EXHIBIT 10.5
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "Agreement"), dated as of September 14, 2000, by
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and between ▇▇▇▇ INTERACTIVE SERVICES, INC., a Colorado corporation (the
"Company"), and ▇▇▇▇▇▇▇▇ CAPITAL MANAGEMENT, INC. ("▇▇▇▇▇▇▇▇").
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The Company and ▇▇▇▇▇▇▇▇ wish to exchange the shares of Series B Convertible
Preferred Stock of the Company (the "Series B Preferred Stock") currently held
by ▇▇▇▇▇▇▇▇ for an equal number of shares of Series B-2 Convertible Preferred
Stock (the "Series B-2 Preferred Stock") issued pursuant to Articles of
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Amendment in the form attached hereto as Exhibit A (the "Series B-2 Articles of
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Amendment"). The Series B-2 Preferred Stock will be convertible pursuant to the
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terms of the Series B-2 Articles of Amendment into shares (the "Conversion
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Shares") of the Company's common stock, no par value (the "Common Stock"). The
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Series B-2 Preferred Stock and the Conversion Shares are collectively referred
to herein as the "Securities". Any capitalized term used herein that is not
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otherwise defined shall have the meaning specified therefor in the Series B-2
Articles of Amendment.
The exchange contemplated hereby will be effected in reliance upon the
exemption from securities registration afforded by the provisions Section
3(a)(9) of the Securities Act of 1933, as amended (the "Securities Act"). In
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order to induce ▇▇▇▇▇▇▇▇ to enter into this Agreement, the Company has agreed to
effect the registration of the Conversion Shares under the Securities Act
pursuant to a Registration Agreement, the form of which is attached as Exhibit B
(the "Registration Agreement").
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The Company and ▇▇▇▇▇▇▇▇ hereby agree as follows:
1. EXCHANGE.
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1.1 Agreement to Exchange. Upon the terms and subject to the satisfaction
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or waiver of the conditions set forth herein, the Company and ▇▇▇▇▇▇▇▇ agree to
exchange all of the Series B Preferred Stock currently held by ▇▇▇▇▇▇▇▇ for an
equal number of shares of Series B-2 Preferred Stock (the "Exchange"). The date
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on which the closing (the "Closing") of the Exchange occurs is hereinafter
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referred to as the "Exchange Date". Subject to the satisfaction or waiver of the
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conditions set forth herein, the Exchange will be deemed to occur when ▇▇▇▇▇▇▇▇
delivers to the Company, on the terms and subject to the conditions set forth
herein, a certificate representing 6,250 shares of Series B Preferred Stock in
exchange for a certificate representing 6,250 shares of Series B-2 Preferred
Stock.
1.2 Business Day. When used herein, "Business Day" shall mean any day on
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which the New York Stock Exchange (the "NYSE") and commercial banks in the city
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of New York are open for business.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ▇▇▇▇▇▇▇▇.
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▇▇▇▇▇▇▇▇ hereby represents and warrants to the Company and agrees with the
Company that, as of the date of this Agreement and as of the Exchange Date:
2.1 Authorization; Enforceability. ▇▇▇▇▇▇▇▇ is duly and validly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization with full power and authority to effect the
Exchange and to execute and deliver this Agreement. This Agreement and the
Registration Agreement each constitutes Marshall's valid and legally binding
obligation, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency or other laws
affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity) or public policy.
2.2 Information. The Company has provided ▇▇▇▇▇▇▇▇ with information
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regarding the business, operations and financial condition of the Company, and
has granted to ▇▇▇▇▇▇▇▇ the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the Company and materials relating to the terms and conditions
of the purchase and sale of the Securities. Neither such information nor any
other investigation conducted by ▇▇▇▇▇▇▇▇ or any of its representatives shall
modify, amend or otherwise affect Marshall's right to rely on the Company's
representations and warranties contained in this Agreement.
2.3 Limitations on Disposition. ▇▇▇▇▇▇▇▇ acknowledges that, except as
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provided in the Registration Agreement, the Securities have not been and are not
being registered under the Securities Act and may not be transferred or resold
without registration under the Securities Act or unless pursuant to an exemption
therefrom.
2.4 Legend. ▇▇▇▇▇▇▇▇ understands that the certificates representing the
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Securities may bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may not be
offered or sold unless a registration statement under the Securities
Act and applicable state securities laws shall have become effective
with regard thereto, or an exemption from registration under such laws
is available in connection with such offer or sale."
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Notwithstanding the foregoing, it is agreed that, as long as (A) the resale
or transfer (including without limitation a pledge) of such Securities is
registered pursuant to an effective registration statement and ▇▇▇▇▇▇▇▇
represents in writing to the Company that such Securities have been or are being
sold pursuant to such registration statement, (B) such Securities have been
publicly sold pursuant to Rule 144 ("Rule 144") and ▇▇▇▇▇▇▇▇ has delivered to
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the Company customary Rule 144 broker's and seller's representation letters, or
(C) such Securities can be publicly sold pursuant to Rule 144(k) under the
Securities Act, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend is
stamped, the Company shall issue new certificates without such legend to the
holder promptly upon request.
2.5 No Conflict. The execution, delivery and performance by ▇▇▇▇▇▇▇▇ of
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this Agreement and the Registration Agreement (A) have been approved by all
necessary action (corporate or other) on the part of ▇▇▇▇▇▇▇▇ and (B) will not
result in (i) any material violation of any provisions of its charter, bylaws or
any other governing document in effect on the date hereof, (ii) any material
violation of any instrument or contract to which it is a party or by which it is
bound, or (iii) the creation of any material lien, charge or encumbrance upon
any of its assets.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
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The Company hereby represents and warrants to ▇▇▇▇▇▇▇▇ and agrees with
▇▇▇▇▇▇▇▇ that, as of the date of this Agreement and as of the Exchange Date:
3.1 Organization, Good Standing and Qualification. Each of the Company and
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its subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has all
requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. For purposes of this Agreement, the term "subsidiary" or "subsidiaries"
shall mean any entity or entities in which the Company beneficially owns 20% or
more of the voting equity thereof.
3.2 Authorization; Consents. The Company has the requisite corporate power
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and authority to enter into and perform its obligations under (i) this Agreement
and (ii) the Registration Agreement (together, the "Transaction Documents"), to
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execute and file, and perform its obligations under the Series B-2 Articles of
Amendment, to issue Series B-2 Preferred Stock to ▇▇▇▇▇▇▇▇ in accordance with
the terms hereof and to issue and deliver Conversion Shares in accordance with
the terms of the Series B-2 Articles of Amendment. All corporate action on the
part of the Company by its officers, directors and stockholders necessary for
(i) the authorization, execution and delivery of, and the performance by the
Company of its obligations under, the Transaction Documents and (ii) the
authorization, execution and filing of, and the performance by
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the Company of its obligations under, the Series B-2 Articles of Amendment has
been taken, and no further consent or authorization of the Company, its Board of
Directors, its stockholders, any governmental agency or organization (other than
such approval as may be required under the Securities Act and applicable state
securities laws in respect of the Registration Agreement), or any other person
or entity is required (pursuant to any rule of the Nasdaq National Market, or
otherwise).
3.3 Enforcement. Each of the Transaction Documents constitutes a valid and
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legally binding obligation of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) or public policy.
3.4 Disclosure Documents; Agreements; Financial Statements; Other
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Information. The Company has filed with the Securities and Exchange Commission
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(the "Commission"): (i) the Company's Annual Report on Form 10-KSB for the year
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ended December 31, 1999, (ii) Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 2000 and June 30, 2000, (iii) all Current Reports on Form 8-K,
if any, and any other reports, required to be filed with the Commission since
December 31, 1999 and prior to the date hereof and (iv) the Company's definitive
Proxy Statement for its 1999 Annual Meeting of Stockholders (collectively, the
"Disclosure Documents"). The Company is not aware of any event occurring on or
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prior to the Exchange Date (other than the transactions effected hereby) that
would require the filing of, or with respect to which the Company intends to
file, a Form 8-K after such date. Each Disclosure Document, as of the date of
the filing thereof with the Commission, conformed in all material respects to
the requirements of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act") and, as of the date of
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such filing, such Disclosure Document did not contain an untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All material agreements required to be
filed as exhibits to the Disclosure Documents have been filed or incorporated by
reference as required by the applicable provisions of the Exchange Act. Neither
the Company nor any of its subsidiaries is in breach of any agreement to which
it is a party or by which it is bound where such breach could have a material
adverse effect on (i) the consolidated business, operations, properties,
financial condition, prospects or results of operations of the Company and its
subsidiaries taken as a whole, (ii) the transactions contemplated by the
Transaction Documents or by the Series B-2 Articles of Amendment, (iii) the
Securities or (iv) the ability of the Company to perform its obligations under
the Transaction Documents or the Series B-2 Articles of Amendment (collectively,
a "Material Adverse Effect"). Except as set forth in the Disclosure Documents,
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the Company has no liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business which, under generally accepted
accounting principles, are not required to be reflected in such financial
statements (including the footnotes to such financial statements) and which,
individually or in the aggregate, are not material to the consolidated business
or financial
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condition of the Company and its subsidiaries taken as a whole. As of their
respective dates, the financial statements of the Company included in the
Disclosure Documents have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments). The written information described in paragraph 2.3
does not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.5 Capitalization. The capitalization of the Company, including its
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authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities (other than the Series B-2 Preferred Stock) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares initially to be reserved for issuance upon conversion and
exercise of the Series B-2 Preferred Stock is set forth on Schedule 3.5 hereto.
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All of such outstanding shares of capital stock have been, or upon issuance will
be, validly issued, fully paid and non-assessable. Except as set forth on
Schedule 3.5, no shares of the capital stock of the Company are subject to
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preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances created by or through the Company. Except as
disclosed on Schedule 3.5, or as contemplated herein, there are no outstanding
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options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries.
3.6 Valid Issuance. The Series B-2 Preferred Stock is duly authorized and,
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when issued, sold and delivered in accordance with the terms hereof, (i) will be
duly and validly issued, fully paid and nonassessable, free and clear of any
taxes, liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company (collectively, "Encumbrances"), (ii) based in part upon the
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representations of ▇▇▇▇▇▇▇▇ in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws
and (iii) will be entitled to all of the rights, preferences and privileges set
forth in the Series B-2 Articles of Amendment. The Conversion Shares are duly
authorized and reserved for issuance and, when issued in accordance with the
terms of the Series B-2 Articles of Amendment, will be duly and validly issued,
fully paid and nonassessable, free and clear of any Encumbrances. The Company's
Board of Directors (i) has determined that the Exchange and the consummation of
the transactions contemplated by the Transaction Documents and by the Series B-2
Articles of Amendment (including without limitation
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the issuance of the Conversion Shares upon exercise of the Series B-2 Preferred
Stock), are in the best interests of the Company and (ii) has approved the
issuance of Conversion Shares upon exercise of the Series B-2 Preferred Stock.
3.7 No Conflict with Other Instruments. Neither the Company nor any of its
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subsidiaries is in violation of any provisions of its charter, bylaws or any
other governing document as amended and in effect on and as of the date hereof
(including without limitation the provisions of the Company's Articles of
Incorporation that set forth terms of the Series B Preferred Stock) or in
default (and no event has occurred which, with notice or lapse of time or both,
would constitute a default) under any provision of any instrument or contract to
which it is a party or by which it is bound (including without limitation any
agreement between the Company and ▇▇▇▇▇▇▇▇), or of any provision of any Federal,
state or foreign judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company, which violation or default could
reasonably be expected to have a Material Adverse Effect. The (i) execution,
delivery and performance of the Transaction Documents, (ii) execution and filing
of the Series B-2 Articles of Amendment and (iii) consummation of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Series B-2 Preferred Stock and the reservation for issuance and
issuance of the Conversion Shares) will not, in any such case, result in any
such violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or of any of its
subsidiaries or the triggering of any preemptive or anti-dilution rights or
rights of first refusal or first offer, or any similar rights (whether pursuant
to a "poison pill" provision or otherwise), on the part of holders of the
Company's securities.
