreement, or any subsidiary undertakings required
by this Agreement, shall not be disclosed by either of the parties hereto, or
their officers, agents, employees, attorneys, or any other representative,
without the prior written consent of Osage and Olson, except when legally
required to do so. Olson and Osage expressly covenant that the terms of this
Agreement are strictly confidential, and expressly agree not to discuss or
disclose any of the terms of this Agreement with or to any person, except when
legally required to do so.
13. Jurisdiction. Any action arising out of or relating to any of the provisions
of this Agreement may be brought and prosecuted only in the courts of, or
located in Phoenix, Arizona, and in the event of such election, the parties
hereto consent to the jurisdiction and venue of such courts. The Agreement shall
be construed according to its plain language and not strictly for or against any
party hereto.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws.
15. Captions. Captions herein are inserted for convenience, do not constitute a
part of this Agreement, and shall not be admissible for the purpose of proving
the intent of the parties.
16. Counterparts; Facsimile Signatures. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement it shall not be necessary to produce
more than one such counterpart. This Agreement may further be executed by
facsimile transmission, and the facsimile signatures may be deemed original
signatures for all purposes, including for purposes of the Best Evidence Rule
and all other rules or doctrines of similar effect.
17. Notice. All notices, requests, consents or other communications required or
permitted hereunder shall be in writing and shall be hand delivered, mailed
first class postage prepaid, registered or certified mail, or delivered via a
nationally recognized overnight courier to the following addresses:
10
<PAGE>
If to Olson:
12829 E. Jenan Drive
Scottsdale, AZ 85259
with a copy to:
Burton M. Bentley, Esquire
7878 N. 16th Street, Suite 110
Phoenix, AZ 85020
If to Osage:
Phil Carter
Osage Systems Group, Inc.
1661 East Camelback Road
Suite 245
Phoenix, AZ 85016
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
Unless specified otherwise, such notices and other communications shall for
all purposes of this Agreement be treated as being effective upon being
delivered personally or, if sent by mail, five days after the same has been
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed as set forth above, and postage prepaid, or if sent by
nationally recognized overnight courier, the next business day after the same
has been deposited with such courier.
18. Survival of Representations and Warranties. Representations and warranties
contained herein shall survive the execution and delivery of this Agreement.
19. Expenses. The parties hereto shall be responsible for their own expenses
incurred by them in connection with preparation and negotiation of this
Agreement, including the fees and expenses of their respective counsel and
accountants.
20. Entire Agreement. This Agreement, together with the Securities Purchase
Agreement and the "Release" identified in the Securities Purchase Agreement,
contains and constitutes the entire understanding and agreement between the
parties hereto respecting the subject matter hereof and supersedes and cancels
all previous negotiations, agreements, commitments, and writings in connection
herewith. Neither of the parties hereto has relied upon any representation made
by or
11
<PAGE>
on behalf of the other party and the same are not enforceable except to the
extent set forth in writing in this Agreement.
21. Acknowledgment of Certain Rights. Olson and Osage affirm that the only
consideration for signing this Agreement are the terms stated herein, and that
no other promises or agreements of any kind have been made to or with either of
them by any person or entity whatsoever to cause them to sign this Agreement.
Olson states and represents that he has been provided the opportunity for at
least 21 days to review and consider this Agreement, that he fully understands
the meaning and intent of this Agreement and that he has had an opportunity to
discuss and review the terms of this Agreement fully with his attorney. Olson
further states and represents that he has carefully read this Agreement,
understands the contents hereof, freely and voluntarily assents to all the terms
and conditions hereof, and signs the same as his own free act. Finally, Olson
understands and the parties agree that, for a period of seven days following the
execution of this Agreement, Olson may revoke the Agreement, and the Agreement
shall not become effective until those seven days have passed.
IN WITNESS WHEREOF, all parties have set their hands and seals to this
Agreement as of the date written above.
/s/ David S. Olson
-------------------------
David S. Olson
Osage Systems Group, Inc.
By: /s/ Phil Carter
-------------------
Phil Carter, Interim Chief Executive Officer
12
<PAGE>
Schedule A
Options
- --------------------------------------------------------------------------------
DATE OF
NUMBER GRANT EXPIRATION DATE EXERCISE PRICE OPTION #
- --------------------------------------------------------------------------------
19,057 12-19-97 12-19-2000 3.00 1997-26
- --------------------------------------------------------------------------------
664,000 6-11-98 12-19-2003 4.50 1998-4
- --------------------------------------------------------------------------------
13
<PAGE>
Schedule 5(d)
Guarantees
None
14
OSAGE SYSTEMS GROUP, INC.
-------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------------------------------------------------------
Units consisting of a
$3,000,000 Principal Amount
Convertible Subordinated Debenture
and
Common Stock Purchase Warrants
-------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered as of the
8th day of October, 1999, by and between Osage Systems Group, Inc., a Delaware
corporation (the "Company"), and the investors whose names appear at the end of
this Agreement (in the alternative and collectively, "Purchaser" or
"Subscriber").
R E C I T A L S:
The Company wishes to obtain additional financing and the Purchaser desires
to provide such financing to the Company through the purchase of Units
consisting, in the aggregate, of a $3,000,000 Principal Amount 10% Convertible
Subordinated Debenture and certain Common Stock Purchase Warrants being
privately offered by the Company.
NOW, THEREFORE, in consideration of the premises hereof and the agreements
set forth herein below, the parties hereto hereby agree as follows:
1. Sale and Purchase of Units.
(a) Subject to the terms and conditions herein, on the Closing Date, as
defined in Section 5 hereof, the Company agrees to issue and sell, and the
Purchaser agrees to purchase, Units consisting, in the aggregate, of a
$3,000,000 Principal Amount 10% Convertible Subordinated Debenture of the
Company (the "Debenture") and certain Common Stock Purchase Warrants (the
"Warrants"). The purchase price for all of the Units shall be $3,000,000 (the
"Purchase Price").
(b) The Debenture, Warrants and Shares of Common Stock being offered
pursuant to this Securities Purchase Agreement constitute "restricted
securities" under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Act"). As such, the resale of such securities are subject to
significant restrictions upon resale. See Paragraph 8 hereafter "Understanding
of Investment Risks." The Shares of Common Stock issuable upon conversion of the
Debentures and upon exercise of the Warrants are subject to certain registration
rights being offered by the Company more fully identified at Paragraph 4
hereafter - "Registration Rights."
2. Description of Units.
Debenture
The Units, in the aggregate, are to consist of a $3,000,000 Debenture, the
principal amount of which shall be due and payable two (2) years from the
Closing Date hereof. Interest shall be payable at the rate of ten (10%) percent
per annum on a quarterly basis, commencing December 31, 1999. Following an
"Event of Default" (as hereafter defined), interest shall be due at the rate of
18% per annum. Interest shall be paid in cash, or at the option of the
Purchaser, in Common Stock priced at the Conversion Price. Except as set forth
in Section 1(a) of the
<PAGE>
Debenture, the Company may not prepay the obligation evidenced by the Debenture
without the consent of the Purchaser.
Repayment of the Debenture will not be secured with any collateral of the
Company, nor will the Debenture limit the amount of other indebtedness or
securities which may be issued by the Company, or any subsidiaries thereof.
In general, information reporting to the Internal Revenue Service will be
required with respect to the payment of interest on the Debenture. Furthermore,
under the federal "backup withholding" rules, payments of interest on the
Debenture may be subject to backup withholding. This Agreement is not intended
to provide tax advice to the Purchaser. The Purchaser is advised that an
investment in the Units may involve certain material federal and state tax
consequences; accordingly, the Purchaser should consult with its tax advisers.
This Debenture may not be offered for sale or sold, or otherwise
transferred in any transaction which would constitute a sale thereof within the
meaning of the Act, as amended, unless: (i) such security has been registered
for sale under the Act and registered or qualified under applicable state
securities laws relating to the offer and sale of securities; or (ii) exemptions
from the registration requirements of the Act and the registration or
qualification requirements of all such state securities laws are available and
the Purchaser shall have received an opinion of counsel satisfactory to the
Purchaser that the proposed sale or other disposition of such securities may be
effected without registration under the Act and would not result in any
violation of any applicable state securities laws relating to the registration
or qualification of securities for sale.
Subordination
The indebtedness evidenced by the Debenture is subordinated to the prior
payment when due of the principal of, premium, if any, and interest on all
"Senior Indebtedness" (as defined below) of the Company. Therefore, upon any
distribution of its assets in a liquidation or dissolution of the Company, or in
bankruptcy, reorganization, insolvency, receivership or similar proceedings
relating to the Company, the holder of the Debenture will not be entitled to
receive payment until the holders of Senior Indebtedness are paid in full. Upon
the occurrence of any Event of Default with respect to any Senior Indebtedness,
as such Event of Default may be defined in such instrument evidencing the Senior
Indebtedness, to the extent such Event of Default permits the holders of such
Senior Indebtedness to accelerate the maturity thereof, then upon written notice
thereof given to the Company by any holder of such Senior Indebtedness or his or
her representative, no payment shall be made by the Company in respect of the
Debenture until the Company has cured such event of default to the satisfaction
of the holders of such Senior Indebtedness.
"Senior Indebtedness" means: (i) all direct or indirect, contingent or
certain indebtedness of any type, kind or nature (present or future) created,
incurred or assumed by the Company with respect to any present or future bank or
other financial institutional indebtedness of the Company and any guaranty by
Company of any present or future bank or other financial
2
<PAGE>
institutional indebtedness of any subsidiary of Company; or (ii) any
indebtedness created, incurred, or assumed, by the Company secured by a lien on
any assets of the Company.
No Sinking Fund
There will be no sinking fund established for the retirement of the
Debenture. Therefore, the Company will be required to pay the entire principal
amount of the Debenture when it matures, unless previously redeemed, repurchased
or otherwise satisfied. There can be no assurances that the Company will have
available funds or will be able to raise funds for the payment of the Debenture
upon maturity. In addition, the Debenture constitutes an unsecured obligation of
the Company, the repayment of which shall not be secured by a lien or judgment
on any of the assets of the Company.
Events of Default and Remedies
An Event of Default means any of the following events (whether the reason
for such Event of Default shall be voluntary or involuntary or be or be affected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body): (i)
nonpayment of all principal and interest when and as due under the terms of the
Debenture; (ii) any other material breach of the terms of the Debenture; (iii)
an event of bankruptcy or insolvency of the Company; and (iv) as described in
Paragraph 7 below, failure to secure Stockholder Approval within six (6) months
from the Closing Date.
The Company shall receive written notice upon the occurrence of an Event of
Default and provided the default is not cured within thirty (30) days of the
stated Event of Default, the entire principal and accrued interest thereunder
shall accelerate and become immediately due and payable. Upon the Event of
Default, the interest rate under the Debenture shall be increased to 18%. Upon
an Event of Default specified in subparagraph (iv) of the preceding paragraph
for failure to timely secure Stockholder Approval, the default rate of interest
shall be applied retroactively from the Closing Date, and such retroactive
amount (to the extent of the excess over the normal rate of interest) shall be
paid to the Purchaser on a prorata basis in three consecutive monthly
installments thereafter.
Amendment, Supplement and Waiver
The Debenture may not be amended or supplemented in any material manner
except as provided hereafter. Without the consent the Holder, the Company may
amend or supplement the Debenture to cure any ambiguity, defect or inconsistency
that does not adversely affect the rights of any holder.
Conversion Feature
At the option of the Purchaser, the Debenture may be convertible into
restricted shares of the Company's Common Stock at the "Conversion Price" (as
defined) per share at any time prior to the maturity and satisfaction thereof
commencing once Stockholder Approval of this transaction is approved. See
Paragraph 7. The conversion price ("Conversion Price") shall be
3
<PAGE>
equal to $.30 per share (80% of the closing bid price of the Company's Common
Stock as reported on the American Stock Exchange on the date hereof). Partial
conversions may be permitted. Upon conversion, all principal and accrued
interest due under the Debenture (to the extent of the election to convert)
shall be discharged and the Company released from all obligations thereunder.
