-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WTPz/RoErOCmKZWMfIiJWBnwKdOnOfWlc31I21xMB9XSq5thoaX/zznj2Z2ucA94 z8GpmjAjocWzQkkSXMp9Aw== 0001035704-00-000020.txt : 20000202 0001035704-00-000020.hdr.sgml : 20000202 ACCESSION NUMBER: 0001035704-00-000020 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RMI NET INC CENTRAL INDEX KEY: 0001003282 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 841322326 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-95185 FILM NUMBER: 511256 BUSINESS ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036720700 MAIL ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ROCKY MOUNTAIN INTERNET INC DATE OF NAME CHANGE: 19960508 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 2000 REGISTRATION NO. ______________________ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION ------------------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ RMI.NET, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-3153858 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) CHRISTOPHER J. MELCHER RMI.NET, INC. 999 EIGHTEENTH STREET, SUITE 2201 DENVER, COLORADO (303) 672-0700 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------------ COPY TO: JEFFREY M. KNETSCH BROWNSTEIN HYATT & FARBER, P.C. 410 SEVENTEENTH STREET, 22ND FLOOR DENVER, COLORADO 80202 (303) 223-1100 ------------------------------------ Approximate date of commencement of proposed sale to public: as soon as practicable after the registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------------------
CALCULATION OF REGISTRATION FEE ===================================================================================================================== Proposed Maximum Proposed Maximum Amount of Title of Each Class of Amount to be Offering Price per Aggregate Offering Registration Fee Securities to be Registered Registered (1) Unit (2) Price (1) - --------------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 par value 761,610 (3) $13.13007 $10,000,000.00 $2,640.00 Common Stock, $0.001 par value 182,786 (4) $9.8476 $1,800,003.40 $475.20 Common Stock, $0.001 par value 2,828,693 (5) $0.01 $28,286.93 $7.47 =====================================================================================================================
(1) Pursuant to Rule 416, RMI.NET, Inc. is also registering such indeterminate number of additional shares of Common Stock as may be issuable upon the exercise of the Common Stock Purchase Warrants described herein to prevent dilution resulting from stock dividends, stock splits, or similar transactions. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c). (3) Includes 761,610 shares of Common Stock issued in a December 1999 private placement. (4) Includes up to 182,786 shares of Common Stock that may be issued pursuant to Class A Warrants. The Class A Warrants were issued in a December 1999 private placement. (5) Includes up to 2,828,693 shares of Common Stock, the maximum number that currently may be issued to pursuant to Class B Warrants without obtaining stockholder approval under the Nasdaq Marketplace Rules. The Class B Warrants were issued in a December 1999 private placement. 2 The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a) may determine. 3 The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS SUBJECT TO COMPLETION. DATED JANUARY 21, 2000. RMI.NET, INC. UP TO 3,773,089 SHARES OF COMMON STOCK The selling stockholders listed on page 13 are offering up to 761,610 shares of common stock that were issued to the selling stockholders in a December 1999 private placement, together with up to 3,011,479 shares of common stock which may be issued over time upon exercise of Class A and Class B Warrants. The Class A and Class B Warrants were issued to the selling stockholders in a December 1999 private placement. If the selling stockholders exercise their warrants and receive common stock, they may use this prospectus to resell the underlying common stock. RMI.NET will not receive any proceeds from the sale of common stock by the selling stockholders. We will, however, receive proceeds if the selling stockholders pay cash to exercise their warrants. Our common stock is traded on the Nasdaq National Market under the symbol "RMII." On January ___, 2000, the last reported sale was $___ per share. The common stock may be sold on the Nasdaq National Market at prevailing market prices, in negotiated transactions, or otherwise. See "Plan of Distribution." See "Risk Factors" beginning on page 2 to read about factors you should consider before buying shares of the common stock. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is January ___, 2000. 4 RISK FACTORS You should carefully consider the risks described below before making an investment decision. WE HAVE A SHORT OPERATING HISTORY, HAVE INCURRED NET LOSSES SINCE OUR INCEPTION AND EXPECT FUTURE LOSSES We started our business in 1993 and began offering Internet access services in 1994. We have incurred operating losses in every year of our existence. We incurred net losses of $2.3 million for the year ended December 31, 1996, $4.2 million for the year ended December 31, 1997, and $10.7 million for year ended December 31, 1998. In the first nine months of 1999, we incurred a net loss of $12.7 million. As of September 30, 1999, we have an accumulated deficit of $30.3 million. We may never be profitable. In 1998, a proposed merger transaction with Internet Communications Corporation and related financing transactions were terminated. As a result, we recorded costs, expenses and related fees of approximately $6.1 million. Of this amount, approximately $4.2 million relates to warrants that we issued. Although we are attempting to agree on a schedule for the payment of these expenses that is satisfactory to all parties, we cannot assure that we will be able to reach an agreement with all parties. If we are unsuccessful, we do not currently have the ability to pay all of these expenses. IF WE ARE UNABLE TO RAISE FUNDS TO FINANCE OUR GROWTH, YOUR INVESTMENT COULD BE ADVERSELY AFFECTED We intend to expand or open new access sites or make other capital investments as dictated by subscriber demand and strategic considerations. To open new dial-up access sites, known in our industry as points of presence or POPs, we must spend significant amounts of money for new equipment as well as for leased telecommunications facilities and advertising. In addition, to expand our subscriber base nationwide, we will have to spend significant amounts of money on additional equipment to maintain the high speed and reliability of our Internet access services. We may also need to spend significant amounts of cash to: * fund growth, operating losses, and increased expenses; * implement our acquisition strategy; * take advantage of unanticipated opportunities, such as major strategic alliances or other special marketing opportunities, acquisitions of complementary businesses or assets, or the development of new products; and * respond to unanticipated developments or competitive pressures. We will require additional funds through equity, debt, or other external financing in order to fund our current operations and to achieve our business plan. We cannot assure that any additional capital resources will be available to us, or, if available, will be on terms that will be acceptable to us. Any additional equity financing will dilute the equity interests of existing security holders. If adequate funds are not available or are not available on acceptable terms, our ability to execute our business plan and our business could be materially and adversely affected. COMPETITION IN OUR INDUSTRY IS INTENSE AND IS LIKELY TO INCREASE We operate in the Internet services market, which is extremely competitive. Our current and prospective competitors include many large companies that have substantially greater market presence, financial, technical, marketing, and other resources than we have. We compete directly or indirectly with the following categories of companies: * established online services, such as America Online, the Microsoft Network, CompuServe, and Prodigy; 2 5 * local, regional, and national Internet service providers, such as MindSpring, Earthlink, Network, Inc., Internet America, and PSINet; * national telecommunications companies, such as AT&T Corp., MCI WorldCom, Inc., Sprint, and GTE; * regional Bell operating companies, such as BellSouth and SBC Communications; * computer hardware and software companies, such as International Business Machines and Microsoft Corporation; and * online cable services, such as At Home and Roadrunner. Our competition is likely to increase. We believe this will probably happen as large diversified telecommunications and media companies acquire Internet service providers and as Internet service providers consolidate into larger, more competitive companies. Diversified competitors may bundle other services and products with Internet connectivity services, potentially placing us at a significant competitive disadvantage. In addition, competitors may charge less than we do for Internet services, causing us to reduce or preventing us from raising our fees. As a result, our business may suffer. WE MAY NOT BE ABLE TO COMPETE IN THE LOCAL EXCHANGE AND LONG-DISTANCE TELEPHONE MARKET In 1998, we entered the long distance telephone market. We will compete directly with inter-exchange carriers and long distance carriers and other long distance resellers and providers, including large carriers such as AT&T, MCI WorldCom, Sprint, and new entrants to the long distance market. Many of our competitors are significantly larger and have substantially greater market presence and financial, technical, operational, marketing, and other resources. We will face stiff price competition and may not be able to compete. Moreover, the local exchange telephone services market in most states was only recently opened to competition due to the passage of the 1996 Telecommunications Act and related regulatory rulings. Numerous operating complexities are associated with providing these services. We will be required to develop new products, services, and systems and will need to develop new marketing initiatives to sell these services. Our inability to overcome any of these operating complexities could have a material adverse effect on us. WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS TO REMAIN COMPETITIVE The Internet services market is characterized by rapidly changing technology, evolving industry standards, changes in member needs, and frequent new service and product introductions. Our future success depends, in part, on our ability to: * use leading technologies to develop our technical expertise; * enhance our existing services; and * develop new services that meet changing member needs on a timely and cost-effective basis. In particular, we must provide subscribers with the appropriate products, services, and guidance to best take advantage of the rapidly evolving Internet. Our failure to respond in a timely and effective manner to new and evolving technologies could have a negative impact on our business. Our ability to compete will also depend upon the continued compatibility of our services with products offered by various vendors. Although we intend to support emerging standards in the market for Internet access, industry standards may not be established. Moreover, if industry standards are established, we may not be able to conform to these new standards in a timely fashion. Our competitors may develop services and technologies that will render our services or technology noncompetitive or obsolete. 