3.8 Financial Condition; Taxes; Litigation.
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3.8.1 The Company's financial condition is, in all material respects, as
described in the Disclosure Documents, except for changes in the ordinary course
of business and normal year-end adjustments that are not, in the aggregate,
materially adverse to the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole. There has been no material
adverse change to the Company's business, operations, properties, financial
condition, prospects or results of operations since the date of the Company's
most recent audited financial statements contained in the Disclosure Documents.
3.8.2 The Company has filed all tax returns required to be filed by it and
paid all taxes which are due, except for taxes which it reasonably disputes or
which could not have a Material Adverse Effect.
3.8.3 Neither the Company nor any of its subsidiaries is the subject of
any pending or, to the Company's knowledge, threatened inquiry, investigation or
administrative or legal proceeding by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction,
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the Commission or any state securities commission or other governmental or
regulatory entity which could have a Material Adverse Effect.
3.8.4 Except as described in the Disclosure Documents, there is no
claim, litigation or administrative proceeding pending, or, to the Company's
knowledge, threatened or contemplated, against the Company or any of its
subsidiaries, or against any officer, director or employee of the Company or any
such subsidiary in connection with such person's employment therewith that,
individually or in the aggregate, could have a Material Adverse Effect. Neither
the Company nor any of its subsidiaries is a party to or subject to the
provisions of, any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality which could have a Material Adverse Effect.
3.9 Reporting Company; Form S-3. The Company is subject to the reporting
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requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has timely filed all reports required
thereby. The Company is eligible to register for resale, in a secondary sale by
a selling stockholder, shares of its Common Stock on a registration statement on
Form S-3 under the Securities Act. To the Company's knowledge, there exist no
facts or circumstances (including without limitation any required approvals or
waivers of any circumstances that may delay or prevent the obtaining of
accountant's consents) that would prohibit or delay the preparation and filing
of a registration statement on Form S-3 with respect to the Registrable
Securities (as defined in the Registration Agreement).
3.10 Acknowledgement of Dilution. The Company acknowledges that the
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issuance of Conversion Shares may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Conversion Shares in accordance with the terms of the Series B-2 Articles of
Amendment is unconditional and absolute regardless of the effect of any such
dilution.
3.11 Intellectual Property. The Company and its subsidiaries each has the
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right to use adequate trademarks, trade names and other rights to inventions,
know-how, patents, copyrights, confidential information and other intellectual
property rights necessary to conduct the business now operated by it, and is not
aware of any infringement by a third party with respect to such rights or of any
infringement by it or conflict with asserted rights of others that, in any such
case, if determined adversely to the Company or any of its subsidiaries, could
individually or in the aggregate have a Material Adverse Effect.
3.12 Registration Rights; Rights of Participation. Except as described on
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Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to any
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person or entity any rights (including "piggy-back" registration rights) to have
any securities of the Company registered with the Commission or any other
governmental authority and (B) no person or entity, including, but not limited
to, current or former stockholders of the Company, underwriters, brokers, agents
or other third parties, has any right of first refusal, preemptive right, right
of participation, anti-dilutive right
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or any similar right to participate in, or to receive securities of the Company
or other consideration as a result of, the transactions contemplated by the
Transaction Documents which has not been waived or will not be waived or
otherwise satisfied as of the Exchange Date.
3.13 Listing on Nasdaq. The Common Stock is listed on the Nasdaq National
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Market, and trading in the Common Stock on such market has not been suspended.
The Company is, to its knowledge, in full compliance with the continued listing
criteria of the Nasdaq National Market, and does not reasonably anticipate that
the Common Stock will lose its listing on the Nasdaq National Market, whether by
reason of the transactions contemplated by the Transaction Documents, or
otherwise and is not aware of any inquiry by or received any notice from the
Nasdaq National Market regarding any failure or alleged failure by the Company
to comply with such criteria.
3.14 Fees. The Company is not obligated to pay any compensation or other
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fee, cost or related expenditure to any underwriter, broker, agent or other
representative or entity in connection with the transactions contemplated
hereby. The Company will indemnify and hold harmless ▇▇▇▇▇▇▇▇ from and against
any claim by any person or entity alleging that ▇▇▇▇▇▇▇▇ is obligated to pay any
such compensation, fee, cost or related expenditure in connection with the
transactions contemplated hereby.
3.15 Regulatory Permits. Each of the Company and its subsidiaries possesses
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all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct its business,
except where the failure to so possess such certificates, authorizations or
permits could not have a Material Adverse Effect, and neither the Company nor
any such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which revocation or modification could have a Material Adverse Effect.
3.16 Key Employees. Each person whose name is set forth on Schedule 3.17
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(each, a "Key Employee") is currently serving in the capacity indicated on such
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schedule on a full-time basis. The Company has no knowledge of any fact or
circumstance (including without limitation (i) the terms of any agreement to
which such person is a party or any litigation in which such person is or may
become involved and (ii) any illness or medical condition that could reasonably
be expected to result in the disability or incapacity of such person) that would
limit or prevent any such person from serving in such capacity on a full-time
basis in the foreseeable future, or of any intention on the part of any such
person to limit or terminate his or her employment with the Company. Except as
described on Schedule 3.17, no Key Employee has borrowed money pursuant to a
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currently outstanding loan that is secured by Common Stock or any right or
option to receive Common Stock.
3.17 Environment. Except as disclosed in the Disclosure Documents (i)
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there is no environmental liability, nor factors likely to give rise to any
environmental liability, affecting any
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of the properties of the Company or any of its subsidiaries that, individually
or in the aggregate, would have a Material Adverse Effect and (ii) neither the
Company nor any of the subsidiaries has violated any environmental laws
applicable to it now or previously in effect ("Environmental Laws"), other than
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such violations or infringements that, individually or in the aggregate, have
not had and will not have a Material Adverse Effect.
4. COVENANTS OF THE COMPANY.
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4.1 Corporate Existence. The Company shall, so long as ▇▇▇▇▇▇▇▇ or any
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affiliate of ▇▇▇▇▇▇▇▇ beneficially owns any Securities, maintain its corporate
existence in good standing under the jurisdiction of its incorporation and shall
pay all taxes owed by it when due except for taxes which the Company reasonably
disputes.
4.2 Provision of Information. The Company shall, so long as ▇▇▇▇▇▇▇▇ or any
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affiliate of ▇▇▇▇▇▇▇▇ beneficially owns any Securities, provide any ▇▇▇▇▇▇▇▇
with copies of all materials sent to stockholders, in each such case at the same
time that it mails such materials to its stockholders.
4.3 Reporting Status. As long as ▇▇▇▇▇▇▇▇ or any affiliate of ▇▇▇▇▇▇▇▇
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beneficially owns any Securities and until the date on which any of the
foregoing may be sold to the public pursuant to Rule 144(k) (or any successor
rule or regulation), (i) the Company shall timely file with the Commission all
reports required to be so filed pursuant to the Exchange Act and (ii) the
Company shall not terminate its status as an issuer required by the Exchange Act
to file reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination. The Company agrees to issue a press
release describing the transactions contemplated by the Transaction Documents
and to file with the Commission a Form 8-K in the form required by the Exchange
Act describing the terms of the transactions contemplated by the Transaction
Documents, with this Agreement and all schedules and exhibits attached to such
Form 8-K as an exhibit thereto, in each case on or before the close of business
on the Business Day following the date on which this Agreement is executed and
delivered by both parties.
4.4 Reservation of Common Stock. The Company shall at all times following
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the Exchange Date have authorized and reserved for issuance to ▇▇▇▇▇▇▇▇ pursuant
to the Series B-2 Preferred Stock, free from any preemptive rights, a number of
shares of Common Stock equal to the number of Conversion Shares issuable upon
conversion of the Series B-2 Preferred Stock (the "Reserved Amount").
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4.5 Quotation on Nasdaq. The Company shall (i) promptly following the
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Closing, take such action as may be necessary to include all of the Conversion
Shares that may be issued by the Company under the Series B-2 Preferred Stock on
the Nasdaq National Market, and (ii) use its reasonable commercial efforts to
maintain the designation and quotation, or listing, of the Common
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Stock on the Nasdaq SmallCap Market, Nasdaq National Market or the New York
Stock Exchange for a minimum of five (5) years following the Exchange Date.
4.6 No Adverse Action. The Company and its subsidiaries shall refrain,
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while any Series B-2 Preferred Stock is outstanding, from taking any action or
entering into any arrangement which in any way adversely affects the rights,
privileges or benefits available to a holder of Preferred Stock pursuant to the
terms of the Series B-2 Articles of Amendment.
5.1 CONDITIONS TO CLOSING.
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5.1 Conditions to Marshall's Obligations at Closing. Marshall's
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obligations at the Closing, including without limitation its obligation to
exchange the Series B Preferred Stock for the Series B-2 Preferred Stock, are
conditioned upon the satisfaction by the Company (or waiver by ▇▇▇▇▇▇▇▇) of each
of the following events as of the Exchange Date:
5.1.1 the representations and warranties of the Company set
forth in this Agreement shall be true and correct in all
material respects as of such date as if made on such
date;
5.1.2 the Company shall have complied with or performed in all
material respects all of the agreements, obligations and
conditions set forth in this Agreement that are required
to be complied with or performed by the Company on or
before the Closing;
5.1.3 the Exchange Date shall occur on a date that is not later
than September 29, 2000;
5.1.4 the Company shall have delivered to ▇▇▇▇▇▇▇▇ a
certificate, signed by an officer of the Company,
certifying that the conditions specified in this
paragraph 5.1 have been fulfilled as of the Closing, it
being understood that ▇▇▇▇▇▇▇▇ may rely on such
certificate as though it were a representation and
warranty of the Company made herein;
5.1.5 the Company shall have delivered to ▇▇▇▇▇▇▇▇ an opinion
of counsel for the Company, dated as of such date, in
substantially the form set forth on Exhibit 5.1.5 hereto,
and covering such additional matters as may reasonably be
requested by ▇▇▇▇▇▇▇▇;
5.1.6 the Company shall have delivered to ▇▇▇▇▇▇▇▇ duly
executed certificates representing the Series B-2
Preferred Stock being exchanged;
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5.1.7 the Company shall have executed and delivered the
Registration Agreement;
5.1.8 the Common Stock shall be listed for trading on the
Nasdaq National Market and no suspension of trading in
the Common Stock on such market shall have occurred and
be continuing as of the Exchange Date;
5.1.9 the Company shall have authorized and reserved for
issuance the number of shares of Common Stock required to
be reserved under paragraph 4.5 hereof, and shall have
provided ▇▇▇▇▇▇▇▇ with reasonable evidence thereof;
5.1.10 the Company shall have duly filed the Series B-2 Articles
of Amendment with the Secretary of State of the State of
Colorado, and provided ▇▇▇▇▇▇▇▇ with reasonable evidence
of such filing and the effectiveness thereof; and
5.1.11 since the date of this Agreement, there shall not have
occurred, in the reasonable judgment of ▇▇▇▇▇▇▇▇, a
material adverse change in the business, operations,
financial condition, properties, prospects or results of
operation of the Company.
5.2 Conditions to Company's Obligations at the Closing. The Company's
--------------------------------------------------
obligations at the Closing are conditioned upon the satisfaction (or waiver by
the Company) of each of the following events as of the Exchange Date:
5.2.1 the representations and warranties of ▇▇▇▇▇▇▇▇ shall be
true and correct in all material respects as of such date
as if made on such date; and
5.2.2 ▇▇▇▇▇▇▇▇ shall have complied with or performed in all
material respects all of the agreements, obligations and
conditions set forth in this Agreement that are required
to be complied with or performed by ▇▇▇▇▇▇▇▇ on or before
the Closing.