The shares of the Company's Common Stock issuable upon the exercise of the
conversion feature shall be "restricted securities" as that term is defined
under Rule 144 of the Act, and as a consequence, may not be sold or otherwise
transferred except pursuant to registration under the Act or an available
exemption therefrom. The Company has agreed, however, to use its best efforts to
file a registration statement, the purpose of which is to register the shares of
Common Stock issuable upon the conversion of the Debenture and the exercise of
the Warrants. See Paragraph 4- "Registration Rights."
The Company has agreed to reserve a sufficient number of shares of Common
Stock for issuance upon conversion of the Debenture and exercise of the Warrants
and that these shares, when issued, will be fully paid and non-assessable.
Prior to conversion, the holder of the Debenture will be entitled to no
voting rights or other rights provided by law to security holders of the
Company.
Mandatory Conversion
Upon the date that both of the following criteria have been satisfied, the
Debenture shall automatically convert into shares of the Company's Common Stock
at the Conversion Price:
(i) Stockholder Approval of the transaction shall have been obtained;
and
(ii) the Securities and Exchange Commission shall have declared
effective a registration statement registering the resale of the shares of
Common Stock issuable upon conversion of the Debenture.
Redemption
The Debentures are not subject to redemption by the Company.
Warrants
The Warrants consist of 5-year Warrants (the "Long-Term Warrants") and
90-day Warrants (the "Short-Term Warrants").
The Purchaser shall be entitled to receive Long-Term Warrants to purchase
that number of shares of the Common Stock of the Company equal to the number of
shares of Common Stock into which the principal amount of the Debenture is
convertible upon the Closing Date (irrespective of the necessity for Stockholder
Approval to permit conversion). The Long-Term Warrants shall only vest, however,
once Stockholder Approval of transactions covered by this Agreement is secured.
See Paragraph 7. The Long-Term Warrants will be for a 5 year term,
4
<PAGE>
exercisable into Common Stock at an exercise price equal to the Conversion
Price. In addition to the Long-Term Warrants, the Purchaser shall be entitled to
receive Short-Term Warrants to purchase that number of shares of the Common
Stock of the Company equal to the number of shares of Common Stock into which
the principal amount of the Debenture is convertible upon the Closing Date
(irrespective of the necessity for Stockholder Approval to permit conversion).
The Short-Term Warrants shall vest upon issuance, but only to the extent that
the share issuable thereunder represent less than 20% of the shares of the
Company's outstanding Common Stock. The right to exercise the Short-Term
Warrants for 20% or more of the Company's outstanding Common Stock is expressly
conditioned upon securing Stockholder Approval. See Paragraph 7. Any aggregate
proceeds received by the Company prior to obtaining Stockholder Approval as
payment of the exercise price under the Short-Term Warrants for shares of Common
Stock representing 20% or more of the Company's outstanding Common Stock will be
treated as a demand loan to the Company; provided, however, that upon securing
Stockholder Approval, the outstanding amount of any such loan will automatically
convert into the right to receive shares of Common Stock under the Short-Term
Warrants at $.30 per share. The Short-Term Warrants will be for a ninety (90)
day term, exercisable into Common Stock at an exercise price equal to the
Conversion Price.
Neither the Warrants nor any Shares issued upon the exercise of the
Warrants may be offered for sale or sold, or otherwise transferred or sold in
any transaction which would constitute a sale thereof within the meaning of the
Act, unless (i) such security has been registered for sale under the Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities, or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available, and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
The Company has agreed to cause the authorization of a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants and that these
shares, when issued, will be fully paid and non-assessable.
Prior to the exercise of the Warrants, holders of the Warrants will be
entitled to no voting rights or other rights provided by law to security holders
of the Company.
Redemption
The Warrants are not subject to redemption by the Company.
Common Stock
The Common Stock issuable upon conversion of the Debentures will, when
issued, be fully paid and non-assessable.
5
<PAGE>
3. Units Offered In A Private Placement Transaction.
(a) The Units subject to this Securities Purchase Agreement are being
offered as a private placement transaction (the "Offering") by the Company to a
limited number of sophisticated and accredited investors.
(b) The Units are being offered to a limited number of accredited and
other sophisticated investors by the Company directly, without sales commission,
or by qualified brokers ("Selling Agents") engaged by the Company who are
registered with the Securities and Exchange Commission and are members in good
standing of the National Association of Securities Dealers, Inc., upon the
payment of up to a 6% sales commission and five (5) year Warrants to purchase
350,000 shares of Common Stock subject to an exercise price equal to the
Conversion Price.
(c) The purchase price for all of the Units is $3,000,000 payable in
cash. The minimum number of Units which a Subscriber may purchase will generally
be no less than $500,000 principal amount of the Debenture, although the Company
may, in its sole discretion, accept subscriptions for smaller numbers of Units.
(d) The Purchaser shall pay the Purchase Price in cash by delivering
immediately available funds in United States Dollars by wire transfer to an
escrow agent designated by the Selling Agents (the "Escrow Agent").
(e) The Purchase Price will be deposited in a segregated escrow account
(the "Escrow Account") and will be returned to the Purchaser with interest to
the extent obtained, however, without deduction for escrow fees and expenses, if
all of the deliveries set forth in Paragraph 6 below have not been made on or
before November 22, 1999. At the Closing with respect to the Units subscribed
for by the Purchaser, the amount tendered shall be delivered to the Company by
the Escrow Agent in payment for the Units subscribed for by the Purchaser, or
such lesser amount as may be allocated to the Purchaser by the Company, less the
fees described in Section 3(b), which shall be delivered to the Selling Agents.
If the Purchaser is allocated less than the full amount of the Units subscribed
for hereby and the full amount of the Units subscribed for hereby has been
timely paid in full, the Company shall instruct the Escrow Agent to remit the
overpayment of the amount paid to Purchaser within 15 days of such partial
acceptance of this Agreement. The Units are being offered by the Company subject
to the right of the Company to reject, in its sole discretion, any subscription,
in whole or in part, for any reason, and to accept subscriptions notwithstanding
the order in which the are received.
4. Registration Rights.
All purchasers of Units offered pursuant to this offering will be entitled
to incidental ("piggyback") registration rights pursuant to which the Company
has agreed, following Stockholder Approval (as hereafter defined) (or earlier at
its sole discretion), at its sole cost and expense to include the resale of the
shares issuable upon conversion of the Debentures and upon exercise of the
Warrants in any Registration Statement filed with the Securities and Exchange
Commission following the Closing Date, relating to a public offering of the
Company's securities
6
<PAGE>
by the Company or any Stockholder thereof; and in any event within one year of
the Closing if not registered by that date.
5. Binding Effect of Securities Purchase Agreement; The Closing.
(a) This Securities Purchase Agreement shall not be binding on the
Company unless and until the Company has accepted the offer represented by an
executed signature page at the end hereof. The Company may accept or reject this
Securities Purchase Agreement in the Company's sole discretion, if the Purchaser
does not meet the suitability standards established herein or for any other
reason. In the event the Company rejects this Agreement, the Purchaser's funds
will be promptly returned without deduction of any costs and with interest to
the extent obtained.
(b) The closing of the purchase and sale of the Units hereunder (the
"Closing") shall occur concurrently upon the closing of the Securities Purchase
Agreement entered into among SPH Equities, Inc., Jack Leadbeater and David Olson
as of even date herewith (the "Selling Shareholders Securities Purchase
Agreement"). The date of the Closing shall be the "Closing Date".
6. Deliveries at the Closing; Conditions Precedent to Closing.
(a) The Company shall deliver to the Purchaser at the Closing: (i) the
Debenture(s), the form of which is attached hereto as Exhibit "A", duly executed
by an authorized officer of the Company and registered in the Purchaser's name
or any nominee thereof; (ii) the Long-Term Warrant(s), the form of which is
attached hereto as Exhibit "B," duly executed by an authorized officer of the
Company and registered in the Purchaser's name or any nominee thereof; and (iii)
the Short-Term Warrant(s), the form of which is attached hereto as Exhibit "C",
duly executed by an authorized officer of the Company and registered in the
Purchaser's name or any nominee thereof.
(b) As a condition to the Closing, the Company shall have also received
upon the Closing: (i) the resignations of Jack Leadbeater, David Olson, Mark
Weiss and John Iorillo, as directors and officers; (ii) duly executed severance
agreements for each of Messrs. Leadbeater, Olson and Iorillo; (iii) resolutions
of the Company's Board of Directors authorizing the transactions contemplated
hereby; and (iv) all other documents referred to in the Selling Shareholders
Securities Purchase Agreement as deliverable at or before closing thereunder.
(c) As a condition to the Closing, the Company and SPH Equities, Inc.,
as Purchaser's designee, shall have entered into an Investment Banking
Agreement, which shall contain affirmative and negative covenants of the Company
standard in a venture financing transaction on terms satisfactory to Purchaser.
(d) As a condition to the Closing, the Purchaser shall have performed a
due diligence investigation of the financial and business condition of the
Company to its satisfaction.
7
<PAGE>
7. Conditions Subsequent to Closing. The Company will use its best efforts
to prepare and submit an Information Statement/Proxy Statement to its
stockholders as promptly following the closing of this transaction as
practicable, seeking approval of the following (the "Stockholder Approval"):
(a) the conversion feature of the Debenture;
(b) the exercise feature of the Long-Term Warrants;
(c) the exercise feature of the Short-Term Warrants into 20% or more of
the Company's outstanding Common Stock; and
(d) an amendment to the Company's Certificate of Incorporation and
Bylaws removing provisions contained therein establishing (i) a classified board
of directors and (ii) certain anti-takeover protective devices, such Proxy
Statement to be satisfactory in form and substance to Purchaser.
Failure to secure Stockholder Approval within six (6) months of the Closing
Date will constitute an Event of Default under the Debenture and this Agreement.
8. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Access to Information. Purchaser has had access to all material and
relevant information concerning the Company, its management, financial
condition, capitalization, market information, properties and prospects
necessary to enable Purchaser to make an informed investment decision with
respect to its investment in the Units. Purchaser acknowledges that it has had
the opportunity to ask questions of and receive answers from, and to obtain
additional information from, the Company or its representatives concerning the
terms and conditions of the acquisition of the Units and the present and
proposed business and financial condition of the Company and has had all such
questions answered to its satisfaction and has been supplied all information
requested.
(b) SEC Reports. Purchaser acknowledges that it has been provided with
and has carefully reviewed a copy of the Company's periodic reports and
registration statements filed with the Securities and Exchange Commission since
November 1997 (the "SEC Reports.").
(c) Financial Matters and Sophistication. Purchaser has such knowledge
and experience in business and financial matters, such that it is capable of
evaluating the merits and risks of purchasing the Units. Purchaser represents
that it satisfies the suitability standards identified at Paragraph 12
hereafter.
(d) Investment Intent. (i) Purchaser is acquiring the Units for its own
account and not on behalf of any other person; (ii) Purchaser is acquiring the
Units for investment and not with a view to distribution or with the intent to
divide its participation with others by reselling or otherwise distributing the
Units; and (iii) Purchaser will not sell the Units without registration under
the Act and any applicable state securities laws, or unless the Company receives
an opinion
8
<PAGE>
of counsel reasonably acceptable to it (as to both counsel and the opinion) to
the effect that such registration is not necessary.
9. Understanding of Investment Risks. An investment in the Units should not
be made by a Purchaser who cannot afford the loss of his entire Purchase Price.