3 6 We are also at risk to fundamental changes in the way customers access the Internet. Currently, most customers access Internet services through computers connected by telephone lines. However, several companies have developed cable television modems and other "broadband technologies" that transmit data at substantially faster speeds than the modems that our subscribers and we use. We must develop new technology or modify our existing technology to accommodate new and faster sources of Internet access, including cable television modems, screen-based telephones, wireless products, televisions, and other consumer electronic devices. We may not succeed in adapting our Internet access business to new and faster access devices. ANY DECLINE IN OUR MEMBER RETENTION LEVELS OR OUR PRICES WILL ADVERSELY AFFECT US Our new member acquisition costs are substantial relative to the monthly fees we charge. Accordingly, our long-term success largely depends on our retention of existing members. While we continue to invest significant resources in our infrastructure and technical and member support capabilities, it is relatively easy for Internet users to switch to competing providers. Consequently, our investments may not help member retention. Any significant loss of members will substantially decrease our revenue and cause our business to suffer. As a result of competitive pricing pressures in the market for Internet services, we reduced the prices we charge our Internet customers during 1995, 1997, and 1998. We expect that continued price pressures may cause us to reduce prices further in order to remain competitive, and we expect that such further price reductions could adversely effect our results of operations, unless we can lower our costs commensurate with such price decreases. OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF THE INTERNET Our future success substantially depends on continued growth in the use of the Internet. Although we believe that Internet usage and popularity will continue to grow as it has in the past, we cannot be certain that this growth will continue or that it will continue in its present form. If Internet usage declines or evolves away from our business, our growth will slow or stop and our financial results will suffer. IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS WILL SUFFER Our rapid growth has and will place a significant strain on our managerial, operational, financial, and information systems resources. To accommodate our increasing size and manage our growth, we must continue to implement and improve these systems and attract, train, manage, and retain qualified employees. These demands will require us to add new management personnel and develop new expertise. In order to successfully integrate newly acquired assets and continue to implement a nationwide strategy and network, we must: * closely monitor service quality, particularly through third party "POPs"; * acquire and install necessary equipment and telecommunications facilities; * create and implement marketing strategies in new and existing markets; * employ qualified personnel to provide technical and marketing support for new sites; and * continue to expand our managerial, operational, and financial resources to support expansion. Although we are taking steps to manage our growth effectively, we may not succeed. If we fail to successfully manage our growth, our ability to maintain and increase our member base will be impaired and our business will suffer. WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS Since January 1999, we have acquired the stock or assets of 17 companies and may acquire a number of other companies in the next few months. As part of our long-term business strategy, we continually evaluate 4 7 strategic acquisitions of businesses and subscriber accounts. Acquisitions often involve a number of special risks, including the following: * we may experience difficulty integrating acquired operations and personnel; * we may be unable to retain acquired subscribers; * the acquisition may disrupt our ongoing business; * we may not be able to successfully incorporate acquired technology and rights into our service offerings and maintain uniform standards, controls, procedures, and policies; * the businesses we acquire may fail to achieve the revenues and earnings we anticipated; * we may ultimately be liable for contingent and other liabilities, not previously disclosed to us, of the companies that we acquire; and * our resources may be diverted in asserting and defending our legal rights. We may not successfully overcome problems encountered in connection with potential future acquisitions. In addition, an acquisition could materially adversely affect our operating results by: * diluting your ownership interest; * causing us to incur additional debt; and * increasing amortization expenses related to goodwill and other intangible assets. Any of these factors could have a material adverse effect on our business. IF WE DO NOT SUCCEED IN OBTAINING SUFFICIENT NETWORK CAPACITY FROM OUR INTERNAL AND LEASED NETWORK, WE MAY LOSE CUSTOMERS Our success depends, in part, on the capacity, reliability, and security of our