6. MISCELLANEOUS.
-------------
6.1 Survival. The representations and warranties made by the
--------
parties herein shall survive the Closing notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
-11-
shall continue in full force and effect without said provision; provided that in
such case the parties shall negotiate in good faith to replace such provision
with a new provision which is not illegal, unenforceable or void, as long as
such new provision does not materially change the economic benefits of this
Agreement to the parties. The Company agrees that it will indemnify and hold
harmless ▇▇▇▇▇▇▇▇ for any loss, claim, liability, damage or expense, as incurred
by ▇▇▇▇▇▇▇▇, arising out of or in connection with (a) a breach by the Company of
any representation, warranty or agreement made in any Transaction Document, (b)
any cause of action, suit or claim brought or made against such indemnitee
(other than directly by the Company solely for breach of this Agreement, or the
Registration Agreement by the indemnitee or by governmental or regulatory
authorities), and arising out of or resulting from (whether in whole or in part)
the execution, delivery, performance or enforcement of any Transaction Document
or the Series B-2 Articles of Amendment), any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or the status of the ▇▇▇▇▇▇▇▇ as an investor in the
Company, except to the extent that such actual loss or damage results from a
breach by such indemnitee of this Agreement or the Registration Agreement or
from a ▇▇▇▇▇▇▇▇'▇ violation of law, or (c) any characterization concerning any
Transaction Document or the Series B-2 Articles of Amendment other than as
expressly provided herein or therein, as the case may be, including, without
limitation, any characterization that the exercise of ▇▇▇▇▇▇▇▇ rights and
remedies under any of the Transaction Documents or the Series B-2 Articles of
Amendment (or through a combination) results in a ▇▇▇▇▇▇▇▇ acting (or agreeing
to act) other than independently and on its own behalf. The right to
indemnification shall include the right to advancement of expenses as they are
incurred.
6.2 Successors and Assigns. The terms and conditions of this Agreement shall
----------------------
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. The Company may not assign it rights or
obligations under this Agreement except as may be specifically provided by the
Transaction Documents.
6.3 No Reliance. Each party acknowledges that (i) it has such knowledge in
-----------
business and financial matters as to be fully capable of evaluating the
Transaction Documents and the transactions contemplated hereby and thereby, (ii)
it is not relying on any advice or representation of the other party in
connection with entering into the Transaction Documents or such transactions
(other than the representations made in the Transaction Documents), (iii) it has
not received from such party any assurance or guarantee as to the merits
(whether legal, regulatory, tax, financial or otherwise) of entering into the
Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into the Transaction Documents based on
its own independent judgment and on the
-12-
advice of its advisors as it has deemed necessary, and not on any view (whether
written or oral) expressed by such party.
6.4 Injunctive Relief. The Company acknowledges that a breach by it of its
-----------------
obligations hereunder will cause irreparable harm to ▇▇▇▇▇▇▇▇ and that the
remedy or remedies at law for any such breach will be inadequate and agrees, in
the event of any such breach, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate and specific
performance of such obligations without the necessity of showing economic loss.
6.5 Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed under the laws of the State of New York without regard to the conflict
of laws provisions thereof. Each party hereby irrevocably submits to the non-
exclusive jurisdiction of the state and federal courts sitting in the borough of
Manhattan, City of New York, for the adjudication of any dispute hereunder or
under any Transaction Document or the Series B-2 Articles of Amendment or in
connection herewith or therewith or with any transaction contemplated hereby or
thereby or discussed herein or therein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof (certified or registered
mail, return receipt requested) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
6.7 Headings; Drafting. The headings used in this Agreement are used for
------------------
convenience only and are not to be considered in construing or interpreting this
Agreement. The parties shall be deemed to have participated jointly in the
drafting of the Transaction Documents, and no provision hereof or thereof shall
be construed against any party as the drafter thereof.
6.8 Notices. Any notice, demand or request required or permitted to be given
-------
by any party to any other party pursuant to the terms of this Agreement shall be
in writing and shall be deemed given (i) when delivered personally or by
verifiable facsimile transmission (with an original to follow) on or before 5:00
p.m., eastern time, on a Business Day or, if such day is not a Business Day, on
the next succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) on the Business
Day actually received if deposited in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed to the parties as
follows:
-13-
If to the Company:
▇▇▇▇ Interactive Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
▇▇▇▇, Plant, ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A.
3400 City Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
and if to a ▇▇▇▇▇▇▇▇, to such address as shall be designated by ▇▇▇▇▇▇▇▇ in
writing to the Company.
6.9 Expenses. The Company and ▇▇▇▇▇▇▇▇ each shall pay all costs and
--------
expenses that it incurs in connection with the negotiation, execution, delivery
and performance of this Agreement; provided, however, that the Company shall
-------- -------
reimburse ▇▇▇▇▇▇▇▇ Capital Management, Inc. at the Closing for all out-of-pocket
expenses (including without limitation reasonable legal fees and expenses)
incurred by it in connection its due diligence investigation of the Company and
the negotiation, preparation, execution, delivery and performance of the
Transaction Documents in an amount not to exceed ten thousand dollars ($10,000).
6.10 Entire Agreement; Amendments; Waiver. The Transaction Documents
------------------------------------
constitute the entire agreement between the parties with regard to the subject
matter hereof and thereof, superseding all prior agreements or understandings,
whether written or oral, between or among the parties. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended
except pursuant to a written instrument executed by the Company and ▇▇▇▇▇▇▇▇.
[Remainder of Page Intentionally Left Blank]
-14-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
▇▇▇▇ INTERACTIVE SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its Chief Financial Officer
▇▇▇▇▇▇▇▇ CAPITAL MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇, President
-15-
Schedule 3.4
Disclosure Documents
--------------------
No Exceptions
-16-
Schedule 3.5
Series B
Common Convertible
Stock Preferred Stock
------------------------------------------------------------------------------------------------------------------------
Shares outstanding, September 27, 2000 9,220,337 12,500
Total common shares issuable upon exercise or conversion of derivative security 5,226,403
-------------------------------
Total shares outstanding 14,446,740 12,500
===============================
DERIVATIVE SECURITIES Number of
---------------------
Common Shares
Issuable
Upon
Issue Exercise or
Holder Reason of Issuance Date Conversion
-----------------------------------------------------------------------------------------------------------------------------
Castle Creek Technology Partners LLC 10% convertible note payable 08/25/99 263,362
▇▇▇▇▇▇▇▇ Capital Series B preferred stock 02/18/00 312,500
Castle Creek Technology Partners LLC Series B preferred stock 02/18/00 312,500
▇▇▇▇ ▇▇▇▇▇▇▇▇ DCI merger replacement warrant 06/30/99 119
▇▇▇▇ ▇▇▇▇▇▇▇▇ DCI merger replacement warrant 06/30/99 836
▇▇▇▇ ▇▇▇▇▇▇▇▇ DCI merger replacement warrant 06/30/99 1,117
IPO underwriter common stock options ▇▇▇▇ IPO 05/30/96 1,530
▇▇▇▇▇ ▇▇▇▇▇▇ DCI merger replacement warrant 06/30/99 3,690
▇▇▇▇▇▇ ▇▇▇▇▇▇ DCI merger replacement warrant 06/30/99 4,189
▇▇▇▇▇▇ ▇▇▇▇▇▇ DCI merger replacement warrant 06/30/99 4,192
10% Preferred Stock common stock warrant Private placement preferred stock 03/12/98 4,500
Christian & Timbers Employee to consultant conversion 03/28/00 5,834
▇▇▇▇▇ ▇▇▇▇▇▇▇ DCI merger replacement warrant 06/30/99 7,380
Suncrest Investors DCI merger replacement warrant 06/30/99 7,380
CJ Overseas DCI merger replacement warrant 06/30/99 13,530
10% Preferred Stock common stock warrant Private placement preferred stock 12/31/97 14,000
Bresnan common stock warrant Customer acquisition 12/16/98 70,162
Castle Creek Warrant issued with convertible note 12/18/99 136,519
amendment
Switchboard Customer acquisition 08/16/99 150,000
Castle Creek Series B Preferred Stock 02/18/00 171,875
Mashall Capital Series B Preferred Stock 02/18/00 171,875
1995/2000 Company stock option plans various 3,569,313
-------------
Total common shares issuable upon exercise or conversion 5,226,403
=============
* Based on current conversion price.
Per Share
Conversion Expiration
Holder Price Date
--------------------------------------------------------------------------------------------------------
Castle Creek Technology Partners LLC * $10.07 8/25/02
▇▇▇▇▇▇▇▇ Capital * 20.00 -
Castle Creek Technology Partners LLC * 20.00 -
▇▇▇▇ ▇▇▇▇▇▇▇▇ 8.94 12/08/02
▇▇▇▇ ▇▇▇▇▇▇▇▇ 8.94 06/05/03
▇▇▇▇ ▇▇▇▇▇▇▇▇ 8.94 06/05/03
IPO underwriter common stock options 8.10 05/30/01
▇▇▇▇▇ ▇▇▇▇▇▇ 10.16 01/16/01
▇▇▇▇▇▇ ▇▇▇▇▇▇ 8.94 06/05/03
▇▇▇▇▇▇ ▇▇▇▇▇▇ 8.94 12/08/02
10% Preferred Stock common stock warrant 15.00 12/31/00
Christian & Timbers 38.44 03/28/01
▇▇▇▇▇ ▇▇▇▇▇▇▇ 10.16 02/01/01
Suncrest Investors 20.33 11/07/00
CJ Overseas 10.16 12/26/00
10% Preferred Stock common stock warrant 15.00 12/31/00
Bresnan common stock warrant 8.77 12/16/02
Castle Creek 18.51 12/18/04
Switchboard 9.19 06/30/02
Castle Creek 8.75 02/18/05
Mashall Capital 8.75 02/18/05
1995/2000 Company stock option plans 14.91 Various
(Weighted average)
Total common shares issuable upon exercise
or conversion
* Based on current conversion price.
-17-
Schedule 3.12
Registration Rights
The Company has complied with, and has effective registration statements
for all outstanding registration commitments, except for the following:
1. Company has agreed to register 21% of the shares to be issued in
connection with the proposed acquisition of the assets of Update Systems, Inc.
within six months of closing.
2. Company has agreed to register shares issuable upon exercise of a
warrant for 150,000 shares issued to Switchboard, Inc.
Right of First Refusal
The Company granted ▇▇▇▇▇▇▇▇ Capital Management, Inc. and Castle Creek
Technology Partners LLC a right of first refusal in effect until February 18,
2000, in connection with certain offerings of its securities pursuant to the
Securities Purchase Agreement dated as of December 31, 1999.
-18-
Schedule 3.16
Key Officers and Titles
-----------------------
▇▇▇▇▇ ▇▇▇▇▇, President and CEO
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chief Financial Officer
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President and General Counsel*
▇▇▇▇▇▇▇ ▇▇▇▇▇, Vice President Development
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Vice President and General Manager
_______________
* 80% basis. ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ each hold shares of the Company's
common stock in margin accounts.
-19-
EXHIBIT A To Exchange Agreement
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
▇▇▇▇ INTERACTIVE SERVICES, INC.
Pursuant to Section ▇-▇▇▇-▇▇▇
of the Colorado Business Corporation Act
▇▇▇▇ INTERACTIVE SERVICES, INC., a Colorado corporation (the
"Corporation"), hereby amends its Articles of Incorporation by adopting these
Articles of Amendment ("Articles of Amendment") pursuant to Section ▇-▇▇▇-▇▇▇ of
---------------------
the Colorado Business Corporation Act to authorize a series of the Corporation's
previously authorized Preferred Stock, no par value (the "Preferred Stock"), as
---------------
follows:
1. The name of the Corporation is ▇▇▇▇ INTERACTIVE SERVICES, INC.
2. The Corporation's Board of Directors duly adopted these Articles
of Amendment on September 10, 2000.