THE PURCHASER ACKNOWLEDGES THAT THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
SECURITIES PURCHASE AGREEMENT OR ANY EXHIBIT HEREOF. PRIOR TO MAKING AN
INVESTMENT IN THE UNITS, THE PURCHASER HAS FULLY CONSIDERED, AMONG OTHER THINGS,
THE RISK FACTORS ENUMERATED IN THE MOST RECENT REGISTRATION STATEMENT ON FORM
S-3 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND ACKNOWLEDGES THAT
THESE RISK FACTORS HAVE BEEN CONSIDERED PRIOR TO MAKING THIS INVESTMENT
DECISION. THE PURCHASER HAS ALSO CONSIDERED, AMONG OTHERS THE FOLLOWING
ADDITIONAL RISK FACTORS:
(a) General Unsecured and Subordinated Obligations. The indebtedness
represented by the Debenture is subordinated to the prior payment when due of
all "Senior Indebtedness" of the Company, which is generally defined under the
Debenture as all indebtedness of the Company presently in existence or hereafter
incurred. No payments may be made under the Debenture so long as any Senior
Indebtedness obligation is in default. Upon any distribution of assets of the
Company in a liquidation or dissolution of the Company, or in bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company, the holders of the Debenture will not receive any payments until the
Company's Senior Indebtedness has been satisfied in full. There will be no
sinking fund established for the retirement of the Debenture and the
indebtedness payable thereunder has not been secured by any assets of the
Company. Therefore, there can be no assurance that the Company will retain
sufficient assets to repay the Debenture in full.
(b) No Assurance of Price Stability. There can be no assurances as to
the future trading prices of the Common Stock. Trading of a Company's securities
depends upon a number of variables most of which are beyond the control of the
Company. The present market for the Company's securities may not be reflective
of a true market value.
(c) Restricted Securities. Neither the Units, nor the underlying
Debenture or Warrants or shares of Common Stock issuable upon conversion of the
Debenture or exercise of the Warrants, have been registered under the Act or any
state securities or blue-sky law and the Purchaser may not sell or otherwise
transfer the Units or components thereof except pursuant to registration under
the Act and any applicable state securities laws or exemptions therefrom.
Because of such restrictions, a subscriber for the Units must bear the economic
risks of such investment for an indefinite period of time.
(d) No Underwriter Participation in Preparation of this Securities
Purchase Agreement. Although Selling Agents may assist the Company in the sale
of Units, no such Selling Agents nor any underwriter has participated in the
preparation of this Securities Purchase Agreement and the accompanying
materials. Generally, in an underwritten offering, an underwriter would conduct
certain investigations relative to the issuer, its business and the terms
9
<PAGE>
of the offering in order to establish a reasonable basis for the pricing of the
securities to be sold and for the accuracy and completeness of the disclosures
set forth in any offering documents. Inasmuch as no underwriter has participated
in the preparation of these offering materials, such an investigation has not
been conducted in connection with this offering. Recourse of the investor is
further limited by terms of this Securities Purchase Agreement in which the
investor must acknowledge that, among others, he has relied in making this
investment solely upon representations of the Company to the extent contained in
this Securities Purchase Agreement and not upon any statement or omission by any
Selling Agent, if any.
(e) Arbitrary Offering Price. The offering price of the Units offered
hereby has been arbitrarily determined by the Company. Such price was, however,
determined by reference to the principal amount of the Debenture, current market
price, business and financial condition of the Company, the general condition of
the securities markets and the current capital needs of the Company. There can
be no assurances that the offering price is representative of the actual value
of the Units.
(f) Dividends. No dividends have been paid by the Company since
inception and the payment of dividends is not contemplated in the foreseeable
future. The payment of future dividends will be directly dependent upon the
earnings of the Company, its financial needs and other similarly unpredictable
factors. Earnings are expected to be retained to finance and develop the
Company's business.
(g) No Legal or Tax Advice. The Purchasers hereof should consult with
their respective counsel, accountant or business adviser as to legal, tax and
related matters concerning investment in the Units offered hereby. An investment
in the Units may involve certain material federal and state tax consequences.
(h) Future Sales of Common Shares. Certain of the Company's shares of
Common Stock currently outstanding are "restricted securities" as that term is
defined in Rule 144 promulgated under the Act and under certain circumstances
may be sold without registration pursuant to such Rule. The Company is unable to
predict the effect that sales made under Rule 144, or otherwise, may have on the
then prevailing market price of the Common Stock although any substantial sale
of restricted securities pursuant to Rule 144 may have an adverse effect.
10. Understanding of Nature of Securities. Purchaser understands that:
(a) The Units or any components thereof (collectively the "Securities")
have not been registered under the Act or any state securities laws and are
being issued and sold in reliance upon certain of the exemptions contained in
the Act and under applicable state securities laws.
(b) The Securities are "restricted securities" as that term is defined
in Rule 144 promulgated under the Act.
(c) The Securities cannot be sold or transferred without registration
under the Act and applicable state securities laws, or unless the Company
receives an opinion of counsel
10
<PAGE>
reasonably acceptable to it (as to both counsel and the opinion) that such
registration is not necessary.
(d) The Securities and any certificates issued in replacement therefor
shall bear the following legend, in addition to any other legend required by law
or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE RULES AND REGULATIONS THEREUNDER."
(e) Only the Company can register the Securities under the Act and
applicable state securities laws.
11. Representations and Warranties of the Company. The Company represents
and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware with adequate power and authority to conduct the business
in which it is now engaged and has the corporate power and authority to enter
into this Agreement, and is in good standing in such other states or
jurisdictions as is necessary to enable it to carry on its business;
(b) Corporate Power and Authority. The execution and delivery of this
Agreement and the transaction contemplated hereby has been duly authorized by
the Company's Board of Directors. No other corporate act or proceeding on the
part of the Company is necessary to authorize this Agreement or the consummation
of the transactions contemplated hereby. When duly executed and delivered by the
parties hereto, this Agreement will constitute a valid and legally binding
obligation of the Company enforceable against the company in accordance with its
terms; and
(c) Securities. All the Securities have been duly authorized and, upon
issuance and sale pursuant to the terms of this Agreement, will have been
validly issued fully paid and non-assessable and will be free and clear of all
liens, claims and encumbrances.
11
<PAGE>
12. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE UNITS INVOLVES A DEGREE OF RISK AND IS SUITABLE ONLY FOR
PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED FOR LIQUIDITY IN
THEIR INVESTMENT.
A substantial number of state securities commissions have established
investor suitability standards for the marketing within their respective
jurisdictions of restricted securities. Some have also established minimum
dollar levels for purchases in their states. The reasons for these standards
appear to be, among others, the relative lack of liquidity of securities of such
programs as compared with other securities investments. Investment in the Units
involves a degree of risk and is suitable only for persons of substantial
financial means who have no need for liquidity in their investments.
The Company has adopted as a general investor suitability standard the
requirement that each subscriber for Units represent in writing that the
Subscriber: (a) is acquiring the Units for investment and not with a view to
resale or distribution; (b) can bear the economic risk of losing its entire
investment; (c) its overall commitment to investments which are not readily
marketable is not disproportionate to its net worth, and an investment in the
Units will not cause such overall commitment to become excessive; (d) has
adequate means of providing for its current needs and personal contingencies and
has no need for liquidity in this investment in the Units; (e) has evaluated all
the risks of investment in the Company; and (f) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of investing in the Company or is relying on its own purchaser
representative, in making an investment decision.
In addition, all its Subscribers for Units must be extremely sophisticated
investors with substantial net worth and experience in making investments of
this nature and be "accredited investors," as defined in Rule 501 of Regulation
D under the Act, by meeting any of the following conditions:
(i) has an individual income in excess of $200,000 in each of the two
most recent years or joint income with his or her subscriber spouse in excess of
$300,000 in each of those years, and he or she reasonably expects an income in
excess of the aforesaid levels in the current year, or
(ii) he or she has an individual net worth, or a joint net worth with
his or her spouse, at the time of his or her purchase, in excess of $1,000,000
(net worth for these purposes includes homes, home furnishings and automobiles),
or
(iii) he or she otherwise satisfies the Company that he or she is an
accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of accredited
investor include the following: certain institutional investors, including
certain banks, whether acting in
12
<PAGE>
their individual or fiduciary capacities; certain insurance companies; federally
registered investment companies; business development companies (as defined
under the Investment Company Act of 1940); Small Business Investment Companies
licensed by the Small Business Administration; certain employee benefit plans;
private business development companies (as defined in the Investment Advisers
Act of 1940); tax exempt organizations (as defined in Section 501(c)(3) of the
Internal Revenue Code) with total assets in excess of $5,000,000; entities in
which all the equity owners are accredited investors; and certain affiliates of
the Company.
A partnership subscriber, which satisfies the requirements set forth in
clauses (a) through (f) above shall satisfy the suitability standards if it is
an accredited investor by reason of clause (iii) above, or if all of its
partners are accredited investors. A corporate subscriber, which satisfies the
requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Units.
The suitability standards referred to above represent minimum suitability
requirements for prospective purchasers and the satisfaction of such standards
by a prospective purchaser does not necessarily mean that the Units are a
suitable investment for such purchaser. The Company may, in circumstances it
deems appropriate, modify such requirements. The Company may also reject
subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
Securities Purchase Agreements may not necessarily be accepted in the order
in which received. Purchasers who are residents of certain states may be
required to meet certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR UNITS BY THE COMPANY DOES NOT
CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE UNITS IS
SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE SUITABILITY
OF INVESTMENT IN THE UNITS MUST BE MADE BY THE PROSPECTIVE INVESTOR AND HIS OR
HER ADVISERS.
13. State Laws Considerations.
(a) Florida Residents.
Pursuant to Section 517.061(11) (a) (5) of the Florida statute, when
sales are made to five or more persons in Florida, Florida investors have a
three day right of rescission. If a Florida resident has executed a Securities
Purchase Agreement, he may elect, within three business days after signing the
subscription agreement, to withdraw from the Agreement and to receive a full
refund and return (without interest) of any money paid by him. A Florida
resident's withdrawal will be without any further liability to any person. To
accomplish such withdrawal, a Florida resident need only send a letter or
telegram to the Company at the address set forth in this Agreement indicating
their intention to withdraw. Such letter or telegram must be sent and postmarked
prior to the end of the aforementioned third business day. If a Florida resident
sends
13
<PAGE>
a letter, it is prudent to send it by certified mail, return receipt requested,
to insure that it is received and also to evidence the time and date when it is
mailed. Should a Florida resident make this request orally, he should ask for
written confirmation that his request has been received.
(b) New York Residents.
This Securities Purchase Agreement has not been filed with or
reviewed by the Attorney General of the State of New York prior to its issuance
and use. The Attorney General of the State of New York has not passed on or
endorsed the merits of this Agreement. Any representation to the contrary is
unlawful. This Agreement does not contain an untrue statement of a material fact
or omit to state a material fact necessary to make the statements made. In light
of the circumstances under with they were made, not misleading, it contains a
fair summary of the material terms of documents purported to be summarized
herein.
(c) New Jersey Residents.
Neither the Attorney General of the State nor the Bureau of
Securities has passed on or endorsed the merits of this Securities Purchase
Agreement. The filing of the Securities Purchase Agreement with the Bureau of
Securities does not constitute approval of the issue or the sale thereof by the
Bureau of Securities or the Department of Law and public safety of the State of
New Jersey. Any representation to the contrary is unlawful.
14. Notices. All notices, requests, consents or other communications
required or permitted hereunder shall be in writing and shall be hand delivered,
sent by a nationally recognized overnight courier such as federal express, or
mailed first class postage prepaid, registered or certified mail, to the
following addresses:
If to the Company:
Osage Systems Group, Inc.
1661 E. Camelback Road; Suite 245
Phoenix, AZ 85016
Attn: Phil Carter, Chief Executive Officer
With a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103-2985
In the case of Purchaser:
14
<PAGE>
To the address set forth at the end of this Agreement or to such other
addresses as may be specified in accordance herewith from time to time.