network. Our network includes computers, servers, routers, modems, broadband fiber systems, access to third party broadband systems, and other related hardware and software. Network capacity constraints have occurred in the past and may occur in the future, in connection with: * particular dial-up POPs affecting only members attempting to use that particular point of presence; and * system wide services, such as e-mail and news services, which can affect all members. These capacity constraints result in slowdowns, delays, or inaccessibility when members try to use a particular service. Poor network performance could cause members to terminate their membership with us. To reduce the probability of such problems, we will be required to expand and improve our network. Such expansion and improvement will be very costly and time consuming. We may not be able to expand or adapt our network to meet additional demand or changing subscriber requirements on a timely basis or at a commercially reasonable cost. In order to provide Internet access and other on-line services to our customers, we lease long distance fiber optic telecommunications lines from multiple national telecommunications service providers. We are dependent upon these providers of data communications facilities. In addition, we have a wholesale usage agreement with PSINet, which allows us to provide dial-up and "switched" network access to our customers through PSINet's 235 POPs throughout the United States. We also have other agreements with service providers on whom we rely to deliver our product and service offerings. Moreover, PSINet provides network access to some of our competitors. 5 8 PSINet could choose to grant these competitors preferential network access, potentially limiting our members' ability to access the Internet. Even without such preferential treatment, increased usage of PSINet's POPs by other Internet service providers and online service providers may negatively affect access system performance. SYSTEM FAILURES CAUSED BY NATURAL DISASTERS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS We must protect our infrastructure against fire, earthquakes, power loss, telecommunications failure, computer viruses, security breaches, and similar events. We do not currently maintain a redundant or backup network hub for all of our customers. Moreover, because we lease our lines from long distance telecommunications companies and regional Bell operating companies, we are dependent upon these companies for physical repair and maintenance of the leased lines. We maintain multiple carrier agreements to reduce the risk of loss of operations from damage, power failures, telecommunications failures, and similar events. However, the occurrence of a natural disaster or other unanticipated problems at our network operations center or any of our POPs may cause interruptions in the services we provide. In addition, failure of our telecommunications providers to provide the data communications capacity we require as a result of a natural disaster, operational disruption, or for any other reason could cause interruptions in the services we provide. Any damage or failure that causes interruptions in our operations could have a material adverse effect on us. OUR NETWORK IS SUBJECT TO SECURITY RISKS AND INAPPROPRIATE USE BY INTERNET USERS THAT COULD INTERRUPT OUR SERVICE The future success of our business will depend on the security of our network and the networks of third parties over which we have no control. Despite implementation of security measures, we remain vulnerable to computer viruses, sabotage, break-ins, and similar disruptive problems caused by subscribers or other Internet users. Any breach of our network security or other inappropriate use of our network, such as the sending of excessive volumes of unsolicited bulk e-mail or "spam," could lead to interruptions, delays, or cessation of services to our subscribers. Our subscribers, in turn, could terminate their membership or assert claims against us. Third parties could also potentially jeopardize the security of confidential information stored in our computer systems or our subscribers' computer systems by their inappropriate use of the Internet, which could cause losses to our subscribers or us or deter potential customers from subscribing to our services. Inappropriate use of the Internet includes attempting to gain unauthorized access to information or systems, commonly known as "cracking" or "hacking." Although we intend to continue to implement security measures, "hackers" have circumvented such measures in the past, and others may be able to circumvent our security measures or the security measures of our third-party network providers in the future. To fix problems caused by computer viruses or other inappropriate uses or security breaches, we may have to interrupt, delay, or cease service to our subscribers, which could have a material adverse effect on our business. In addition, we expect that our subscribers will increasingly use the Internet for commercial transactions in the future. Any network malfunction or security breach could cause these transactions to be delayed, not completed at all, or completed with compromised security. As a result, subscribers or others may assert claims of liability against us. Further, until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential subscribers may inhibit the growth of the Internet service industry in general and our subscriber base and revenue in particular. WE ARE DEPENDENT ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS We rely on traditional telecommunications