3. These Articles of Amendment hereby amend Article IV of the
Corporation's Articles of Incorporation by adding the following language at the
end of such Article as follows:
10. SERIES B-2 CONVERTIBLE PREFERRED STOCK
--------------------------------------
1. DESIGNATION AND AMOUNT.
----------------------
The designation of this series, which consists of twelve thousand five
hundred (12,500) shares of Preferred Stock, is the "Series B-2 Convertible
Preferred Stock" (the "Series B-2 Preferred Stock") and the face amount of each
--------------------------
share of Series B-2 Preferred Stock (each, a "Preferred Share" and collectively,
---------------
the"Preferred Shares") shall be One Thousand Dollars ($1,000) per Preferred
----------------
Share (the "Stated Value"). The date on which the Preferred Shares are issued
------------
pursuant to the Exchange Agreement, dated as of September 14, 2000, between the
Corporation and the Purchasers named therein (the "Exchange Agreement") is
------------------
referred to herein as the "Issue Date". The Corporation has agreed to register
----------
the shares of Corporation's Common Stock, no par value (the "Common Stock"),
------------
pursuant to a Registration Agreement (the "Registration Agreement"). The holders
----------------------
of Preferred Shares are each referred to as a "Holder" and, collectively, as the
------
"Holders".
-------
-20-
2. DIVIDENDS.
---------
The Series B-2 Preferred Stock will not bear dividends.
3. PRIORITY.
--------
(a) Payment upon Dissolution.
------------------------
(i) Upon the occurrence of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, commenced by the Corporation or by its
creditors, as such, or relating to its assets or (y) the dissolution or other
winding up of the Corporation whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Corporation (each, a "Liquidation
-----------
Event"), no distribution shall be made to the holders of any shares of Junior
-----
Securities (as defined below) unless, following the payment of preferential
amounts on all Senior Securities (as defined below), each Holder shall have
received the Liquidation Preference (as defined below) with respect to each
Preferred Share then held by such Holder. In the event that upon the occurrence
of a Liquidation Event, and following the payment of preferential amounts on all
Senior Securities (as defined below), the assets available for distribution to
the Holders and the holders of Pari Passu Securities are insufficient to pay the
Liquidation Preference with respect to all of the outstanding Preferred Shares
and the preferential amounts payable to such holders, the entire assets of the
Corporation shall be distributed ratably among the Preferred Shares and the
shares of Pari Passu Securities in proportion to the ratio that the preferential
amount payable on each such share (which shall be the Liquidation Preference in
the case of a Preferred Share) bears to the aggregate preferential amount
payable on all such shares.
(ii) The "Liquidation Preference" with respect to a Preferred Share
----------------------
shall mean an amount equal to the Stated Value of such Preferred Share. "Junior
------
Securities" shall mean the Common Stock and all other capital stock of the
----------
Corporation that are not Pari Passu Securities or Senior Securities. "Pari
----
Passu Securities" shall mean any securities ranking by their terms pari passu
----------------
with the Series B-2 Preferred Stock in respect of redemption or distribution
upon liquidation. "Senior Securities" shall mean (i) any debt issued or assumed
-----------------
by the Corporation and (ii) any securities of the Corporation which by their
terms have a preference over the Series B-2 Preferred Stock in respect of
redemption or distribution upon liquidation.
-21-
4. CONVERSION.
----------
(a) Right to Convert. Each Holder shall have the right to convert, at
----------------
any time and from time to time after the Issue Date, all or any part of the
Preferred Shares held by such Holder into such number of fully paid and non-
assessable shares ("Conversion Shares") of the Common Stock as is determined
-----------------
in accordance with the terms hereof (a "Conversion").
----------
(b) Conversion Notice. In order to convert Preferred Shares, a Holder
-----------------
shall send to the Corporation by facsimile transmission, at any time prior to
11:59 p.m., eastern time, on the date on which such Holder wishes to effect such
Conversion (the "Conversion Date"), (i) a notice of conversion in substantially
---------------
the form of Exhibit A hereto (a "Conversion Notice") stating the number of
-----------------
Preferred Shares to be converted, the Conversion Price (as defined below) and a
calculation of the number of shares of Common Stock issuable upon such
Conversion and (ii) a copy of the certificate or certificates representing the
Preferred Shares being converted. The Holder shall thereafter send the original
of the Conversion Notice and of such certificate or certificates to the
Corporation. The Corporation shall issue a new certificate for Preferred Shares
in the event that less than all of the Preferred Shares represented by a
certificate delivered to the Corporation in connection with a Conversion are
converted. Except as otherwise provided herein, upon delivery of a Conversion
Notice by a Holder in accordance with the terms hereof, such Holder shall, as of
the applicable Conversion Date, be deemed for all purposes to be record owner of
the Common Stock to which such Conversion Notice relates. In the case of a
dispute between the Corporation and a Holder as to the calculation of the
Conversion Price or the number of Conversion Shares issuable upon a Conversion
(including without limitation the calculation of any adjustment to the
Conversion Price pursuant to Section 6 below), the Corporation shall in any
event issue to such Holder the number of Conversion Shares that are not disputed
within the time periods specified in paragraph 4(e) below and shall submit the
disputed calculations to its independent accountant within two (2) Business Days
of receipt of such Holder's Conversion Notice.
(c) Number of Conversion Shares; Conversion Price.
---------------------------------------------
(A) The number of Conversion Shares to be delivered by the
Corporation pursuant to a Conversion shall be determined by dividing (i) the
aggregate Stated Value of the Preferred Shares to be converted by (ii) the
Conversion Price (as defined below) in effect on the applicable Conversion Date.
-22-
(B) "Conversion Price" shall be, subject in each case described below to
----------------
adjustment for the events specified in Section 6 below, $10.20408 (the "Initial
Conversion Price"), provided that if (A) either of the Exchange Date (as defined
in the Exchange Agreement) or the Filing Date (as defined below) does not occur
on or prior to September 29, 2000, or (B) the 8-K Date does not occur on or
prior to the earlier to occur of (x) September 29,2000 and (y) 24 hours after
the date on which the letter agreements, each dated September 14, 2000, between
the Company and each Holder (together, the "Letter Agreements") are executed and
delivered by the parties thereto, the Initial Conversion Price shall thereafter
be $9.183672; provided, further, that in the event that the Effective Date does
not occur on or prior to December 31, 2000, the Initial Conversion Price,
whether or not previously adjusted, shall thereafter be reduced or further
reduced by $1.020408. In the event that a delay in the Effective Date is caused
primarily by any act or failure to act on the part of any Holder, the applicable
adjustment date shall be delayed by the number of days by which the Effective
Date has been so delayed.
(d) Certain Definitions. "8-K Date" means the date on which the Company
------------------- --------
files the Form 8-K required by paragraph 3 of the Letter Agreements. "Business
--------
Day" means any day on which the New York Stock Exchange and commercial banks
---
located in the City of New York are open for business. "Closing Bid Price"
-----------------
means, with respect to the Common Stock, the closing bid price for the Common
Stock occurring on a given Trading Day on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not then reporting such
prices, by a comparable reporting service of national reputation selected by the
Corporation and reasonably acceptable to each Holder of the then outstanding
Preferred Shares (collectively, "Bloomberg") or if the foregoing does not apply,
---------
the last reported bid price of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no bid price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. (collectively, the "Applicable Reporting
--------------------
Entity"). If the Closing Bid Price cannot be calculated for such security on
------
any of the foregoing bases, the Closing Bid Price of such security shall be the
fair market value as reasonably determined by an independent investment banking
firm selected by all of the Holders of Preferred Shares, and reasonably
acceptable to the Corporation, with the costs of such appraisal to be borne by
the Corporation. "Effective Date" means the day on which the Registration
---------------
Statement for the Conversion Shares (as defined in the Registration Agreement)
is declared effective by the Securities and Exchange Commission. "Filing Date"
-----------
means the date on which the Company files the Registration Statement on Form S-3
as required by Section 2(a) of the Registration Agreement; "Market Price" means
------------
the average Closing Bid Price for the Common Stock occurring during the period
of ten (10) consecutive Trading Days immediately preceding (but not including)
the date of determination (but in no event greater than the Closing Bid Price on
the Trading Day immediately preceding such date of determination); provided that
if the Market Price cannot be calculated as aforesaid, such Market Price shall
be the fair market value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to the Holders of a
majority of the Preferred Shares then outstanding, with the costs of such
appraisal to be borne by the
-23-
Corporation. "Trading Day" means any day on which the Common Stock is purchased
-----------
and sold on the principal securities exchange or market on which the Common
Stock is then listed or traded.
(e) Delivery of Conversion Shares. Upon receipt of a Conversion Notice
-----------------------------
from a Holder, the Corporation shall, on or before the close of business on the
later to occur of (i) the third (3rd) Business Day following the Conversion Date
set forth in such Conversion Notice and (ii) with respect to Conversion Shares
that are the subject of a dispute as described in paragraph 4(b) above, the
Business Day immediately following the Disputed Share Calculation Date (the
applicable such Business Day being referred to herein as a "Delivery Date"),
-------------
issue and deliver or cause to be delivered to such Holder the number of
Conversion Shares to which such Holder is entitled to receive as provided
herein. The Corporation shall effect delivery of Conversion Shares to a Holder
by, as long as the transfer agent for the Corporation (the "Transfer Agent")
--------------
participates in the Depository Trust Company ("DTC") Fast Automated Securities
---
Transfer program ("FAST"), crediting the account of such Holder or its nominee
----
at DTC (as specified in the applicable Conversion Notice or otherwise in
writing) with the number of Conversion Shares required to be delivered, no later
than the close of business on such Delivery Date. In the event that Transfer
Agent is not a participant in FAST, or if Conversion Shares are not otherwise
eligible for delivery through FAST, or if a Holder so specifies in a Conversion
Notice or otherwise in writing on or before the Delivery Date, the Corporation
shall effect delivery of Conversion Shares by delivering to the Holder or its
nominee physical certificates representing such shares, no later than the close
of business on such Delivery Date. If any Conversion would create a fractional
Conversion Share, such fractional share shall be disregarded and the number of
Conversion Shares shall be the rounded to the nearest whole number of shares.
Conversion Shares delivered to a Holder shall not contain any restrictive legend
as long as (A) the resale, transfer, pledge or other disposition of such shares
is covered by an effective registration statement and such Holder represents in
writing to the Corporation that such shares have been or are being sold pursuant
to such registration statement, (B) such shares have been publicly sold pursuant
to Rule 144 ("Rule 144"), or (C) such shares can be sold pursuant to Rule 144(k)
--------
under Securities Act of 1933, as amended (the "Securities Act"), or any
--------------
successor rule or provision.
(f) Failure to Deliver Conversion Shares.
------------------------------------
(i) In the event that, as a result of any willful action or failure
to act on the part of the Corporation (whether under these Articles of
Amendment, under any other Transaction Document (as defined in the Exchange
Agreement) or otherwise, including without limitation a failure by the
Corporation to have a sufficient number of shares of Common Stock authorized and
reserved for issuance pursuant to conversions of Preferred Shares), a Holder has
not received certificates (without any restrictive legend in the circumstances
described in clause (A), (B) or (C) of paragraph 4(e) above) representing the
number of Conversion Shares specified in the applicable Conversion Notice on or
before the Delivery Date therefor (a "Conversion Default"), and such failure to
------------------
deliver certificates continues for ten (10) Business Days following the delivery
of written notice thereof from such Holder (such tenth Business Day being
referred to herein as the "Conversion Default Date"), the Corporation shall pay
-----------------------
to such Holder payments ("Conversion
----------
-24-
Default Payments") in the amount of (i) "N" multiplied by (ii) the aggregate
---------------- -------------
Stated Value of the Preferred Shares which are the subject of such Conversion
Default multiplied by (iii) one percent (1%), where "N" equals the number of
-------------
days elapsed between the Conversion Default Date and the earlier to occur of (i)
the date on which all of the certificates (without any restrictive legend in the
circumstances described in clause (A), (B) or (C) of paragraph 4(e) above)
representing such Conversion Shares are issued and delivered to such Holder,
(ii) the date on which such Preferred Shares are redeemed pursuant to the terms
hereof and (iii) the date on which a Withdrawal Notice (as defined below) is
delivered to the Corporation. Amounts payable hereunder shall be paid to the
Holder in immediately available funds on or before the fifth (5th) Business Day
of the calendar month immediately following the calendar month in which such
amounts have accrued.