Such notices and other communications shall for all purposes of this
Agreement be treated as being effective upon being delivered personally or, if
sent by overnight courier, the next business day after the same has been
deposited with the courier, or if sent by mail, five days after the same has
been deposited in a regularly maintained receptacle for the deposit of United
States mail, addressed as set forth above, and postage prepaid.
15. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
16. Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto, provided that
this Agreement and the interests herein may not be assigned by either party
without the express written consent of the other party.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law.
18. Sections and Other Headings. The section and other headings contained
in this Agreement are for the convenience of reference only, do not constitute
part of this Agreement or otherwise affect any of the provisions hereof.
19. Counterpart Signatures. This Agreement may be signed in counterpart and
all counterparts together shall become effective only when the counterpart(s)
have been executed and delivered by and on behalf of the Company and the
Purchaser.
15
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
caused this Agreement to be signed by their duly authorized officers.
Purchasers:
LANCER OFFSHORE, INC.
By: LANCER MANAGEMENT GROUP LLC,
its Manager
$2,000,000.10 By: /s/ Michael Lauer
- ------------- --------------------
Purchase Price Michael Lauer, Managing Member
Address: Kaya Flamboyan 9
Curacao, Netherland Antilles
Tax Identification Number. _______________
LANCER PARTNERS, L.P.
$499,999.80 By: /s/ Michael Lauer
- ----------- --------------------
Purchase Price Michael Lauer, General Partner
Address: 475 Steamboat Road
Greenwich, CT 06830
Tax Identification Number. _______________
$250,000.20 /s/ Michael Lauer
- ----------- --------------------
Purchase Price Michael Lauer
Social Security Number. __________________
[SIGNATURES CONTINUE ON NEXT PAGE]
16
<PAGE>
THE ORBITER FUND, LTD.
By: LANCER MANAGEMENT GROUP LLC,
its Manager
$249,999.90 By: /s/ Michael Lauer
- ----------- --------------------
Purchase Price Name: Michael Lauer
Title: Managing Member
Address: Kaya Flamboyan 9
Curacao, Netherland Antilles
Tax Identification Number. __________
Agreed and Accepted
by OSAGE SYSTEMS GROUP, INC.
By: /s/ Phil Carter
------------------
Phil Carter,
Interim Chief Executive Oficer
17
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS
AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE
SECURITIES LAWS.
OSAGE SYSTEMS GROUP, INC.
10% CONVERTIBLE SUBORDINATED DEBENTURE
$_______________ Dated: November 22, 1999
FOR VALUE RECEIVED, the undersigned, Osage Systems Group, Inc., a Delaware
corporation ("Maker" or the "Company"), promises to pay to the order of
_____________ ("Lender" or "Holder"), in immediately available funds at the
office of Lender at ______________________, or at such other location as the
Lender may designate in writing from time to time, the principal amount of
$___________ together with interest from the date hereof (computed on the basis
of a year of 360 days of twelve 30-day months) on the outstanding principal
balance, to be fixed at a rate equal to 10% per annum, in accordance with the
following terms. This instrument is being issued in conjunction with a
Securities Purchase Agreement entered into by and among the Company and Holder
of even date herewith. Unless otherwise defined, all capitalized terms shall
have the meaning ascribed to in the Securities Purchase Agreement.
1. Terms of Repayment.
(a) The principal amount of this Debenture shall be due and payable in
full twenty-four months from the date hereof, (hereinafter the "Maturity Date")
at which time all unpaid interest which has accrued on the Debenture shall also
be due and payable. Without the consent of the Holder, the Company shall not
have the right to prepay this Debenture; provided, however, that, if at any time
while this Debenture or any portion thereof is outstanding there shall be a
proposed (i) sale of all or substantially all of the assets of the Company to an
unrelated person or entity, or (ii) merger, reorganization or consolidation in
which the Company is acquired by another person or entity (other than a holding
company formed by the Company), or (iii) sale of 50% more of the outstanding
stock of the Company to a unrelated person or entity (in each case, a
"Fundamental Transaction"),
<PAGE>
then the Company shall have the right to prepay all or any portion of the
Debenture then outstanding and unconverted without premium or penalty within
fifteen (15) days after written notice to the Holder of such proposed
Fundamental Transaction, during which fifteen-day period the Holder may convert
all or any part of the Debenture then outstanding. If the proposed Fundamental
Transaction is later abandoned and not consummated, such prepayment rights with
respect to that Fundamental Transaction, to the extent prepayment was not made,
shall be deemed terminated.
(b) Interest on the outstanding principal balance of this Debenture
shall accrue at the rate of 10% per annum and shall be due and payable
quarterly, on March 31, June 30, September 30, and December 31 of each year
(each an "Interest Payment Date") until the Maturity Date, commencing December
31, 1999. At the option of the Holder, interest due hereunder may be payable in
shares of common stock ("Common Stock") of the Company at the "Conversion Price"
(as hereafter defined). Following an Event of Default, interest shall accrue at
a rate equal to 18% per annum. Furthermore, should an Event of Default arise due
to failure to timely secure Stockholder Approval, the default rate of interest
would be applied retroactively and the excess amount due (over and above the
normal rate of interest) would be payable pro-rata over a three (3) month period
following such Event of Default on each 30 day anniversary of the Event of
Default.
2. Transferability. This Debenture and any shares of Common Stock issuable
upon conversion hereof or in payment of any interest due hereunder may not be
offered for sale or sold, or otherwise transferred in any transaction which
would constitute a sale thereof within the meaning of the Securities Act of
1933, as amended (the "1933 Act"), unless (i) such security has been registered
for sale under the 1933 Act and registered or qualified upon applicable state
securities laws relating to the offer and sale of securities; or (ii) exemptions
from the registration requirements of the 1933 Act and the registration or
qualification requirements of all such state securities laws are available and
the Maker shall have received an opinion of counsel satisfactory to Maker that
the proposed sale or other disposition of such securities may be effected
without registration under the 1933 Act and would not result in any violation of
any applicable state securities laws relating to the registration or
qualification of securities for sale, such opinion to be satisfactory to counsel
to Maker.
3. Subordination.
(a) The indebtedness evidenced by this Debenture is subordinated to the
prior payment when due of the principal of, premium, if any, and interest on all
"Senior Indebtedness" (as defined in Section 3(b) below) of Maker. Therefore,
upon any distribution of its assets in a liquidation or dissolution of Maker, or
in bankruptcy, reorganization, insolvency, receivership or similar proceedings
relating to Maker, Lender will not be entitled to receive payment of the
indebtedness evidenced by this Debenture until the holders of Senior
Indebtedness are paid in full. Upon the occurrence of an "event of default" with
respect to any Senior Indebtedness, as such event of default may be defined in
such instrument evidencing the Senior Indebtedness, to the extent such event of
default permits the holders of such Senior Indebtedness to accelerate the
maturity thereof, then upon written notice thereof given to Maker by any holder
of such Senior Indebtedness or their representative, no payment shall be made by
Maker in respect of this Debenture until Maker has cured such event of default
to the satisfaction of the holders of such Senior Indebtedness; provided,
however, that in the event such Senior Indebtedness has not been
2
<PAGE>
accelerated within 30 days from the date of such notice, the Maker shall resume
all payments required to be made pursuant to the terms of this Debenture.
(b) "Senior Indebtedness" means: (i) all direct or indirect, contingent
or certain indebtedness of any type, kind or nature (present or future) created,
incurred or assumed by the Maker with respect to any present or future bank or
other financial institutional indebtedness of the Maker and any guaranty by
Maker of any present or future bank or other financial institutional
indebtedness of any subsidiary of Maker; or (ii) any indebtedness created,
incurred, or assumed, by the Maker secured by a lien on any assets of the Maker.
4. Event of Default. An Event of Default under this Debenture means the
occurrence of any of the following events (whether the reason for such Event of
Default shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body): (i) failure to obtain
Stockholder Approval of the transactions covered by Paragraph 7 of the
Securities Purchase Agreement relating to this transaction within six (6) months
of the date hereof; (ii) nonpayment of all principal and interest when and as
due under the terms of this Debenture; (iii) any other material breach of the
terms of this Debenture; (iv) any material breach by Maker of any
representation, warranty or agreement of Maker contained in that certain
Securities Purchase Agreement dated as of even date herewith by and between the
Maker and Holder (the "Securities Purchase Agreement") which is not cured by
Maker within thirty (30) days after notice by Lender; (v) the institution of any
proceedings by or against Maker under any law relating to bankruptcy,
insolvency, reorganization or other form of debtor relief or Maker's making an
assignment for the benefit of creditors, or the appointment of a receiver,
trustee, conservator or other judicial representative for Maker or any of its
respective properties (vi) an event of bankruptcy or insolvency of the Company;
or (vii) any default by the Company under any Senior Indebtedness which default
continues after expiration of any applicable notice and grace period and which
permits the acceleration of payment thereunder. The Company shall receive
written notice upon the occurrence of an Event of Default and provided the
default is not cured within five (5) days, with respect to any Event of Default
based on non-payment of principal or interest, or within ten (10) days, with
respect to any other Event of Default, of the stated Event of Default, the
entire principal and accrued interest under this Debenture shall accelerate and
become immediately due and payable.
5. Conversion.
(a) Once Stockholder Approval of the conversion feature hereof is
secured, the unpaid principal amount and interest due under this Debenture is
convertible at the option of the Holder, in whole or in part, at any time until
the Maturity Date, upon surrender of this Debenture at the principal office of
the Company, into restricted shares of Common Stock at a conversion price (the
"Conversion Price") equal to $.30 per share (80% of the closing bid of the
shares on AMEX on October 8, 1999, the date of the approval of this
transaction).
(b) Upon the date that both of the following criteria have been
satisfied, the Debenture shall automatically convert into shares of Common Stock
at the Conversion Price:
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<PAGE>
(i) Stockholder Approval of the conversion feature hereof shall have
been obtained; and
(ii) the Securities and Exchange Commission shall have declared
effective a registration statement registering the resale of the
shares of Common Stock issuable upon conversion of the Debenture.
6. Adjustments. The Conversion Price and the securities into which this
Debenture is convertible are subject to adjustment from time to time as follows:
(a) Reorganization, Merger or Sale of Assets. If at any time while this
Debenture, or any portion thereof, is outstanding there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder of this Debenture shall thereafter be entitled to receive upon conversion
of this Debenture the number of shares of stock or other securities or property
of the successor corporation resulting from such reorganization, merger,
consolidation, sale or transfer that a holder of the shares deliverable upon
conversion of this Debenture would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Debenture had
been converted immediately before such reorganization, merger, consolidation,
sale or transfer, all subject to further adjustment as provided in this Section
6. The foregoing provisions of this Section 6 (a) shall similarly apply to
successive reorganizations, consolidations, mergers, sales and transfers and to
the stock or securities of any other corporation that are at the time receivable
upon the conversion of this Debenture. If the per-share consideration payable to
Lender for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Debenture
with respect to the rights and interests of Lender after the transaction, to the
end that the provisions of this Debenture shall be applicable after that event,
as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Debenture.
(b) Reclassification. If the Company, at any time while this Debenture,
or any portion thereof, remains outstanding, by reclassification of securities
or otherwise, shall change any of the securities as to which conversion rights
under this Debenture exist into the same or a different number of securities of
any other class or classes, this Debenture shall thereafter represent the right
to acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
conversion rights under this Debenture immediately prior to such
reclassification or other change and number of
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<PAGE>
shares received upon such conversion shall be appropriately adjusted, all
subject to further adjustment as provided in this Section 6.
(c) Split, Subdivision or Combination of Shares. If the Company at any
time while this Debenture, or any portion thereof, remains outstanding shall
split, subdivide or combine the securities as to which conversion rights under
this Debenture exist, into a different number of securities of the same class,
the Conversion Price shall be proportionately decreased in the case of a split
or subdivision or proportionately increased in the case of a combination.
(d) Adjustments for Dividends in Stock or Other Securities or Property.