carriers to transmit our traffic over local and long distance networks. These networks may experience disruptions and capacity constraints that are not easily remedied. We may have no means of replacing these services. In addition, local phone service is sometimes available only from one company. The benefits of competition and alternative sources of supply are not present in these markets. We also depend on certain suppliers of hardware and software components. We acquire a majority of our networking service components, including terminal servers and high-performance routers, from Cisco Systems, Inc., Bay Networks, Inc., and Lucent Technologies, Inc. The expansion of our network places a significant demand on our suppliers, some of which have limited production capacity. In the past, we have experienced delays in delivery 6 9 of new telephone lines, modems, terminal servers, and other equipment. If delays are severe, all incoming modem lines may become full during peak times, resulting in busy signals for subscribers who are trying to connect to RMI.NET. If our suppliers cannot meet increased demand and we are not able to develop alternative sources of supply, we could experience delays and increased costs in expanding our network, difficulty in providing our services, and the loss of dissatisfied customers. WE MAY NOT SUCCESSFULLY PROTECT OUR PROPRIETARY RIGHTS OR AVOID CLAIMS THAT WE INFRINGE THE PROPRIETARY RIGHTS OF OTHERS Our success is dependent in part on our technology and other proprietary rights. To protect our rights, we rely on a combination of copyright, trademark, patent and trade secret laws, and contractual restrictions. We cannot be sure that these steps will be adequate to prevent misappropriation or infringement of our intellectual property. Nor can we be sure that competitors will not independently develop technologies that are substantially equivalent or superior to our proprietary property and technology. In our industry, competitors often assert intellectual property claims against one another. The success of our business depends on our ability to assert and defend our intellectual property rights. Future litigation may have an adverse impact on our financial condition. These claims could result in substantial costs and diversion of resources, even if the claim is ultimately decided in our favor. If a claim is asserted alleging that we infringed the proprietary technology or information of a third party, we may be required to seek licenses for such intellectual property. We cannot be sure that such licenses would be offered or obtained on commercially reasonable terms, if at all. The failure to obtain the necessary licenses or other rights could have a material adverse affect on our business. MR. HANSON HAS A CONTROLLING INTEREST IN RMI.NET, INC. WHICH MAY PREVENT YOU FROM REALIZING A PREMIUM RETURN Our chief executive officer, Douglas Hanson has a controlling interest in RMI.NET, Inc. through his direct ownership of common stock, ability to exercise outstanding warrants and options, and voting rights agreements. As a result, Mr. Hanson has voting control of RMI.NET, Inc. and can influence all matters that require stockholder approval. Mr. Hanson may designate the members of our Board of Directors and can decide our operations and business strategy. You may disagree with Mr. Hanson's management decisions. As a controlling stockholder, Mr. Hanson also has the power to approve or reject significant corporate matters, such as mergers, acquisitions and other change-in-control transactions. Mr. Hanson's controlling interest could make it more difficult for a third party to acquire us, even if the acquisition would be beneficial to you. You may not realize the premium return that stockholders may realize in conjunction with corporate takeovers. MARKET PRICE OF OUR SECURITIES MAY FALL IF OTHER SECURITY HOLDERS SELL THEIR STOCK As of the date of this offering, we have 20,028,231 shares of common stock outstanding. However, we have reserved approximately 6,700,000 additional shares for issuance upon exercise of warrants and stock options, various anti-dilution provisions contained in the warrants and stock options, and prior acquisitions. If our stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock and our publicly traded warrants could fall. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a price we deem appropriate. We have issued and plan to issue additional convertible equity and debt securities in the future. If these securities are exercised or converted, you may experience significant dilution in the market value of your stock. Our stock price is highly volatile. OUR STOCK PRICE IS HIGHLY VOLATILE In the past, our common stock and publicly traded warrants have traded at volatile prices. We believe that the market prices will continue to be subject to significant fluctuations due to various factors and events that may or may not be related to our performance. If the market value of our common stock decreased substantially, we could be delisted from the Nasdaq National Market. Consequently, you could find it difficult or impossible to sell your 7 10 stock or to determine the value of your stock. In addition, the stock market has from time to time experienced significant price and volume fluctuations, which have particularly affected the market prices of the stocks of Internet-sector companies and which may be unrelated to the operating performance of such companies. Furthermore, our operating results and prospects from time to time may be below the expectations of public market analysts and investors. Any such