(ii) In the event that a Holder has not received certificates
(without any restrictive legend in the circumstances described in clause (A),
(B) or (C) of paragraph 4(e) above) representing the Conversion Shares by the
tenth (10/th/) Business Day following a Conversion Default as a result of any
willful action or any failure to act on the part of the Corporation (whether
under these Articles of Amendment, under any other Transaction Document (as
defined in the Exchange Agreement) or otherwise, including without limitation a
failure by the Corporation to have a sufficient number of shares of Common Stock
authorized and reserved for issuance pursuant to conversions of Preferred
Shares), such Holder may, upon written notice (a "Withdrawal Notice") delivered
-----------------
to the Corporation on such Business Day or on any Business Day thereafter
(unless, prior to the delivery of such notice, such Conversion Shares are
delivered to such Holder), withdraw its Conversion Notice with respect to such
Conversion Shares and regain its rights as a Holder of the Preferred Shares that
are the subject of such Conversion Default. In such event, the Conversion Price
in effect when such Preferred Shares are thereafter converted shall be equal to
the lower of (x) the lowest Conversion Price and (y) the lowest Market Price
occurring on or after the date of such Conversion Notice reduced by one percent
(1%) for each day occurring during the period immediately following such 10th
Business Day until the day on which the such Holder delivers a Withdrawal Notice
to the Corporation; provided, however, that the maximum percentage by which such
Conversion Price may be reduced hereunder shall be fifty percent (50%). (For
example, if such Conversion Default were to continue for five days following
such 10th Business Day, such Conversion Price would be reduced by 5%; if for ten
days, by 10%; and for fifty days or more, 50%, so that the number of Conversion
Shares deliverable upon conversion of such Preferred Shares would be increased
proportionately). Upon delivery by a Holder of a Withdrawal Notice, such Holder
shall retain all of such Holder's rights and remedies with respect to the
Corporation's failure to deliver such Conversion Shares (including without
limitation the right to receive the cash payments specified in subparagraph
4(f)(i) above).
-25-
(iii) In addition to any other remedies provided herein, each Holder
shall have the right to pursue actual damages for the Corporation's failure to
issue and deliver Conversion Shares on the applicable Delivery Date (including,
without limitation, damages relating to any purchase of shares of Common Stock
by such Holder to make delivery on a sale lawfully effected in anticipation of
receiving Conversion Shares upon Conversion, such damages to be in an amount
equal to (A) the aggregate amount paid by such Holder for the shares of Common
Stock so purchased minus (B) the aggregate Conversion Price for such Conversion
-----
Shares, and such Holder shall have the right to pursue all other remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(g) Conversion at Maturity. On the later of December 31, 2000, or
----------------------
ten from a (10) days after the Effective Date (the "Determination Date"), all
Preferred Shares then held by the Holders (and with respect to which a Holder
has not submitted a Notice of Conversion) shall be automatically converted into
the number of shares of Common Stock equal to the Stated Value of such Preferred
Shares divided by the Conversion Price then in effect (a "Conversion at
---------- -------------
Maturity"); provided, however, that if, on the Determination Date, (i) the
--------
number of shares of Common Stock authorized, unissued and unreserved for all
other purposes, or held in the Corporation's treasury, is not sufficient to
effect the issuance and delivery of the number of Conversion Shares into which
all outstanding Preferred Shares are then convertible, (ii) the Common Stock is
not actively traded on either the Nasdaq National or SmallCap Market, (iii) a
Mandatory Redemption Event (as defined herein) has occurred and is continuing,
(iv) the conversion of a Holder's Preferred Shares pursuant to the Conversion at
Maturity would violate the provisions of Section 5 below if effected by such
Holder; provided, however, that in such event the Conversion at Maturity would
-------- -------
apply solely to those Preferred Shares the conversion of which would not violate
Section 5 as of the Determination Date and provided, further, that the
-------- -------
determination on the Determination Date of a Holder's beneficial ownership of
Common Stock pursuant to paragraph 5(b) above shall exclude any shares of Common
Stock acquired by such Holder otherwise than pursuant to (i) the conversion or
exercise of securities outstanding on the date hereof or (ii) the conversion or
exercise of securities where such conversion or exercise occurred prior to
September 14, 2000, or (v) the Registration Statement for the Conversion Shares
(as defined in the Registration Agreement) is not effective and available for
the resale of all Conversion Shares issuable on the Determination Date upon the
conversion or exercise of all Preferred Shares then outstanding (without regard
to any limitations on such conversion), each Holder shall have the option, upon
written notice to the Corporation, to regain its rights as a holder of Preferred
Shares (which, in the circumstances described in clause (iv) above, would
comprise the Preferred Shares not converted pursuant to the proviso of clause
(iv)), including without limitation, the right to convert such Preferred Shares
in accordance with the terms of paragraphs 4(a) through 4(f) hereof and, upon
delivery of such notice, such Preferred Shares shall not be subject to a
Conversion at Maturity hereunder until the thirtieth (30/th/) day following the
later of (a) the date on which the event specified (i), (ii), (iii), (iv), or
(v) is no longer continuing and (b) the date on which the Corporation delivers
to each Holder written notice to such effect, and in such event, such thirtieth
day shall be deemed to be the Determination Date for purposes of these Articles
of Amendment. In the event that the Registration Statement for the Conversion
Shares (as defined in the Registration Agreement) has not been effective and
available to each Holder for the resale of the
-26-
maximum number of Conversion Shares issuable upon conversion or exercise of such
Holder's Preferred Shares (without regard to any limitations on such conversion
or exercise), for any period or periods on or after the Effective Date and
before the Determination Date (collectively, a "Blackout Period"), the
---------------
Determination Date (the "Original Determination Date") shall be delayed for a
---------------------------
period of days equal to the Blackout Period (the Trading Day immediately
following last day of such period being referred to herein as the "Delayed
-------
Determination Date") and the Delayed Determination Date shall be deemed to be
------------------
the Determination Date for the purposes of these Articles of Amendment. If a
Conversion at Maturity occurs, the Corporation and each Holder shall follow the
procedures for Conversion set forth in this Section 4, with the Determination
Date deemed to be the Conversion Date, except that the Holder shall not be
required to send a Conversion Notice as contemplated by paragraph 4(b).
5. CONVERSION LIMITATIONS.
----------------------
In no event shall a Holder be permitted to convert any Preferred Shares in
excess of the number of such shares, upon the Conversion of which:
(a) the number of Conversion Shares to be issued pursuant to such
Conversion, prior Conversions of Preferred Shares by the Holders thereof, would
exceed the maximum number of shares of Common Stock issuable by the Corporation
without stockholder approval in compliance with the continued listing
requirements of either the Nasdaq National or SmallCap Market (the "Cap
---
Amount"), except that such limitation shall not apply in the event that (i) the
------
Corporation obtains the approval of the holders of a majority of the
Corporation's Common Stock for the issuance of Common Stock in excess of the Cap
Amount (it being understood that any Holder whose Cap Allocation Amount (as
defined below) represents less than (A) the number of Conversion Shares into
which the Preferred Shares then held by such Holder are convertible at the
Conversion Price then in effect (without regard to any restrictions or
limitations on such conversion) plus (B) the number of Conversion Shares into
----
such Holder has previously converted Preferred Shares shall have the right
to require the Corporation, upon written notice to such effect, to seek such
approval by means of a special meeting of stockholders to be held as soon as
practicable following the Corporation's receipt of such notice, but in any case
within ninety (90) days following such receipt, and to recommend such approval
to its stockholders at such special meeting) or (ii) the Holders of a majority
of the number of Preferred Shares then outstanding obtain an opinion of counsel
reasonably satisfactory to the Corporation that such approval is not required.
Until such approval or opinion is obtained, no purchaser of Preferred Shares
pursuant to the Exchange Agreement (each, a "Purchaser" and together the
---------
"Purchasers") shall be issued, upon Conversion of the Preferred Shares,
----------
Conversion Shares in an amount greater than the product of (A) the Cap Amount
times (B) a fraction, the numerator of which is the number of Preferred Shares
-----
issued to such Purchaser pursuant to the Exchange Agreement and the denominator
of which is the aggregate amount of all of the Preferred Shares issued to the
Purchasers pursuant to the Exchange Agreement (the "Cap Allocation Amount"). In
---------------------
the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Preferred Shares, the transferee shall be allocated a pro rata
portion of such Purchaser's Cap
-27-
Allocation Amount. In the event that any Holder converts all of such Holder's
Preferred Shares into a number of Conversion Shares which, in the aggregate, is
less than such Holder's Cap Allocation Amount, then the difference between such
Holder's Cap Allocation Amount and the number of Conversion Shares actually
issued to such Holder shall be allocated to the respective Cap Allocation
Amounts of the remaining Holders of Preferred Shares on a pro rata basis in
proportion to the number of Preferred Shares then held by each such Holder; or
(b) (x) the number of shares of Common Stock beneficially owned by such
Holder (other than shares of Common Stock issuable upon conversion of such
Preferred Shares or which would otherwise be deemed beneficially owned except
for being subject to a limitation on conversion or exercise analogous to the
limitation contained in this paragraph 5(b)) plus (y) the number of shares of
----
Common Stock issuable upon the Conversion of such Preferred Shares, would be
equal to or exceed (z) 4.99% of the number of shares of Common Stock which would
be issued and outstanding upon such conversion. As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules thereunder. To the extent that
the limitation contained in this paragraph applies (and without limiting any
rights the Corporation may otherwise have), the Corporation may rely on the
Holder's determination of whether Preferred Shares are convertible pursuant to
the terms hereof, the Corporation having no obligation whatsoever to verify or
confirm the accuracy of such determination, and the submission of a Conversion
Notice by the Holder shall be deemed to be the Holder's representation that the
Preferred Shares specified therein are convertible pursuant to the terms hereof.
This paragraph may be amended by all of the Holders of Preferred Shares then
outstanding only with the consent of the holders of a majority of the shares of
Common Stock then outstanding. Nothing contained herein shall be deemed to
restrict the right of a Holder to convert Preferred Shares at such time as the
Conversion thereof will not violate the provisions of this paragraph 5(b).
6. ADJUSTMENTS TO CONVERSION PRICE.
-------------------------------
(a) Adjustment to Conversion Price Due to Stock Split, Stock Dividend,
------------------------------------------------------------------
Etc. If, prior to the Conversion of all of the Preferred Shares, (A) the number
---
of outstanding shares of Common Stock is increased by a stock split, a stock
dividend on the Common Stock, a reclassification of the Common Stock, or other
similar event, the Conversion Price shall be proportionately reduced, which
reduction shall be effected on the date on which the Corporation announces such
event; or (B) the Corporation issues Common Stock, whether upon the exercise of
rights, warrants, securities convertible or exercisable into Common Stock or
otherwise, at a price (the "Issue Price") that is less than the current Market
-----------
Price thereof at the time of such issuance, the Conversion Price that would
otherwise be in effect on a particular date following such issuance shall be
proportionately reduced in order to account for the difference between the Issue
Price and such Market Price; provided, however, that if the Issue Price is lower
than the Conversion Price otherwise in effect on the date of such issuance, such
Conversion Price will be reduced to the lower of the amount determined by this
clause (B) and the amount determined by clause (D) below; (C) the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares or other similar event, the Conversion
Price shall be proportionately increased, which increase shall be
28
effected on the date on which the Corporation announces such event; or (D) the
Corporation issues Common Stock, whether upon the exercise of rights, warrants,
securities convertible or exercisable into Common Stock or otherwise, at a price
that is lower than the Conversion Price in effect on any Conversion Date
following the date of such issuance, such Conversion Price shall be reduced to
such lower price.