If while this Debenture, or any portion hereof, remains outstanding the holders
of the securities as to which conversion rights under this Debenture exist at
the time shall have received, or, on or after the record date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, other or additional stock or other securities or
property (other than cash) of the Company by way of dividend, then and in each
case, this Debenture shall represent the right to acquire upon conversion, in
addition to the number of shares of the security receivable upon conversion of
this Debenture, and without payment of any additional consideration therefor,
the amount of such other or additional stock or other securities or property
(other than cash) of the Company that such holder would hold on the date of such
conversion had it been the holder of record of the security receivable upon
conversion of this Debenture on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such conversion,
retained such shares and/or all other additional stock, other securities or
property available by this Debenture as aforesaid during such period, giving
effect to all adjustments called for during such period by the provisions of
this Section 6.
7. Investment Intent. Lender, by acceptance hereof, acknowledges that this
Debenture and the shares to be issued upon conversion hereof are being acquired
solely for Lender's own account and not as a nominee for any other party, and
for investment, and that Lender will not offer, sell or otherwise dispose of
this Debenture or any shares to be issued upon conversion hereof except under
circumstances that will not result in a violation of applicable federal and
state securities laws. Upon conversion of this Debenture, Lender shall, if
requested by Maker, confirm in writing, in a form satisfactory to Maker, that
the shares so purchased are being acquired solely for Lender's own account and
not as a nominee for any other party, for investment, and not with a view toward
distribution or resale. All shares issued upon exercise hereof shall be stamped
or imprinted with a legend in substantially the following form (in addition to
any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933,
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<PAGE>
AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE
SECURITIES LAWS.
8. Reservation of Shares. Maker covenants that during the term that this
Debenture is outstanding, Maker will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
shares upon the conversion of this Debenture, from time to time, will take all
steps necessary to amend its Certificate of Incorporation (the "Certificate") to
provide sufficient reserves of shares of Common Stock issuable upon the
conversion of this Debenture. Maker further covenants that all shares that may
be issued upon the conversion of this Debenture and payment of the Conversion
Price, all as set forth herein, will be free from all taxes, liens and charges
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein). Maker agrees that
its issuance of this Debenture shall constitute full authority to its officers
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the shares upon the conversion of this
Debenture.
9. Notices.
(a) Whenever the number of shares issuable or the Conversion Price
hereunder shall be adjusted pursuant to Section 6 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer 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
Conversion Price and kind of securities purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first-class mail, postage prepaid) to Lender.
(b) All notices, advices and communications under this Debenture shall
be deemed to have been given, (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to Maker:
Osage Systems Group, Inc.
1661 East Camelback Road
Suite 245
Phoenix, AZ 85016
Attn: Phil Carter, Chief Executive Officer
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
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<PAGE>
and to the Lender:
At the address set forth in the Securities Purchase Agreement
Either of Maker or Lender may from time to time change the address to which
notices to it are to be mailed hereunder by notice in accordance with the
provisions of this Section 9.
10. Amendments.
(a) Any term of this Debenture may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
(b) No waivers of, or exceptions to, any term, condition or provision of
this Debenture, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. Agreements of Maker. Maker and any other party now or hereafter liable
for the payment of this Debenture in whole or in part, hereby severally (i)
waive demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate, notice of acceleration and all other
notice, filing of suit and diligence in collecting this Debenture, (ii) agree to
the release of any party primarily or secondarily liable hereon, (iii) agree
that the Lender shall not be required first to institute suit or exhaust its
remedies hereon against Maker or others liable or to become liable hereon or to
enforce its rights against them, and (iv) consent to any extension or
postponement of time of payment of this Debenture and to any other indulgence
with respect hereto without notice thereof to any of them.
12. Binding Parties. This Debenture shall bind Maker and its successors and
assigns, and the benefits hereof shall inure to the benefit of Lender and its
successors and assigns. All references herein to "Maker" and "Lender" shall be
deemed to apply to Maker and Lender, respectively, and to their respective
successors and assigns.
13. Governing Law. The corporate law of the State of Delaware shall govern
all issues and questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
interpretation and enforceability of this Debenture and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
14. Section Titles. The Section titles in this Debenture are and shall be
without substantive meaning or content of any kind whatsoever and are not a part
of this Debenture.
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<PAGE>
WITNESS the due execution hereof on the date first above written with
the intention that this Debenture shall constitute a sealed instrument.
OSAGE SYSTEMS GROUP, INC.
By: /s/ Phil Carter(Seal)
---------------
Phil Carter
Interim Chief Executive Officer
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<PAGE>
NOTICE OF CONVERSION
TO: Osage Systems Group, Inc.
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of Osage Systems Group, Inc. pursuant to the terms of the attached
Debenture, and tenders herewith payment of the purchase price for such shares in
full.
(2) In converting this Debenture, the undersigned acknowledges that the
shares are being are being acquired solely for the undersigned's own account and
not as a nominee for any other party, and for investment, and that the
undersigned will not offer, sell or otherwise dispose of such shares under
circumstances that will result in a violation of applicable federal and state
securities laws and that all certificates issued upon exercise hereof shall be
stamped or imprinted with a legend in substantially the form set forth in
Section 7 of the Debenture (in addition to any legend required by state
securities laws).
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned.
(4) Please issue a new Debenture for the unexercised portion of the
attached Debenture in the name of the undersigned.
---------------------------------
(Name)
- ------------------------------ ---------------------------------
(Date) (Signature)
9
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
Act PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
No. 1999-W_______
To Purchase ________ Shares of Common Stock of
OSAGE SYSTEMS GROUP, INC.
THIS CERTIFIES that, for value received, ___________________ (the "INVESTOR" or
"HOLDER"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time after vesting and on or after the date hereof and on or
prior to 5:00 p.m. Mountain Time on November 21, 2004 (the "TERMINATION DATE"),
but not thereafter, to subscribe for and purchase from OSAGE SYSTEMS GROUP,
INC., a Delaware corporation (the "COMPANY"), ______________ shares of Common
Stock (the "WARRANT SHARES"). The purchase price of one share of Common Stock
(the "EXERCISE PRICE") under this Warrant shall be $.30. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. This Warrant is being issued in connection with a
Securities Purchase Agreement dated as of October 8, 1999 (the "SECURITIES
PURCHASE AGREEMENT") entered into between the Company and the Investor.
1. Exercise of Warrant.
a) Exercise of the purchase rights represented by this Warrant may be
made at any time or times, in whole or in part, following vesting, but before
the close of business on the Termination Date, or such earlier date on which
this Warrant may terminate as provided in Section 9(d) or 9(e) below, by the
surrender on any business day of this Warrant and the Notice of Exercise annexed
hereto duly completed and executed, at the principal office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company), together with delivery to the Company by such
holder of all certifications or documentation reasonably necessary to establish,
to the satisfaction of the Company, that any such exercise has been undertaken
in compliance with all applicable federal and state securities laws, and upon
<PAGE>
payment of the full Exercise Price of the shares thereby purchased; whereupon
the holder of this Warrant shall be entitled to receive a certificate for the
number of shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within fifteen (15) business
days after the date on which this Warrant shall have been exercised as
aforesaid. The Exercise Price shall either be payable in cash or by bank or
certified check or by wire transfer (of same day funds) to an account designated
by the Company in an amount equal to the Exercise Price multiplied by the number
of shares being purchased; or by cashless exercise through (i) the delivery by
the Holder to the Company of an irrevocable direction to a broker-dealer
registered under the Securities Exchange Act of 1934, as amended, to sell a
sufficient portion of the Warrant Shares and deliver the sales proceeds directly
to the Company to pay the Exercise Price; (ii) through the delivery by the
Holder to the Company of shares of the Company's Common Stock for which Holder
is and has been the record and beneficial owner for at least six (6) months
(with such shares to serve as a cash equivalent to the extent of the market
value thereof); (iii) a withholding by the Company of shares of Common Stock
that Holder is otherwise entitled to receive upon exercise of this Warrant; or
(iv) by any combination thereof.
If shares of Common Stock of the Company are tendered or withheld as
payment of the Exercise Price, the value of such shares shall be their "market
value" as of the trading date immediately preceding the date of exercise. The
"market value" shall be:
(i) If the Company's Common Stock is traded in the over-the-counter
market and not on any national securities exchange nor in the NASDAQ Reporting
System, the market value shall be the average of the mean between the last bid
and ask prices per share, as reported by the National Quotation Bureau, Inc., or
an equivalent generally accepted reporting service, or if not so reported, the
average of the closing bid and asked prices for a share as furnished to the
Company by any member of the National Association of Securities Dealers, Inc.,
selected by the Company for that purpose.
(ii) If the Company's Common Stock is traded on a national securities
exchange or in the NASDAQ Reporting System, the market value shall be either (x)
the simple average of the high and low prices at which a share of the Company's
common stock traded, as quoted on the NASDAQ-NMS or its other principal
exchange, or (y) the price of the last sale of a share of common stock as
similarly quoted, whichever is higher, and rounding out such figure to the next
higher multiple of 12.5 cents (unless the figure is already a multiple of 12.5
cents).
(iii) If such tender would result in an issuance of a whole number of
shares and a fractional share of Common Stock, the value of such fractional
share shall be paid to the Company in cash or by check by the Holder.
b) Exercise of the purchase rights represented by this Warrant shall
only be permitted following vesting. Vesting shall occur once the stockholders
of the Company approve the transactions contained in the Securities Purchase
Agreement, particularly the exercise rights provided in this instrument.
c) In the event that this Warrant shall be duly exercised in part prior
to the Termination Date, the Company shall issue a new Warrant or Warrants of
like tenor evidencing
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<PAGE>
the rights of the Investor thereof to purchase the balance of the Warrant Shares
purchasable under the Warrant so surrendered that shall not have been purchased.
d) No adjustments shall be made for any cash dividends on Warrant Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
2. Authorization of Shares.
a) The Company covenants that all shares of Common Stock which may be
issued upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant and payment of the Exercise
Price as set forth herein will be duly authorized, validly issued, fully paid
and nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue or otherwise specified herein).
b) The Company covenants that during the period the Warrant is
outstanding and exercisable, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the American Stock
Exchange or any domestic securities exchange upon which the Common Stock may be
listed.
c) At the time of or before taking any action which would cause an
adjustment pursuant to Section 9 hereof, reducing the Exercise Price below the
then par value (if any) of the Warrant Shares issuable upon exercise of the
Warrants, the Company will take any corporate action which may, in the opinion
of its counsel, be necessary in order to assure that the par value per share of
the Warrant Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Warrant Shares at the Exercise Price, as so adjusted; the Company
will also from time to time take such action if at any time the Exercise Price
is below the then par value of the Warrant Shares.