event could result in a material decline in the price of your stock. FACTORS OUTSIDE OF OUR CONTROL MAY AFFECT OUR OPERATING RESULTS AND CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE Our financial results may fluctuate significantly because of several factors, many of which are beyond our control. These factors include: * costs associated with gaining and retaining customers and capital expenditures for upgrading our systems and infrastructure; * timing and market acceptance of new and upgraded Internet service introductions, technologies, and services by us and our competitors; * loss of subscribers, seasonal fluctuations in demand for our services; * downward pressure on prices due to increased competition; * changes in our operating expenses, including telecommunications costs; and * the effect of potential acquisitions. Fluctuations caused by these and other factors could cause our business to suffer. WE HAVE NO INTENTION TO PAY DIVIDENDS We have never paid any cash dividends on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not expect to pay any dividends in the foreseeable future. WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION We provide Internet services through data transmissions over public telephone lines and cable networks. The Federal Communications Commission governs these transmissions and establishes charges and terms for communications. As an Internet access provider, we are not subject to direct regulation by the Federal Communications Commission or any other governmental agency, other than the regulations applicable to businesses generally. However, we could become subject to the Federal Communications Commission or other regulatory agency regulation especially as Internet services and telecommunication services converge. Changes in the regulatory environment could decrease our revenue and increase our costs. For example, the Federal Communications Commission may decide that Internet-based telephone services should be subject to pay carrier access charges on the same basis as traditional telecommunications companies. The Federal Telecommunications Act of 1996 imposed fines on Internet service providers, in part, for providing access to indecent and obscene services. The United States Supreme Court found this part of the Federal Telecommunications Act of 1996 unconstitutional in June of 1997. However, on March 12, 1998, the Senate Commerce Committee approved two bills that attempt to reconstruct these unconstitutional provisions. Although it is too early to determine the ultimate course of these bills, and to evaluate the constitutionality of the proposals, these provisions, if enacted and upheld, could expose ISPs such as RMI.NET, Inc. to liabilities. Additional laws and regulations may be adopted with respect to the Internet, covering issues such as Universal Service Fund support payments, content, user privacy, pricing, libel, obscene material, indecency, gambling, intellectual property protection and infringement, technology export, and other controls. Other federal 8 11 Internet-related legislation has been introduced which may limit commerce and discourse on the Internet. The Federal Communications Commission currently is considering: * whether Internet service providers are regulated telecommunications providers; * whether Internet service providers are required to contribute to the Universal Service Fund; and * how various companies in the Internet and telecommunications industries should be classified. IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES, OUR BUSINESS WILL BE ADVERSELY AFFECTED Our success greatly depends on our ability to attract and retain key technical, sales, marketing, information systems, financial, and executive personnel. We are especially dependent on the continued services of our senior management team, particularly Douglas H. Hanson, our Chief Executive Officer, President and Chairman of the Board of Directors. The loss of Mr. Hanson or other senior managers could have a materially detrimental effect on us. All members of our senior management team can terminate their employment at any time. We do not maintain key person life insurance on any of our personnel. If we fail to attract, hire, or retain the necessary personnel, or if we lose the services of any member of our senior management team, our business could be adversely affected. OUR FAILURE TO ENSURE THAT OUR SYSTEMS OR OUR CUSTOMERS AND SUPPLIERS SYSTEMS ARE YEAR 2000 COMPLIANT COULD LEAD TO A MAJOR SYSTEM FAILURE THAT COULD ADVERSELY AFFECT OUR BUSINESS The Year 2000 problem is the result of computer programs that use two digits rather than four to define the applicable year. Computer equipment and programs that have time-sensitive software may not be able to distinguish whether "00" means 1900 or 2000. Incompatible date coding could cause a major system failure or could create erroneous results. We may also be vulnerable to other companies' Year 2000 issues. Our failure, or the failure of third parties on which we rely, to address Year 2000 readiness issues could result in an interruption, or a failure, of normal business activities or operations. Although we did not experience any system failures on January 1, 2000, we remain concerned about the potential for problems throughout the year. We believe that the primary risks that we face with regard to the Year 2000 are those arising from third party services or products. In particular, we depend heavily on a significant number of third party vendors to provide both network services and equipment. A significant Year 2000-related disruption of these network