In no event shall any adjustment pursuant to clause (B) or clause (D) above
result in a Conversion Price that exceeds the Conversion Price that would
otherwise apply in the absence of such adjustment.
(b) [intentionally omitted]
-----------------------
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
--------------------------------------------
Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Corporation or another entity (an "Exchange Transaction"), then such
--------------------
Holder shall (A) upon the consummation of such Exchange Transaction, have the
right to receive, with respect to any shares of Common Stock then held by such
Holder, or which such Holder is then entitled to receive pursuant to a
Conversion Notice previously delivered by such Holder (and without regard to
whether such shares contain a restrictive legend or are freely-tradable), the
same amount and type of consideration (including without limitation, stock,
securities and/or other assets) and on the same terms as a holder of shares of
Common Stock would be entitled to receive in connection with the consummation of
such Exchange Transaction (the "Exchange Consideration"), and (B) upon the
----------------------
Conversion of Preferred Shares occurring subsequent to the consummation of such
Exchange Transaction (a "Subsequent Conversion"), have the right to receive the
---------------------
Exchange Consideration which such Holder would have been entitled to receive in
connection with such Exchange Transaction had such shares been converted
immediately prior to such Exchange Transaction at the Conversion Price
applicable on the Conversion Date relating to such Subsequent Conversion, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of such Holder to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the Conversion Price and of
the number of shares of Common Stock issuable upon a Conversion) shall
thereafter be applicable as nearly as may be practicable in relation to any
securities thereafter deliverable upon the Conversion of such Preferred Shares.
The Corporation shall not effect any Exchange Transaction unless (i) it first
gives to each Holder twenty (20) days prior written notice of such Exchange
Transaction (an "Exchange Notice"), and makes a public announcement of such
---------------
event at the same time that it gives such notice (it being understood that the
filing by the Corporation of a Form 8-K for the purpose of disclosing the
anticipated consummation of the Exchange Transaction shall constitute an
Exchange Notice for purposes of this provision) and (ii) the resulting successor
or acquiring entity (if not the Corporation) assumes by written instrument the
obligations of the Corporation hereunder, including the terms of this
subparagraph 6(c), and under the Exchange Agreement and the Registration
Agreement.
29
(d) Distribution of Assets. If the Corporation or any of its subsidiaries
----------------------
shall declare or make any distribution of cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or the immediately
preceding year), or any rights to acquire any of the foregoing, to holders of
Common Stock (or to a holder, other than the Corporation, of the common stock of
any such subsidiary) as a partial liquidating dividend, by way of return of
capital or otherwise, including any dividend or distribution in shares of
capital stock of a subsidiary of the Corporation (collectively, a
"Distribution"), then each Holder shall be entitled to receive, at the same time
------------
as such assets are received by a holder of such stock, an amount and type of
such Distribution as though such Holder were a holder on the record date
therefor of a number of shares of Common Stock determined by dividing the
Liquidation Preference of the Preferred Shares held by such Holder on such
record date by the lower of the Market Price and the Conversion Price in effect
on such record date (such number of shares to be determined without regard to
any limitation on conversion of the Preferred Shares that may exist pursuant to
these Articles of Amendment or otherwise).
(e) Adjustment Due to Major Announcement. If the Corporation (i) makes a
------------------------------------
public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
------------------
Announcement is made, the "Announcement Date"), then, in the event that a Holder
-----------------
seeks to convert Preferred Shares on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the fifth (5th) Business Day following the earlier to occur of the
consummation of the proposed transaction or tender offer, exchange offer or
other transaction and the Abandonment Date (as defined below), be equal to the
lowest of (x) the Conversion Price in effect on the Announcement Date, (y) the
Market Price on the Announcement Date and (z) the Conversion Price that would
otherwise be in effect on the Conversion Date for such Preferred Shares.
"Abandonment Date" means with respect to any proposed transaction or tender
----------------
offer, exchange offer or other transaction for which a public announcement as
contemplated by this paragraph 6(e) has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) publicly announces the termination or abandonment
of the proposed transaction or tender offer, exchange offer or another
transaction which caused this paragraph 6(e) to become operative.
(f) Issuance of Other Securities. If, at any time after the Exchange Date
----------------------------
(as defined in the Exchange Agreement), the Corporation shall issue any
securities which are convertible into or exchangeable for Common ("Convertible
Securities") either (i) at a conversion or exchange rate based on a discount
from the Market Price of the Common Stock at the time of conversion or exercise
or (ii) with a fixed conversion or exercise price less than the Conversion
Price, then, at the Holder's option: (x) in the case of clause (i), the
Conversion Price in respect of any conversion of the Preferred Shares after such
issuance shall be calculated utilizing the greatest discount applicable to any
such Convertible Securities; and (y) in the case of clause (ii), the Conversion
Price shall be
30
proportionately reduced. If the Corporation shall issue any Convertible
Securities that are convertible into or exchangeable for shares of Common Stock
on a basis different from that of these Articles of Amendment, each Holder may
elect that the provisions of these Articles of Amendment be revised to
incorporate such different provisions with respect to conversion or exchange,
subject to the limitations of Section 5 hereof; provided, however, Purchaser may
not select provisions on a non-integrated basis which would have an inequitable
result on the intent of this provision.
(g) Adjustment Pursuant to Other Agreements. In addition to and without
---------------------------------------
limiting in any way the adjustments provided in this Section 6, the Conversion
Price shall be adjusted as may be required by the provisions of the Registration
Agreement and/or by the provisions of the Exchange Agreement.
(h) No Fractional Shares. If any adjustment under this Section would
--------------------
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be rounded to the
nearest whole number of shares.
(i) Exceptions to Adjustment of Conversion Price. No adjustment to the
--------------------------------------------
Conversion Price will be made (i) upon the exercise or conversion of any
warrants, options or convertible securities issued and outstanding on the date
on which the Company's Series B Preferred Stock was issued in accordance with
the terms of such securities as of such date; (ii) upon the grant or exercise of
any stock or options which may hereafter be granted or exercised under any
employee, consultant or director benefit plan of the Corporation now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Corporation or a majority of the members of a committee of non-
employee directors established for such purpose; (iii) upon the issuance of the
Conversion Shares; or (iv) upon the exercise of the Warrants (as defined in the
Securities Purchase Agreement).
7. REDEMPTION.
----------
(a) Mandatory Redemption. In the event that a Mandatory Redemption Event
--------------------
(as defined below) occurs, each Holder shall have the right to require the
Corporation to redeem all or any portion of the Preferred Shares held by such
Holder (a "Mandatory Redemption") at the Mandatory Redemption Price
--------------------
(as defined herein). In order to exercise its right to effect a Mandatory
Redemption, a Holder must deliver a written notice (a "Mandatory Redemption
--------------------
Notice") to the Corporation at any time on or before 11:59 p.m. (eastern
------
time) on the third (3/rd/) Business Day following the Business Day on which the
Mandatory Redemption Event to which such Mandatory Redemption Notice relates is
no longer continuing. The Mandatory Redemption Notice shall specify the
effective date of such Mandatory Redemption (the "Mandatory Redemption Date")
-------------------------
and the number of such shares to be redeemed.
(b) Mandatory Redemption Event. Each of the following events shall be
--------------------------
deemed a "Mandatory Redemption Event":
--------------------------
31
(i) the Corporation fails, as a result of (x) not having a
sufficient number of shares of Common Stock authorized and reserved for
issuance, (y) failing to obtain the approval of its stockholders as required by
paragraph 5(a) hereof, or (z) for any other reason within the control of the
Corporation, to issue shares of Common Stock to a Holder and deliver
certificates representing such shares (without any restrictive legend under the
circumstances described in paragraph 4(e) hereof) to such Holder as and when
required by the provisions hereof upon conversion of any Preferred Shares, and
such failure continues for ten (10) Business Days;
(ii) the Corporation breaches, in a material respect, any covenant
or other material term or condition of these Articles of Amendment, the Exchange
Agreement, the Registration Agreement, or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated hereby or thereby or in connection with any other prior
transactions entered into between the Company and the Holder, and such breach
continues for a period of five (5) Business Days after written notice thereof to
the Corporation from a Holder;
(iii) any material representation or warranty made by the Corporation
in the Exchange Agreement, the Registration Agreement, or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated hereby or thereby or in connection with any other
prior transactions entered into between the Company and the Holder is inaccurate
or misleading in any material respect as of the date such representation or
warranty was made;
(iv) (x) the sale, conveyance or disposition of all or substantially
all of the assets of the Corporation, the effectuation of a transaction or
series of transactions in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other entity, immediately
following which the prior stockholders of the Corporation fail to own, directly
or indirectly, at least fifty percent (50%) of the surviving entity or (y) a
transaction or series of transactions in which any person acquires control of
the Corporation (each a "Change of Control Transaction"). For purposes hereof,
"control" shall mean, with respect to the Corporation, the ability to direct the
-------
business, operations or management of the Corporation, whether through an equity
interest therein or otherwise; and
(v) the Common Stock is not quoted on the Nasdaq SmallCap Market or
Nasdaq National Market or listed on the New York Stock Exchange or the American
Stock Exchange, or trading in the Common Stock on such market or exchange is
suspended and such suspension is in effect for more than five consecutive (5)
Trading Days, and such suspension or failure to be so quoted or listed occurs as
a result of any willful action or failure to act on the part of the Corporation.
(c) Mandatory Redemption Price. The "Mandatory Redemption Price" shall be
-------------------------- --------------------------
equal to the greater of (i) the Liquidation Preference of the Preferred Shares
being redeemed multiplied by one hundred and twenty five percent (125%) and (ii)
-------------
an amount determined by dividing the Liquidation Preference of the Preferred
Shares being redeemed by the Conversion Price in effect on
32
the Mandatory Redemption Date and multiplying the resulting quotient by the
average Closing Trade Price for the Common Stock on the five (5) Trading Days
immediately preceding (but not including) the Mandatory Redemption Date.
(d) Payment of Mandatory Redemption Price.
-------------------------------------
(i) The Corporation shall pay the Mandatory Redemption Price to the
Holder exercising its right to redemption on the later to occur of (i) the fifth
(5th) Business Day following the Mandatory Redemption Date and (ii) the date on
which the Preferred Shares being redeemed are delivered by the Purchaser to the
Corporation for cancellation (the "Mandatory Redemption Payment Date").
---------------------------------
(ii) If Corporation fails to pay the Mandatory Redemption Price to
the Holder on or before the Mandatory Redemption Date, the Holder shall be
entitled to interest thereon, from and after the Mandatory Redemption Payment
Date until the Mandatory Redemption Price has been paid in full, at an annual
rate equal to the Default Interest Rate.
(iii) If the Corporation fails to pay the Mandatory Redemption Price
within ten (10) Business Days of the Mandatory Redemption Date, then the Holder
shall have the right to regain its rights as a Holder of the Series B-2
Preferred Stock and, upon written notice to such effect from the Holder, the
Corporation shall return to such Holder the certificates representing the
Preferred Shares that were delivered to the Corporation in connection with such
Mandatory Redemption; in such event, the Conversion Price otherwise applicable
to future Conversions of the Preferred Shares shall be reduced by one percent
(1%) for each day beyond such 10th Business Day in which the failure to pay the
Mandatory Redemption Price continued until the date of such notice; provided,
however, that the maximum percentage by which such Conversion Price may be
reduced hereunder shall be fifty percent (50%).