3. Fractional Shares. The Company shall not be required to issue fractional
shares of capital stock upon the exercise of this Warrant or to deliver Warrant
Certificates which evidence fractional shares of capital stock. In the event
that any fraction of an Exercise Share would, except for the provisions of this
Section 3, be issuable upon the exercise of this Warrant, the Company shall pay
to the Investor exercising the Warrant an amount in cash equal to such fraction
multiplied by the current market value of the Exercise Share. For purposes of
this Section 3, the current market value shall be determined as follows:
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<PAGE>
(i) if the Warrant Shares are listed or traded on a national securities
exchange or in the NASDAQ Reporting System, the closing price on the principal
national securities exchange on which they are so listed or traded or in the
NASDAQ Reporting System, as the case may be, on the last business day prior to
the date of the exercise of this Warrant. The closing price referred to in this
clause (i) shall be the last reported sales price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case on the national securities exchange on which the Warrant
Shares are then listed or in the NASDAQ Reporting System; or
(ii) if the Warrant Shares are traded in the over-the-counter market and
not on any national securities exchange and not in the NASDAQ Reporting System,
the average of the mean between the last bid and asked prices per share, as
reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior to the date on which
this Warrant is exercised, or if not so reported, the average of the closing bid
and asked prices for an Exercise Share as furnished to the Company by any member
of the National Association of Securities Dealers, Inc., selected by the Company
for that purpose; or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
4. Payment of Taxes.
a) The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the Investor of a Warrant Certificate surrendered upon
the exercise of a Warrant, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
b) Upon exercise of a Warrant, the Company shall have the right to
require the Investor to remit to the Company an amount sufficient to satisfy
federal, state and local tax withholding requirements prior to the delivery of
any certificate for Warrant Shares issuable pursuant to the exercise of such
Warrant.
c) An Investor who is obligated to pay the Company an amount required to
be withheld under applicable tax withholding requirements may pay such amount
(i) in cash; (ii) in the discretion of the Company's Chief Executive Officer,
through the delivery to the Company of previously-owned shares of common stock
of the Company having an aggregate current market value equal to the tax
obligation, provided that the previously owned shares delivered in satisfaction
of the withholding obligations must have been held by the Investor for at least
six (6) months; (iii) in the discretion of the Company's Chief Executive
Officer, through the withholding of shares of common stock of the Company
otherwise issuable to the Investor in
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<PAGE>
connection with the exercise of a Warrant; or (iv) in the discretion of the
Company's Chief Executive Officer, through a combination of the procedures set
forth in clauses (i), (ii) and (iii) of this Section 4(c).
5. Loss, Theft, Destruction or Mutilation of Warrant Certificate. In case
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and in
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate or Warrant Certificates of like tenor and in the same
aggregate denomination, but only (i) in the case of loss, theft or destruction,
upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant Certificate and indemnity or bond, if requested,
also satisfactory to the Company and its counsel, and (ii) in the case of
mutilation, upon surrender of the mutilated Warrant. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or its counsel
may prescribe.
6. Rights of Investor. Subject to the terms of Section 9 below, the
Investor shall not, by virtue of anything contained in this Warrant Certificate
or otherwise, be entitled to any right whatsoever, either in law or equity, of a
stockholder of the Company, including without limitation, the right to receive
dividends or to vote or to consent or to receive notice as a stockholder in
respect of the meetings of stockholders or the election of directors of the
Company or any other matter.
7. Assignment and Transfer of Warrant. Subject to the provisions of Section
8 below, this Warrant may be assigned by the surrender of this Warrant and the
Assignment Form annexed hereto duly executed at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company); provided, however, that this Warrant may not be
resold or otherwise transferred except (i) in a transaction registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) in a transaction
pursuant to an exemption, if available, from registration under the Act and
whereby, if requested by the Company, an opinion of counsel reasonably
satisfactory to the Company is obtained by the holder of this Warrant to the
effect that the transaction is so exempt, and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
such registration of transfer, a new Warrant Certificate shall be issued to the
transferee named in such instrument of transfer, and the surrendered Warrant
Certificate shall be canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Investor
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Warrant Shares as the Warrant Certificate surrendered for exchange or transfer,
and the Warrant Certificate so surrendered shall be canceled by the Company or
transfer agent, as the case may be.
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<PAGE>
8. Restrictions on Transferability: Restrictive Legend. Neither this
Warrant nor the Warrant Shares shall be transferable except in accordance with
the provisions of this Section.
a) Restrictions on Transfer; Indemnification. Neither this Warrant nor
any Exercise Share may be offered for sale or sold, or otherwise transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the Act, unless (i) such security has been registered for sale under the Act
and registered or qualified under applicable state securities laws relating to
the offer and sale of securities, or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available and the Company shall have received
an opinion of counsel satisfactory to the Company that the proposed sale or
other disposition of such securities may be effected without registration under
the Act and would not result in any violation of any applicable state securities
laws relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Section 8.
b) Restrictive Legends. Unless and until otherwise permitted by this
Section 8, this Warrant Certificate, each Warrant Certificate issued to the
Holder or to any transferee or assignee of this Warrant Certificate, and each
Certificate representing Warrant Shares issued upon exercise of this Warrant or
to any transferee of the person to whom the Warrant Shares were issued, shall
bear a legend setting forth the requirements of subparagraph (a) of this Section
8, together with such other legend or legends as may otherwise be deemed
necessary or appropriate by counsel to the Company.
c) Notice of Proposed Transfers. Prior to any transfer, offer to
transfer or attempted transfer of this Warrant or any Exercise Share, the holder
of such security shall give written notice to the Company of such holder's
intention to effect such transfer. Each such notice shall (x) describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall contain an undertaking by the person giving such notice to furnish such
other information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer
of this Warrant or Exercise Share, as appropriate, may be effected without
registration of such security under the Act, the Company shall, as promptly as
practicable, so notify the holder of such security and such holder shall
thereupon be entitled to transfer such security in accordance with the terms of
the notice delivered by such holder to the Company. Each certificate evidencing
the securities thus to be transferred (and each certificate evidencing any
untransferred balance of the securities evidenced by such certificate) shall
bear the restrictive legends referred to in
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<PAGE>
subparagraph (b) above, unless in the opinion of each such counsel such legend
is not required in order to insure compliance with the Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the Act,
the Company shall, as promptly as practicable, so notify the holder thereof.
However, the Company shall have no obligation to register such securities under
the Act, except as otherwise provided herein.
d) The holder of the securities giving the notice under subparagraph
8(c) shall not be entitled to transfer any of the securities until receipt of
notice from the Company under paragraph (i) of subparagraph 8(c) or registration
of such securities under the Act has become effective.
e) Removal of Legend. The Company shall, at the request of any
registered holder of a Warrant or Exercise Share, exchange the certificate
representing such security for a certificate representing the same security not
bearing the restrictive legend required by subparagraph (b) if, in the opinion
of counsel to the Company, such restrictive legend is no longer necessary.
9. Adjustment of Warrant Shares and Exercise Price. The Exercise Price and
the number and kind of Warrant Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as hereinafter provided. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
a) In case the Company shall (i) pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock, (ii) subdivide or
classify its outstanding Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding Common Stock into a smaller number of
shares, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification, shall be proportionally adjusted so that the
Investor of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised by such Investor immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in subparagraph (g) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of
7
<PAGE>
Common Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding on such record
date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants, the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
c) Subject to subparagraphs 9(d) and 9(e) hereafter, if at any time
while this Warrant, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's common stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of all or substantially all of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities or
property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 9. The
foregoing provisions of this subparagraph 9(c) shall similarly apply to
successive reorganizations, consolidations, mergers, sales and transfers and to
the stock or securities of any other corporation that are at the time receivable
upon the exercise of this Warrant. If the per-share consideration payable to the
Investor hereof for shares in connection with any such transaction is in a form
other than cash or marketable securities, then the value of such consideration
shall be determined in good faith by the Company's Board of Directors. In all
events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Investor after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
8
<PAGE>
d) In the case of a proposed (i) dissolution or liquidation of the
Company, (ii) merger, reorganization or consolidation in which the Company is
acquired by another person or entity (other than a holding company formed by the
Company), (iii) sale of 50% or more of the outstanding stock of the Company to a
unrelated person or entity, or (iv) a sale or transfer of all or substantially
all of the Company's properties and assets as, or substantially as, an entirety
to any other person (in each case, a "Fundamental Transaction"), unless, with
respect to the events described in subclause (d)(ii) above, provision is made,
in the discretion of the Company, in connection with the Fundamental Transaction
for the substitution of such Warrants with new awards of the successor entity
(with appropriate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise price as provided in subparagraph (c) of
this Section 9), all or any unexercised portion of the Warrants granted
hereunder shall be terminated within fifteen (15) days after written notice to
the Holder of such proposed Fundamental Transaction, during which fifteen-day
period the Holder may exercise the Warrant or any part thereof. If the proposed
Fundamental Transaction is later abandoned and not consummated, such Warrants,
to the extent not so exercised, shall be deemed reinstated on their original
terms set forth herein, as if never terminated.
e) Subject to subparagraph 9(d) above, in the event of a Fundamental
Transaction described in subclause 9(d)(ii) above under the terms of which
holders of the Company's Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock of the Company surrendered pursuant
to such Fundamental Transaction (the "Cash Purchase Price"), the Board of
Directors may, in its sole discretion, provide that all or any unexercised
portion of the Warrants granted hereunder shall terminate upon consummation of
such Fundamental Transaction and the Holder shall receive, in exchange therefor,
a cash payment equal to the amount (if any) by which (i) the Cash Purchase Price
multiplied by the number of Warrant Shares subject to the Warrants then
outstanding hereunder held by the Holder exceeds (ii) the aggregate Exercise
Price of such Warrants.
f) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to subparagraphs (a), (b) and (c) above, the number of Warrant
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
g) For the purpose of any computation under subparagraph (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for thirty (30) consecutive business
days before such date. The closing price for each day shall be the last sale
price or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices or if not so available,
the fair market price as determined by the Board of Directors.
h) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
subparagraph (h) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment
9
<PAGE>
required to be made hereunder. All calculations under this Section 9 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. Anything in this Section 9 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section 9, as it, in its
sole discretion, shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of Common Stock, issuance of Warrants to Purchase Common Stock or
distribution of evidences of indebtedness or other assets (excluding cash
dividends) referred to hereinabove in this Section 9 hereafter made by the
Company to the holders of its Common Stock shall not result in any tax to the
holders of its Common Stock or securities convertible into Common Stock.
i) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Warrant Shares issuable upon exercise of each Warrant to
be mailed to the Investors, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 9, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
j) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) above, the Investor of this Warrant thereafter
shall become entitled to receive any Warrant Shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in subparagraphs (a) to (g), inclusive,
above.
k) Irrespective of any adjustments in the Exercise Price or the number
or kind of Warrant Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
l) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Section 9, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Investor.
10. Compliance with Securities Laws. The holder hereof acknowledges that
the Warrant Shares acquired upon the exercise of this Warrant, if not registered
(or if no exemption from registration exists), will have restrictions upon
resale imposed by state and federal securities
10
<PAGE>
laws. Each certificate representing the Warrant Shares issued to the Holder upon
exercise (if not registered or if no exemption from registration exists) will
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED,
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE
COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
a) Without limiting the Investor's right to transfer, assign or
otherwise convey the Warrant or Warrant Shares in compliance with all applicable
securities laws, the Investor of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the Warrant Shares to be issued upon exercise
hereof are being acquired solely for the Investor's own account and not as a
nominee for any other party, and that the Investor will not offer, sell or
otherwise dispose of this Warrant or any Warrant Shares to be issued upon
exercise hereof except under circumstances that will not result in a violation
of applicable federal and state securities laws. Upon exercise of this Warrant,
the Investor shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares of Common Stock so
purchased are being acquired solely for the Investor's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
b) Investor recognizes that investing in the Warrant and the Warrant
Shares involves a high degree of risk, and Investor is in a financial position
to hold the Warrant and the Warrant Shares indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Warrant and
the Warrant Shares. The Investor is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Investor has
had an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and have had the opportunity to inspect the Company's operation. Investor has
had the opportunity to ask questions of, and receive answers from, the
management of the Company (and any person acting on its behalf) concerning the
Warrant and the Warrant Shares and the agreements and transactions contemplated
hereby, and to obtain any additional information as Investor may have requested
in making its investment decision. The initial Investor in this Warrant is an
"accredited investor", as defined by Regulation D promulgated under the Act.
11. Registration Rights. The Investor of this Warrant shall be entitled to
the registration rights set forth in Section 4 of the Securities Purchase
Agreement.
11
<PAGE>
12. Notices. Any notice, request or other document required or permitted to
be given or delivered to the Investor or future holders hereof or the Company
shall be personally delivered or shall be sent by certified or registered mail,
postage prepaid, to the Investor or each such holder at its address as shown on
the books of the Company or to the Company at the address set forth in the
Securities Purchase Agreement. All notices under this Warrant shall be deemed to
have been given (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the fifth business day following
the date of such mailing.
A party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance with the provisions
of this Section 12.
13. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of any holders
of Warrants in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interests of the Investor.
14. Successors and Assigns. This Warrant shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Investor and the Company.
15. Severability. If for any reason any provision, paragraph or terms of
this Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
16. Issue Date; Choice of Law; Venue; Jurisdiction. The provisions of this
Warrant shall be construed and shall be given effect in all respects as if it
had been issued and delivered by the Company on the date hereof. This Warrant
shall be binding upon any successors or assigns of the Company. This Warrant
will be construed and enforced in accordance with and governed by the laws of
the State of New York, except for matters arising under the Act, without
reference to principles of conflicts of law. Each of the parties consents to the
exclusive jurisdiction of the U.S. District Court sitting in the City of New
York in the State of New York in connection with any dispute arising under this
Warrant and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdiction. Each party hereby agrees
that if the other party to this Warrant obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Warrant irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address in accordance with
Section 12. Nothing herein shall affect the right of any party to serve process
in any other manner permitted by law. Each party waives its right to a trial by
jury.
12
<PAGE>
17. Modification and Waiver. This Warrant and any provisions 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. Any
amendment effected in accordance with this paragraph shall be binding upon the
Investor, each future holder of this Warrant and the Company. No waivers of, or
exceptions to, any term, condition or provision of this Warrant, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
18. Severability. Whenever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Warrant
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Warrant shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
19. Headings. Paragraph and subparagraph headings used herein are included
herein for convenience of reference only and shall not affect the construction
of this Warrant Certificate nor constitute a part of this Warrant Certificate
for any other purpose.
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed as of the 22nd day of November 1999.
OSAGE SYSTEMS GROUP, Inc.
By: /s/ Phil Carter
-------------------
Phil Carter,
Interim Chief Executive Officer
Acknowledged and Agreed
to by the undersigned
this ___ day of November 1999.
INVESTOR:
Address:
14
<PAGE>
NOTICE OF EXERCISE
To: OSAGE SYSTEMS GROUP, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
OSAGE SYSTEMS GROUP, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) [Only in the event that the exercise of this Warrant occurs prior to the
Warrant Shares being subject to an effective registration statement or prior to
the existence of an exemption from registration shall this be applicable] In
exercising this Warrant, the undersigned hereby confirms and acknowledges that
the shares of Common Stock to be issued upon conversion thereof are being
acquired solely for the account of the undersigned and not as a nominee for any
other party, and for investment, and that the undersigned will not offer, sell
or otherwise dispose of any such shares of Common Stock except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
-----------------------------------
(Name)
- -------------------- -----------------------------------
(Date) (Signature)
-----------------------------------
(Address)
Dated:
- ------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- ---------------------------------------------- whose address is
- ---------------------------------------------------------------.
- ----------------------------------------------------------------
Dated: ----------------,
Holder's Signature: -----------------------------
Holder's Address: -----------------------------
-----------------------------
Signature Guaranteed: ------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
No. 1999-W_______
To Purchase __________ Shares of Common Stock of
OSAGE SYSTEMS GROUP, INC.
THIS CERTIFIES that, for value received, _______________ (the "INVESTOR" or
"HOLDER"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time after vesting and on or after the date hereof and on or
prior to 5:00 p.m. Mountain Time on February 21, 2000 (the "TERMINATION DATE"),
but not thereafter, to subscribe for and purchase from OSAGE SYSTEMS GROUP,
INC., a Delaware corporation (the "COMPANY"), ________________________- shares
of Common Stock (the "WARRANT SHARES"). The purchase price of one share of
Common Stock (the "EXERCISE PRICE") under this Warrant shall be $.30. The
Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This Warrant is being issued
in connection with a Securities Purchase Agreement dated as of October 8, 1999
(the "SECURITIES PURCHASE AGREEMENT") entered into between the Company and the
Investor.
1. Exercise of Warrant.
a) Exercise of the purchase rights represented by this Warrant may be
made in whole or in part following vesting and delivery of the prior written
consent of the Company pursuant to Section 1(c) below, but before the close of
business on the Termination Date, or such earlier date on which this Warrant may
terminate as provided in Section 9(d) or 9(e) below, by the surrender on any
business day of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed, at the principal office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Company), together with delivery to the Company by such holder of all
certifications or documentation reasonably necessary to establish, to the
satisfaction of the Company, that any such exercise has been undertaken in
compliance with all applicable federal and state securities laws, and upon
payment of the full Exercise Price
<PAGE>
of the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to the
holder hereof within fifteen (15) business days after the date on which this
Warrant shall have been exercised as aforesaid. The Exercise Price shall either
be payable in cash or by bank or certified check or by wire transfer (of same
day funds) to an account designated by the Company in an amount equal to the
Exercise Price multiplied by the number of shares being purchased.
b) Exercise of the purchase rights represented by this Warrant shall
only be permitted following vesting. The right to purchase that number of shares
of Common Stock representing less than 20% of the Company's Common Stock
outstanding on November 22, 1999 (the Closing Date under the Securities Purchase
Agreement) shall vest immediately. The right to purchase that number of shares
of Common Stock representing 20% or more of the Company's Common Stock
outstanding on November 22, 1999 shall vest upon the approval of the Company's
stockholders of the transactions contained in the Securities Purchase Agreement,
particularly the exercise rights provided in this instrument for shares of
Common Stock representing 20% or more of the Company's Common Stock outstanding
on November 22, 1999. Any aggregate proceeds received by the Company prior to
obtaining such stockholder approval as payment of the exercise price under this
Warrant for shares of Common Stock representing 20% or more of the Company's
outstanding Common Stock as of November 22, 1999 will be treated as a demand
loan to the Company; provided, however, that upon securing stockholder approval,
the outstanding amount of any such loan will automatically convert into the
right to receive shares of Common Stock under this Warrant at the Exercise
Price.
c) Notwithstanding anything to the contrary contained herein, none of
the purchase rights represented by this Warrant may be exercised without the
Company's prior written consent, which may be withheld in its sole discretion.
In the event that the Company consents in writing to Investor exercising a
specified amount of purchase rights represented hereby, Investor shall have 15
business days after delivery of such written consent to exercise all or a
portion of the purchase rights approved for exercise in such consent.
d) In the event that this Warrant shall be duly exercised in part prior
to the Termination Date, the Company shall issue a new Warrant or Warrants of
like tenor evidencing the rights of the Investor thereof to purchase the balance
of the Warrant Shares purchasable under the Warrant so surrendered that shall
not have been purchased.
e) No adjustments shall be made for any cash dividends on Warrant Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
2. Authorization of Shares.
a) The Company covenants that all shares of Common Stock which may be
issued upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant and payment of the Exercise
Price as set forth herein will be duly authorized, validly issued, fully paid
and nonassessable and free from all taxes, liens and charges
2
<PAGE>
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue or otherwise specified herein).
b) The Company covenants that during the period the Warrant is
outstanding and exercisable, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the American Stock
Exchange or any domestic securities exchange upon which the Common Stock may be
listed.
c) At the time of or before taking any action which would cause an
adjustment pursuant to Section 9 hereof, reducing the Exercise Price below the
then par value (if any) of the Warrant Shares issuable upon exercise of the
Warrants, the Company will take any corporate action which may, in the opinion
of its counsel, be necessary in order to assure that the par value per share of
the Warrant Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Warrant Shares at the Exercise Price, as so adjusted; the Company
will also from time to time take such action if at any time the Exercise Price
is below the then par value of the Warrant Shares.
3. Fractional Shares. The Company shall not be required to issue fractional
shares of capital stock upon the exercise of this Warrant or to deliver Warrant
Certificates which evidence fractional shares of capital stock. In the event
that any fraction of an Exercise Share would, except for the provisions of this
Section 3, be issuable upon the exercise of this Warrant, the Company shall pay
to the Investor exercising the Warrant an amount in cash equal to such fraction
multiplied by the current market value of the Exercise Share. For purposes of
this Section 3, the current market value shall be determined as follows:
(i) if the Warrant Shares are listed or traded on a national securities
exchange or in the NASDAQ Reporting System, the closing price on the principal
national securities exchange on which they are so listed or traded or in the
NASDAQ Reporting System, as the case may be, on the last business day prior to
the date of the exercise of this Warrant. The closing price referred to in this
clause (i) shall be the last reported sales price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case on the national securities exchange on which the Warrant
Shares are then listed or in the NASDAQ Reporting System; or
(ii) if the Warrant Shares are traded in the over-the-counter market and
not on any national securities exchange and not in the NASDAQ Reporting System,
the average of the mean between the last bid and asked prices per share, as
reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior
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<PAGE>
to the date on which this Warrant is exercised, or if not so reported, the
average of the closing bid and asked prices for an Exercise Share as furnished
to the Company by any member of the National Association of Securities Dealers,
Inc., selected by the Company for that purpose; or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
4. Payment of Taxes.
a) The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the Investor of a Warrant Certificate surrendered upon
the exercise of a Warrant, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
b) Upon exercise of a Warrant, the Company shall have the right to
require the Investor to remit to the Company an amount sufficient to satisfy
federal, state and local tax withholding requirements prior to the delivery of
any certificate for Warrant Shares issuable pursuant to the exercise of such
Warrant.
c) An Investor who is obligated to pay the Company an amount required to
be withheld under applicable tax withholding requirements may pay such amount
(i) in cash; (ii) in the discretion of the Company's Chief Executive Officer,
through the delivery to the Company of previously-owned shares of common stock
of the Company having an aggregate current market value equal to the tax
obligation, provided that the previously owned shares delivered in satisfaction
of the withholding obligations must have been held by the Investor for at least
six (6) months; (iii) in the discretion of the Company's Chief Executive
Officer, through the withholding of shares of common stock of the Company
otherwise issuable to the Investor in connection with the exercise of a Warrant;
or (iv) in the discretion of the Company's Chief Executive Officer, through a
combination of the procedures set forth in clauses (i), (ii) and (iii) of this
Section 4(c).
5. Loss, Theft, Destruction or Mutilation of Warrant Certificate. In case
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and in
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate or Warrant Certificates of like tenor and in the same
aggregate denomination, but only (i) in the case of loss, theft or destruction,
upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant Certificate and indemnity or bond, if requested,
also satisfactory to the Company and its counsel, and (ii) in the case of
mutilation, upon surrender of the mutilated Warrant. Applicants for such
substitute
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<PAGE>
Warrant Certificates shall also comply with such other reasonable regulations
and pay such other reasonable charges as the Company or its counsel may
prescribe.
6. Rights of Investor. Subject to the terms of Section 9 below, the
Investor shall not, by virtue of anything contained in this Warrant Certificate
or otherwise, be entitled to any right whatsoever, either in law or equity, of a
stockholder of the Company, including without limitation, the right to receive
dividends or to vote or to consent or to receive notice as a stockholder in
respect of the meetings of stockholders or the election of directors of the
Company or any other matter.
7. Assignment and Transfer of Warrant. Subject to the provisions of Section
8 below, this Warrant may be assigned by the surrender of this Warrant and the
Assignment Form annexed hereto duly executed at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company); provided, however, that this Warrant may not be
resold or otherwise transferred except (i) in a transaction registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) in a transaction
pursuant to an exemption, if available, from registration under the Act and
whereby, if requested by the Company, an opinion of counsel reasonably
satisfactory to the Company is obtained by the holder of this Warrant to the
effect that the transaction is so exempt, and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
such registration of transfer, a new Warrant Certificate shall be issued to the
transferee named in such instrument of transfer, and the surrendered Warrant
Certificate shall be canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Investor
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Warrant Shares as the Warrant Certificate surrendered for exchange or transfer,
and the Warrant Certificate so surrendered shall be canceled by the Company or
transfer agent, as the case may be.