8. MISCELLANEOUS.
-------------
(a) Transfer of Preferred Shares. Upon notice to the Corporation, a Holder
----------------------------
may sell or transfer all or any portion of the Preferred Shares to any person or
entity as long as such sale or transfer is the subject of an effective
registration statement under the Securities Act or is exempt from registration
thereunder and otherwise is made in accordance with the terms of the Exchange
Agreement. Notwithstanding the foregoing, no Holder shall knowingly and
voluntarily sell any Preferred Shares to an entity that is a competitor of the
Corporation. From and after the date of such sale or transfer, the transferee
thereof shall be deemed to be a Holder. Upon any such sale or transfer, the
Corporation shall, promptly following the return of the certificate or
certificates representing the Preferred Shares that are the subject of such sale
or transfer, issue and deliver to such transferee a new certificate in the name
of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
-------
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice,
33
demand or request is not otherwise specified herein, shall be in writing and
shall be deemed delivered (i) when delivered personally or by verifiable
facsimile transmission on or before 5:00 p.m., eastern time, on a Business Day
or, if such day is not a Business Day, on the next succeeding Business Day, (ii)
on the next Business Day after timely delivery to an overnight courier and (iii)
on the day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Corporation:
▇▇▇▇ Interactive Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
▇▇▇▇, Plant, ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A.
3400 City Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
and if to any Holder, to such address for such Holder as shall be
designated by such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
--------------------------
evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation and the
Transfer Agent, and upon surrender and cancellation of such certificate if
mutilated, the Corporation shall execute and deliver to the Holder a new
certificate identical in all respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and paragraph
----------------
8(g) below, the Holders of the Preferred Shares shall have no voting rights with
respect to the business, management or affairs of the Corporation; provided that
the Corporation shall provide each Holder with prior notification of each
meeting of stockholders (and copies of proxy statements and other information
sent to such stockholders).
(e) Remedies, Characterization, Other Obligations, Breaches and Injunctive
----------------------------------------------------------------------
Relief. The remedies provided to a Holder in these Articles of Amendment shall
------
be cumulative and in addition
34
to all other remedies available to such Holder under these Articles of Amendment
or under any Transaction Document (as defined in the Exchange Agreement), at law
or in equity (including without limitation a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance with the provisions giving rise to such remedy and nothing
contained herein shall limit such Holder's right to pursue actual damages for
any failure by the Corporation to comply with the terms of these Articles of
Amendment. The Corporation agrees with each Holder that there shall be no
characterization concerning this instrument other than as specifically provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder hereof and shall not, except as expressly provided
herein, be subject to any other obligation of the Corporation (or the
performance thereof). The Corporation acknowledges that a material breach by it
of its obligations hereunder will cause irreparable harm to the Holders and that
the remedy at law for any such breach may be inadequate. The Corporation agrees,
in the event of any such breach or threatened breach, each Holder shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(f) Failure or Delay not Waiver. No failure or delay on the part of a
---------------------------
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(g) Protective Provisions.
---------------------
So long as shares of Series B-2 Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval of the Holders of at
least two-thirds (2/3) of outstanding shares of Series B-2 Preferred Stock:
(i) alter, change, modify or amend (x) the terms of the Series
B-2 Preferred Stock in any way or (y) the terms of any other capital stock of
the Corporation so as to affect adversely the Series B-2 Preferred Stock;
(ii) create any new class or series of capital stock having a
preference over or ranking pari passu with the Series B-2 Preferred Stock as to
redemption or distribution of assets upon a Liquidation Event or any other
liquidation, dissolution or winding up of the Corporation;
(iii) increase the authorized number of shares of Series B-2
Preferred Stock;
(iv) re-issue any shares of Series B-2 Preferred Stock which
have been converted or redeemed in accordance with the terms hereof;
(v) issue any Pari Passu Securities or Senior Securities;
35
(vi) redeem, or declare, pay or make any provision for any
dividend or distribution with respect to, the Common Stock or any other capital
stock of the Corporation ranking junior to the Series B-2 Preferred Stock as to
the distribution of assets upon liquidation, dissolution or winding up of the
Corporation; or
(vii) issue any Series B-2 Preferred Stock except pursuant to the
terms of the Exchange Agreement.
In the event that the Holders of at least two-thirds of the outstanding
shares of Series B-2 Preferred Stock agrees to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series B-2
Preferred Stock pursuant to the terms hereof, then the Corporation will deliver
notice of such approved change to the holders of the Series B-2 Preferred Stock
that did not agree to such alteration or change (the "Dissenting Holders") and
------------------
the Dissenting Holders shall have the right for a period of thirty (30) days
following such delivery to convert their Preferred Shares pursuant to the terms
hereof as they existed prior to such alteration or change, or to continue to
hold such Preferred Shares. No such change shall be effective to the extent
that, by its terms, it applies to less than all of the Holders of Preferred
Shares then outstanding.
[Remainder of Page Intentionally Left Blank]
36
IN WITNESS WHEREOF, the Corporation has duly executed these Articles of
Amendment as of the 25th day of September, 2000.
----
▇▇▇▇ INTERACTIVE SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Financial Officer
37
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series B-2 Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s).
---------------
_______________ (the "Preferred Stock Certificates"), into shares of common
----------------------------
stock ("Common Stock") of ▇▇▇▇ INTERACTIVE SERVICES, INC. according to the terms
------------
and conditions of the Articles of Amendment relating to the Preferred Stock (the
"Articles of Amendment"), as of the date written below. Capitalized terms used
---------------------
herein and not otherwise defined shall have the respective meanings set forth in
the Articles of Amendment. Unless otherwise specified in writing to the
Corporation, the undersigned represents to the Corporation that the shares of
Common Stock covered by this notice have been or will be sold pursuant to an
effective registration statement.
Date of Conversion: ____________________________
Number of Shares of
Preferred Stock to be Converted: _______________
Conversion Price:__________________________
Number of Shares of
Common Stock to be Issued: _____________________
Name of Holder: ________________________________
Address: _____________________________________
_____________________________________
_____________________________________
Signature: _____________________________________
Name:
Title:
Holder Requests Delivery to be made: (check one)
-----------------------------------
By Delivery of Physical Certificates to the Above Address
Through Depository Trust Corporation
(Account ____________________________)
38
EXHIBIT B to Exchange Agreement
REGISTRATION AGREEMENT
REGISTRATION AGREEMENT (this "Agreement"), dated as of September 14, 2000, by
---------
and between ▇▇▇▇ INTERACTIVE SERVICES, INC., a Delaware corporation (the
"Company"), and ▇▇▇▇▇▇▇▇ Capital Management, Inc. ("▇▇▇▇▇▇▇▇").
-------- --------
The Company has agreed with ▇▇▇▇▇▇▇▇ to exchange shares of the Company's
Series B Convertible Preferred Stock, no par value (the "Series B Preferred
------------------
Stock"), held by ▇▇▇▇▇▇▇▇ for an equal number of shares of the Company's Series
-----
B-2 Convertible Preferred Stock, no par value (the "Series B-2 Preferred Stock")
--------------------------
pursuant to an Exchange Agreement, dated as of September 14, 2000. The Series
B-2 Preferred Stock will be issued pursuant to Articles of Amendment in the form
attached to the Exchange Agreement (the "Series B-2 Articles of Amendment"). In
--------------------------------
order to induce ▇▇▇▇▇▇▇▇ to enter into the Exchange Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended (the "Securities Act"), and under applicable state securities laws.
--------------
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Exchange Agreement or the Series B-2
Articles of Amendment, as applicable.
In consideration of ▇▇▇▇▇▇▇▇ entering into the Exchange Agreement, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the meanings
specified:
(a) "Business Day" shall have the meaning specified in the Exchange
------------
Agreement;
(b) "Holder" means any person owning or having the right to acquire,
------
through conversion of the Series B-2 Preferred Stock, Registrable
Securities, including initially ▇▇▇▇▇▇▇▇ and thereafter any permitted
assignee thereof;
(c) "Effective Date" means the date on which the Registration Statement
--------------
is declared effective by the Securities and Exchange Commission (the
"Commission").
----------
(d) "Filing Deadline" means September 29, 2000;
---------------
39
(e) "Register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement
or statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act ("Rule 415") or any successor rule
--------
providing for the offering of securities on a continuous or delayed
basis ("Registration Statement"), and the declaration or ordering of
----------------------
effectiveness of the Registration Statement by the Commission;
(f) "Registration Deadline" means December 31, 2000; and
---------------------
(g) "Registrable Securities" means the Conversion Shares and any other
----------------------
shares of Common Stock issuable pursuant to the terms of the Series B-
2 Articles of Amendment, and any shares of capital stock issued or
issuable from time to time (with any adjustments) in replacement of,
in exchange for or otherwise in respect of the Conversion Shares.
2. MANDATORY REGISTRATION.
----------------------
(a) On or before the Filing Deadline, the Company shall prepare and
file with the Commission a Registration Statement on Form S-3 as a "shelf"
registration statement under Rule 415 covering the resale of the number of
shares of Registrable Securities equal to the Reserved Amount (as defined in the
Exchange Agreement). The Registration Statement shall state, to the extent
permitted by Rule 416 under the Securities Act, that it also covers such
indeterminate number of shares of Common Stock as may be required to effect
conversion of the Series B-2 Preferred Stock in order to prevent dilution
resulting from stock splits, stock dividends or similar events.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable following the filing
thereof, but in no event later than the Registration Deadline. The Company shall
respond promptly to any and all comments made by the staff of the Commission on
the Registration Statement (but in no event later than fifteen (15) Business
Days following the Company's receipt thereof), and shall submit to the
Commission, within three (3) Business Days after the Company learns that no
review of the Registration Statement will be made by the staff of the Commission
or that the staff of the Commission has no further comments on the Registration
Statement, as the case may be, a request for acceleration of the effectiveness
of the Registration Statement to a time and date not later than forty eight (48)
hours after the submission of such request. The Company shall maintain the
effectiveness of the Registration Statement until the earlier to occur of (i)
the date on which all of the Registrable Securities have been sold pursuant to
the Registration Statement and (ii) the date on which all of the remaining
Registrable Securities (in the reasonable opinion of counsel to the Holders) may
be immediately sold to the public without registration and without regard to the
amount of Registrable Securities which may be sold by a Holder thereof at a
given time (the period beginning on the Registration Deadline and ending on the
earlier of such dates being referred to herein as the "Registration Period").
-------------------
-40-
(c) If the Registration Statement is not declared effective by the
Commission on or before April 15, 2001 (a "Default Event"), the Company shall
-------------
pay to each Holder an amount equal to the lesser of (x) two percent (2%) per
thirty calendar day period (prorated for any period of less than thirty calendar
days) and (y) the highest rate permitted by applicable law, times the Stated
-----
Value of the Series B-2 Preferred Stock initially issued to such Holder,
accruing daily and compounded monthly, from the date on which a Default Event
occurs until the date on which such Default Event has been cured and is no
longer continuing, provided that such amount will not accrue or be payable to a
Holder with respect to any day on which such Default Event was primarily caused
by an act or failure to act by a Holder. The amounts paid or payable by the
Company hereunder shall be in addition to any other remedies available to each
Holder at law or in equity or pursuant to the terms hereof or the Exchange
Agreement, or otherwise. Payments of such amounts pursuant hereto shall be made
in immediately available funds within five (5) Business Days after the end of
each period that gives rise to such obligation, provided that, if any such
period extends for more than thirty (30) days, payments shall be made at the end
of each thirty-day period.
3. PIGGYBACK REGISTRATION.
-----------------------
If at any time prior to the expiration of the Registration Period, (i)
the Company proposes to register shares of Common Stock under the Securities Act
in connection with the public offering of such shares for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan or employee stock award or a registration on Form S-4 under
the Securities Act or any successor or similar form registering stock issuable
upon a reclassification, a business combination involving an exchange of
securities or an exchange offer for securities of the issuer or another entity,
or a registration statement on Form S-3 covering the resale of securities issued
in connection with a corporate acquisition) (a "Proposed Registration") and (ii)
---------------------
a registration statement covering the sale of all of the Registrable Securities
is not then effective and available for sales thereof by the Holders, the
Company shall, at such time, promptly give each Holder written notice of such
Proposed Registration. Each Holder shall have twenty (20) days from its receipt
of such notice to deliver to the Company a written request specifying the amount
of Registrable Securities that such Holder intends to sell and such Holder's
intended method of distribution. Upon receipt of such request, the Company shall
use its best efforts to cause all Registrable Securities which the Company has
been requested to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Holder;
provided, however, that the Company shall have the right to postpone or
-------- -------
withdraw any registration effected pursuant to this Section 3 without obligation
to the Holder. If, in connection with any underwritten public offering for the
account of the Company or for shareholders of the Company that have contractual
rights to require the Company to register shares of Common Stock, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in the
judgment of such underwriter(s), marketing or other factors dictate such
limitation is necessary to facilitate such offering, then the Company shall be
obligated to include in such Registration Statement only such limited portion of
the Registrable Securities with respect to which each Holder has requested
inclusion hereunder as such underwriter(s) shall permit. Any such
-41-
exclusion of Registrable Securities shall be made pro rata among the Holders
seeking to include Registrable Securities in the Registration Statement, in
proportion to the number of Registrable Securities sought to be included by such
Holders; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to include such
securities in the Registration Statement.