8. Restrictions on Transferability: Restrictive Legend. Neither this
Warrant nor the Warrant Shares shall be transferable except in accordance with
the provisions of this Section.
a) Restrictions on Transfer; Indemnification. Neither this Warrant nor
any Exercise Share may be offered for sale or sold, or otherwise transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the Act, unless (i) such security has been registered for sale under the Act
and registered or qualified under applicable state securities laws relating to
the offer and sale of securities, or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available and the Company shall have received
an opinion of counsel satisfactory to the Company that the proposed sale or
other disposition of such securities may be effected without registration under
the Act and would not result in any violation of any applicable state securities
laws relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
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The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Section 8.
b) Restrictive Legends. Unless and until otherwise permitted by this
Section 8, this Warrant Certificate, each Warrant Certificate issued to the
Holder or to any transferee or assignee of this Warrant Certificate, and each
Certificate representing Warrant Shares issued upon exercise of this Warrant or
to any transferee of the person to whom the Warrant Shares were issued, shall
bear a legend setting forth the requirements of subparagraph (a) of this Section
8, together with such other legend or legends as may otherwise be deemed
necessary or appropriate by counsel to the Company.
c) Notice of Proposed Transfers. Prior to any transfer, offer to
transfer or attempted transfer of this Warrant or any Exercise Share, the holder
of such security shall give written notice to the Company of such holder's
intention to effect such transfer. Each such notice shall (x) describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall contain an undertaking by the person giving such notice to furnish such
other information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer
of this Warrant or Exercise Share, as appropriate, may be effected without
registration of such security under the Act, the Company shall, as promptly as
practicable, so notify the holder of such security and such holder shall
thereupon be entitled to transfer such security in accordance with the terms of
the notice delivered by such holder to the Company. Each certificate evidencing
the securities thus to be transferred (and each certificate evidencing any
untransferred balance of the securities evidenced by such certificate) shall
bear the restrictive legends referred to in subparagraph (b) above, unless in
the opinion of each such counsel such legend is not required in order to insure
compliance with the Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the Act,
the Company shall, as promptly as practicable, so notify the holder thereof.
However, the Company shall have no obligation to register such securities under
the Act, except as otherwise provided herein.
d) The holder of the securities giving the notice under subparagraph
8(c) shall not be entitled to transfer any of the securities until receipt of
notice from the Company under subparagraph 8(c) or registration of such
securities under the Act has become effective.
e) Removal of Legend. The Company shall, at the request of any
registered holder of a Warrant or Exercise Share, exchange the certificate
representing such security for a certificate representing the same security not
bearing the restrictive legend required by
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<PAGE>
subparagraph (b) if, in the opinion of counsel to the Company, such restrictive
legend is no longer necessary.
9. Adjustment of Warrant Shares and Exercise Price. The Exercise Price and
the number and kind of Warrant Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as hereinafter provided. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
a) In case the Company shall (i) pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock, (ii) subdivide or
classify its outstanding Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding Common Stock into a smaller number of
shares, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification, shall be proportionally adjusted so that the
Investor of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised by such Investor immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in subparagraph (g) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
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<PAGE>
c) Subject to subparagraphs 9(d) and 9(e) hereafter, if at any time
while this Warrant, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's common stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of all or substantially all of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities or
property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 9. The
foregoing provisions of this subparagraph 9(c) shall similarly apply to
successive reorganizations, consolidations, mergers, sales and transfers and to
the stock or securities of any other corporation that are at the time receivable
upon the exercise of this Warrant. If the per-share consideration payable to the
Investor hereof for shares in connection with any such transaction is in a form
other than cash or marketable securities, then the value of such consideration
shall be determined in good faith by the Company's Board of Directors. In all
events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Investor after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
d) In the case of a proposed (i) dissolution or liquidation of the
Company, (ii) merger, reorganization or consolidation in which the Company is
acquired by another person or entity (other than a holding company formed by the
Company), (iii) sale of 50% or more of the outstanding stock of the Company to a
unrelated person or entity, or (iv) a sale or transfer of all or substantially
all of the Company's properties and assets as, or substantially as, an entirety
to any other person (in each case, a "Fundamental Transaction"), unless, with
respect to the events described in subclause (d)(ii) above, provision is made,
in the discretion of the Company, in connection with the Fundamental Transaction
for the substitution of such Warrants with new awards of the successor entity
(with appropriate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise price as provided in subparagraph (c) of
this Section 9), all or any unexercised portion of the Warrants granted
hereunder shall be terminated within fifteen (15) days after written notice to
the Holder of such proposed Fundamental Transaction, during which fifteen-day
period the Holder may exercise the Warrant or any part thereof. If the proposed
Fundamental Transaction is later abandoned and not consummated, such Warrants,
to the extent not so exercised, shall be deemed reinstated on their original
terms set forth herein, as if never terminated.
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<PAGE>
e) Subject to subparagraph 9(d) above, in the event of a Fundamental
Transaction described in subclause 9(d)(ii) above under the terms of which
holders of the Company's Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock of the Company surrendered pursuant
to such Fundamental Transaction (the "Cash Purchase Price"), the Board of
Directors may, in its sole discretion, provide that all or any unexercised
portion of the Warrants granted hereunder shall terminate upon consummation of
such Fundamental Transaction and the Holder shall receive, in exchange therefor,
a cash payment equal to the amount (if any) by which (i) the Cash Purchase Price
multiplied by the number of Warrant Shares subject to the Warrants then
outstanding hereunder held by the Holder exceeds (ii) the aggregate Exercise
Price of such Warrants.
f) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to subparagraphs (a), (b) and (c) above, the number of Warrant
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
g) For the purpose of any computation under subparagraph (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for thirty (30) consecutive business
days before such date. The closing price for each day shall be the last sale
price or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices or if not so available,
the fair market price as determined by the Board of Directors.
h) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
subparagraph (h) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 9 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section 9
to the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 9, as it, in its sole discretion, shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of Common Stock, issuance of
Warrants to Purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Section 9 hereafter made by the Company to the holders of its Common Stock shall
not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
i) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Warrant Shares issuable upon exercise of each Warrant to
be mailed to the Investors, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by
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the Company) to make any computation required by this Section 9, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
j) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) above, the Investor of this Warrant thereafter
shall become entitled to receive any Warrant Shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in subparagraphs (a) to (g), inclusive,
above.
k) Irrespective of any adjustments in the Exercise Price or the number
or kind of Warrant Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
l) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Section 9, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Investor.
10. Compliance with Securities Laws. The holder hereof acknowledges that
the Warrant Shares acquired upon the exercise of this Warrant, if not registered
(or if no exemption from registration exists), will have restrictions upon
resale imposed by state and federal securities laws. Each certificate
representing the Warrant Shares issued to the Holder upon exercise (if not
registered or if no exemption from registration exists) will bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED,
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE
COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
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a) Without limiting the Investor's right to transfer, assign or
otherwise convey the Warrant or Warrant Shares in compliance with all applicable
securities laws, the Investor of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the Warrant Shares to be issued upon exercise
hereof are being acquired solely for the Investor's own account and not as a
nominee for any other party, and that the Investor will not offer, sell or
otherwise dispose of this Warrant or any Warrant Shares to be issued upon
exercise hereof except under circumstances that will not result in a violation
of applicable federal and state securities laws. Upon exercise of this Warrant,
the Investor shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares of Common Stock so
purchased are being acquired solely for the Investor's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
b) Investor recognizes that investing in the Warrant and the Warrant
Shares involves a high degree of risk, and Investor is in a financial position
to hold the Warrant and the Warrant Shares indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Warrant and
the Warrant Shares. The Investor is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Investor has
had an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and have had the opportunity to inspect the Company's operation. Investor has
had the opportunity to ask questions of, and receive answers from, the
management of the Company (and any person acting on its behalf) concerning the
Warrant and the Warrant Shares and the agreements and transactions contemplated
hereby, and to obtain any additional information as Investor may have requested
in making its investment decision. The initial Investor in this Warrant is an
"accredited investor", as defined by Regulation D promulgated under the Act.
11. Registration Rights. The Investor of this Warrant shall be entitled to
the registration rights set forth in Section 4 of the Securities Purchase
Agreement.
12. Notices. Any notice, request or other document required or permitted to
be given or delivered to the Investor or future holders hereof or the Company
shall be personally delivered or shall be sent by certified or registered mail,
postage prepaid, to the Investor or each such holder at its address as shown on
the books of the Company or to the Company at the address set forth in the
Securities Purchase Agreement. All notices under this Warrant shall be deemed to
have been given (i) in the case of personal delivery, on the date of such
delivery; (ii) in the case of postal service mailing, on the fifth business day
following the date of such mailing; and (iii) in the case of mailing by a
nationally recognized overnight courier service such as federal express, on the
next business day following the date of such mailing.
A party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance with the provisions
of this Section 12.
13. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of any holders
of Warrants in order to
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cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision, or to make any
other provisions in regard to matters or questions herein arising hereunder
which the Company may deem necessary or desirable and which shall not materially
adversely affect the interests of the Investor.
14. Successors and Assigns. This Warrant shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Investor and the Company.
15. Severability. If for any reason any provision, paragraph or terms of
this Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
16. Issue Date; Choice of Law; Venue; Jurisdiction. The provisions of this
Warrant shall be construed and shall be given effect in all respects as if it
had been issued and delivered by the Company on the date hereof. This Warrant
shall be binding upon any successors or assigns of the Company. This Warrant
will be construed and enforced in accordance with and governed by the laws of
the State of New York, except for matters arising under the Act, without
reference to principles of conflicts of law. Each of the parties consents to the
exclusive jurisdiction of the U.S. District Court sitting in the City of New
York in the State of New York in connection with any dispute arising under this
Warrant and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdiction. Each party hereby agrees
that if the other party to this Warrant obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Warrant irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address in accordance with
Section 12. Nothing herein shall affect the right of any party to serve process
in any other manner permitted by law. Each party waives its right to a trial by
jury.
17. Modification and Waiver. This Warrant and any provisions 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. Any
amendment effected in accordance with this paragraph shall be binding upon the
Investor, each future holder of this Warrant and the Company. No waivers of, or
exceptions to, any term, condition or provision of this Warrant, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
18. Severability. Whenever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Warrant
in such jurisdiction or
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<PAGE>
affect the validity, legality or enforceability of any provision in any other
jurisdiction, but this Warrant shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein.
19. Headings. Paragraph and subparagraph headings used herein are included
herein for convenience of reference only and shall not affect the construction
of this Warrant Certificate nor constitute a part of this Warrant Certificate
for any other purpose.
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IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed as of the 22nd day of November 1999.
OSAGE SYSTEMS GROUP, Inc.
By: /s/ Phil Carter
------------------
Phil Carter,
Interim Chief Executive Officer
Acknowledged and Agreed
to by the undersigned
this ___ day of November 1999.
INVESTOR:
Address:
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NOTICE OF EXERCISE
To: OSAGE SYSTEMS GROUP, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
OSAGE SYSTEMS GROUP, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) [Only in the event that the exercise of this Warrant occurs prior to the
Warrant Shares being subject to an effective registration statement or prior to
the existence of an exemption from registration shall this be applicable] In
exercising this Warrant, the undersigned hereby confirms and acknowledges that
the shares of Common Stock to be issued upon conversion thereof are being
acquired solely for the account of the undersigned and not as a nominee for any
other party, and for investment, and that the undersigned will not offer, sell
or otherwise dispose of any such shares of Common Stock except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
-----------------------------------
(Name)
- -------------------- -----------------------------------
(Date) (Signature)
-----------------------------------
(Address)
Dated:
- ------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- ---------------------------------------------- whose address is
- ---------------------------------------------------------------.
- ----------------------------------------------------------------
Dated: ---------------,
Holder's Signature: ---------------------------------
Holder's Address: -----------------------------------
-----------------------------------
Signature Guaranteed: ------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