4. OBLIGATIONS OF THE COMPANY.
--------------------------
In addition to performing its obligations hereunder, including without
limitation those pursuant to paragraphs 2(a) and 2(b) above, the Company shall:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act or to maintain the effectiveness of the
Registration Statement during the Registration Period, or as may be reasonably
requested within a reasonable time prior to any proposed sale by a Holder in
order to incorporate information concerning such Holder or such Holder's
intended method of distribution;
(b) secure the listing of all Registrable Securities on the Nasdaq
SmallCap Market prior to the date on which the Registration Statement relating
to such Registrable Securities becomes effective;
(c) furnish to each Holder such number of copies of the prospectus
included in such Registration Statement, including a preliminary prospectus, if
any, in conformity with the requirements of the Securities Act, and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of such Holder's Registrable Securities;
(d) use all commercially reasonable efforts to register or qualify
the Registrable Securities under the securities or "blue sky" laws of such
jurisdictions within the United States as shall be reasonably requested from
time to time by a Holder, and do any and all other acts or things which may be
necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction;
(e) in the event of an underwritten public offering of the
Registrable Securities, enter into (together with all Holders proposing to
distribute Registrable Securities through such underwriting) and perform its
obligations under an underwriting agreement, in usual and customary form
reasonably acceptable to the Company, with the managing underwriter of such
offering;
-42-
(f) notify each Holder immediately upon the occurrence of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, contains an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and as promptly as practicable, prepare, file and furnish to each Holder a
reasonable number of copies of a supplement or an amendment to such prospectus
as may be necessary so that such prospectus does not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) use all commercially reasonable efforts to prevent the issuance
of any stop order or other order suspending the effectiveness of such
Registration Statement and, if such an order is issued, to obtain the withdrawal
thereof at the earliest possible time and to notify each Holder of the issuance
of such order and the resolution thereof;
(h) furnish to each Holder, on the date that such Registration
Statement becomes effective, (x) a letter, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder, confirming the effectiveness of the Registration Statement and, to
the knowledge of such counsel, the absence of any stop order, and (y) in the
case of an underwriting, (A) an opinion addressed to the underwriters, dated
such date, of such outside counsel, in such form and substance as is required to
be given to such underwriters, and (B) a letter addressed to such underwriters,
dated such date, from the Company's independent certified public accountants, in
such form and substance as is required to be given by the Company's independent
certified public accountants to such underwriters;
(i) provide each Holder and its representatives the opportunity to
conduct a reasonable inquiry of the Company's financial and other records during
normal business hours and make available its officers, directors and employees
for questions regarding information which such Holder may reasonably request in
order to fulfill any due diligence obligation on its part; and
(j) permit counsel retained for such purpose by each Holder to review
the Registration Statement and all amendments and supplements thereto, and any
comments made by the staff of the Commission and the Company's responses
thereto, within a reasonable period of time prior to the filing thereof with the
Commission (or, in the case of comments made by the staff of the Commission,
within a reasonable period of time following the receipt thereof by the Company)
and amend such materials in accordance with the comments of such counsel.
5. OBLIGATIONS OF EACH HOLDER.
--------------------------
In connection with the registration of the Registrable Securities pursuant
to the Registration Statement, each Holder shall:
-43-
(a) furnish to the Company in writing such information regarding
itself and the intended method of disposition of Registrable Securities as the
Company shall reasonably request in order to effect the registration thereof;
(b) upon receipt of any notice from the Company of the happening of
any event of the kind described in paragraphs 4(f) or 4(g), immediately
discontinue any sale or other disposition of Registrable Securities pursuant to
the Registration Statement until the filing of an amendment or supplement as
described in paragraph 4(f) or withdrawal of the stop order referred to in
paragraph 4(g);
(c) in the event of an underwritten offering of the Registrable
Securities, enter into a customary and reasonable underwriting agreement and
execute such other documents as the managing underwriter for such offering may
reasonably request;
(d) to the extent required by applicable law, deliver a prospectus to
the purchaser of Registrable Securities;
(e) notify the Company when it has sold all of the Registrable
Securities theretofore held by it; and
(f) promptly notify the Company in the event that any information
supplied by such Holder in writing for inclusion in the Registration Statement
or related prospectus is untrue or omits to state a material fact required to be
stated therein or necessary to make such information not misleading in light of
the circumstances then existing.
6. INDEMNIFICATION.
---------------
In the event that any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the officers, directors, employees and agents of such
Holder, and each person, if any, who controls such Holder within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934
----
Act"), against any losses, claims, damages, liabilities or reasonable out-of-
---
pocket expenses (whether joint or several) (collectively, including legal or
other expenses reasonably incurred in connection with investigating or defending
same, "Losses"), insofar as any such Losses arise out of or are based upon (i)
------
any untrue statement or alleged untrue statement of a material fact contained in
such Registration Statement, including any preliminary prospectus, if any, or
final prospectus contained therein or any amendments or supplements thereto, or
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Subject to the
provisions of paragraph 6(c) below, the Company will
-44-
reimburse such Holder, and each such officer, director, employee, agent or
controlling person for any legal or other expenses as reasonably incurred by any
such entity or person in connection with investigating or defending any Loss;
provided, however, that the foregoing indemnity shall not apply to amounts paid
in settlement of any Loss if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably withheld), nor shall the
Company be obligated to indemnify any person for any Loss to the extent that
such Loss arises out of or is based upon and in conformity with written
information furnished by such person expressly for use in such Registration
Statement; and provided, further, that the Company shall not be required to
indemnify any person to the extent that any Loss results from such person
selling Registrable Securities (i) to a person to whom there was not sent or
given, at or prior to the written confirmation of the sale of such shares, a
copy of the prospectus, as most recently amended or supplemented, if the Company
has previously furnished or made available copies thereof or (ii) during any
period following written notice by the Company to such Holder of an event
described in paragraph 4(f) or 4(g).
(b) To the extent permitted by law, each Holder, acting severally and
not jointly, shall indemnify and hold harmless the Company, the officers,
directors, employees, agents and representatives of the Company, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the 1934 Act, against any Losses to the extent (and only to the extent)
that any such Losses arise out of or are based upon and in conformity with
written information furnished by such Holder expressly for use in such
Registration Statement; and such Holder will reimburse any legal or other
expenses as reasonably incurred by the Company and any such officer, director,
employee, agent, representative, or controlling person, in connection with
investigating or defending any such Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any such Loss if such
settlement is effected without the consent of such Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this paragraph 6(b) exceed the net proceeds resulting from the sale of the
Registrable Securities sold by such Holder under the Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate under
applicable standards of professional conduct due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 6 with respect to such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that
-45-
it may have to any indemnified party otherwise than under this Section 6 or with
respect to any other action unless the indemnifying party is materially
prejudiced as a result of not receiving such notice.
(d) In the event that the indemnity provided in paragraph 6(a) or
6(b) is unavailable or insufficient to hold harmless an indemnified party for
any reason, the Company and each Holder agree, severally and not jointly, to
contribute to the aggregate Losses to which the Company or such Holder may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company and such Holder in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall such Holder be
responsible for any amount in excess of the proceeds resulting from the sale of
the Registrable Securities sold by it under the Registration Statement. Relative
fault shall be determined by reference to whether any alleged untrue statement
or omission relates to information provided by the Company or by such Holder.
The Company and each Holder agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph 6(d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to indemnification or contribution from
any person who is not guilty of fraudulent misrepresentation. For purposes of
this Section 6, each person who controls a Holder within the meaning of either
the Securities Act or the Exchange Act and each officer, director, employee or
agent of such Holder shall have the same rights to contribution as such Holder,
and each person who controls the Company within the meaning of either the
Securities Act or the Exchange Act and each officer, director, employee or agent
of the Company shall have the same rights to contribution as the Company,
subject in each case to the applicable terms and conditions of this paragraph
6(d).
(e) The obligations of the Company and each Holder under this Section
6 shall survive the conversion of the Series B-2 Preferred Stock in full, the
completion of any offering of Registrable Securities pursuant to a Registration
Statement under this Agreement, or otherwise.
7. REPORTS.
-------
With a view to making available to each Holder the benefits of Rule
144 under the Securities Act ("Rule 144") and any other similar rule or
regulation of the Commission that may at any time permit such Holder to sell
securities of the Company to the public without registration, the Company agrees
to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company under the Securities Act and the
1934 Act; and
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(c) furnish to such Holder, so long as such Holder owns any
Registrable Securities, forthwith upon written request (i) a written statement
by the Company, if true, that it has complied with the reporting requirements of
Rule 144, and the 1934 Act, (ii) to the extent not publicly available through
the Commission's ▇▇▇▇▇ database, a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing such Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration.
8. MISCELLANEOUS.
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(a) Expenses of Registration. All expenses, other than underwriting
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discounts and commissions and fees and expenses of counsel to the Holder,
incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, the fees and disbursements of
counsel for the Company, and the fees and disbursements incurred in connection
with the opinion and letter described in paragraph 4(h) hereof, shall be borne
by the Company.
(b) Amendment; Waiver. Any provision of this Agreement may be amended
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only pursuant to a written instrument executed by the Company and the Holder.
Any waiver of the provisions of this Agreement may be made only pursuant to a
written instrument executed by the party against whom enforcement is sought. The
failure of any party to exercise any right or remedy under this Agreement or
otherwise, or the delay by any party in exercising such right or remedy, shall
not operate as a waiver thereof.
(c) Notices. Any notice, demand or request required or permitted to
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be given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
day actually received after deposit in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed to the parties as
follows:
If to the Company:
▇▇▇▇ Interactive Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
with a copy to:
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▇▇▇▇, Plant, ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A.
3400 City Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the earlier to
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occur of (a) the end of the Registration Period and (b) the date on which all of
the Registrable Securities have been publicly distributed; but any such
termination shall be without prejudice to (i) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination and (ii) the indemnification and contribution obligations under this
Agreement.
(e) Assignment. Upon the transfer of Series B-2 Preferred Stock or
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Registrable Securities by a Holder, the rights of such Holder hereunder with
respect to the securities so transferred shall be assigned automatically to the
transferee thereof as long as: (i) the Company is, within a reasonable period of
time following such transfer, furnished with written notice of the name and
address of such transferee, (ii) the transferee agrees in writing with the
Company to be bound by all of the provisions hereof and (iii) such transfer is
made in accordance with the applicable requirements of the Articles of
Amendment; provided, however, that the registration rights granted in this
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Agreement shall not be transferred to any person or entity that receives any
such security pursuant to an effective registration statement under the
Securities Act or pursuant to a transaction under Rule 144 or any successor
provision thereto.
(f) Counterparts. This Agreement may be executed in two or more
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counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument. This Agreement, once
executed by a party, may be delivered to any other party hereto by facsimile
transmission.
(g) Governing Law. This Agreement shall be governed by and construed
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in accordance with the laws of the State of Illinois without regard to the
conflict of laws provisions thereof.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
▇▇▇▇ INTERACTIVE SERVICES, INC.
By: __________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Its Chief Financial Officer
▇▇▇▇▇▇▇▇ CAPITAL MANAGEMENT, INC.
By: __________________________
▇▇▇▇▇ ▇▇▇▇▇, President
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