services or equipment could cause our customers to consider seeking alternate providers or cause an unmanageable burden on customer service and technical support. This in turn could materially and adversely affect business. Furthermore, our business depends on the continued operation of, and widespread access to, the Internet. To the extent that the normal operation of the Internet is disrupted by the Year 2000 issue, or if a large portion of our customers are unable to access the Internet due to Year-2000 related issues in connection with their own systems, our business could be materially and adversely affected. We also face Year 2000 risks related to the acquisitions we make. If we fail to identify and address Year 2000 issues in connection with our acquisitions, our business could be materially and adversely affected. We have established a program to coordinate appropriate activity to be taken to address the Year 2000 issue. We have incurred approximately $200,000 of expenses to implement our Year 2000 readiness program. However, we may have to incur additional costs to address Year 2000 problems that surface throughout the year, including problems associated with companies, systems and products that we may acquire. Acquisitions may cause actual costs of addressing the Year 2000 problem to significantly exceed our estimates and our business may be adversely affected. CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS This prospectus and the information incorporated by reference may include "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend the 9 12 forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and the outcome of any contingencies are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as "may," "believe," "plan," "will," "anticipate," "estimate," "expect," "intend" and other phrases of similar meaning. Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Although we believe that our expectations that are expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from our expectations, including the following: o we may lose subscribers or fail to grow our subscriber base; o we may not successfully integrate new subscribers or assets obtained through acquisitions; o we may fail to compete with existing and new competitors; o we may not be able to sustain our current growth; o we may not adequately respond to technological developments impacting the Internet; o we may fail to identify and correct a significant Year 2000 compliance problem and experience a major system failure; o we may fail to settle outstanding litigation; and o we may not be able to find needed financing. This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere in this report. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements included in this prospectus under the caption "Risk Factors." With regard to Year 2000 issues, any reference to a Year 2000 issue contained in this prospectus is a "Year 2000 Statement" and a "Year 2000 Readiness Disclosure," as defined in the Year 2000 Information and Readiness Disclosure Act, signed into law by President Clinton on October 19, 1998 (Pub. L. 105-271, 112 Stat. 2386). DESCRIPTION OF SECURITIES In December 1999, we issued common stock and Class A and Class B Warrants to purchase common stock to Advantage Fund II Ltd. and Koch Investment Group Limited pursuant to separate subscription agreements with each selling stockholder. Both the Class A and Class B Warrants are subject to anti-dilution clauses in the event of stock dividends, stock splits, or other transactions. A more detailed description of our common stock and the Class A and Class B Warrants follows. COMMON STOCK The description of our common stock, $0.001 par value, is included in our Registration Statement on Form 8-A, which was filed with the Securities and Exchange Commission on August 14, 1996. We have incorporated our Registration Statement on Form 8-A by reference. As of January 20, 2000, we have 20,028,231 shares of common stock issued and outstanding. Pursuant to the subscription agreements, we issued 761,610 shares to the selling 10 13 stockholders on December 7, 1999. This prospectus covers the 761,610 shares offered for resale by the selling stockholders. WARRANTS Class A Warrants. The Class A Warrants were issued pursuant to the December 1999 subscription agreements and are presently exercisable. They expire on December 7, 2004 and have an exercise price of $9.8476 per share. This prospectus covers the resale by the selling stockholders of 182,786 shares of our common stock issuable upon exercise of the Class A Warrants. RMI.NET, Inc. has the right to require the selling stockholders to exercise their Class A Warrants upon notice of at least 20 trading days if the closing bid price of our common stock exceeds $14.7714 for 20 consecutive trading days on the Nasdaq National Market and certain other conditions are met. Class B Warrants. The Class B Warrants were issued pursuant to the December 1999 subscription agreements. The Class B Warrants will not be exercisable until June 4, 2000. The Class B Warrants expire on December 5, 2002 and have an exercise price of $0.01 per share. This prospectus covers the resale by the selling stockholders of up to 2,828,693 shares of our common stock, the maximum number of shares currently issuable upon exercise of the Class B Warrants without obtaining stockholder approval under the Nasdaq Marketplace Rules. The number of shares of common stock issuable upon exercise of the Class B Warrants will increase or decrease over a two and one-half year period beginning on June 4, 2000 and occurring every 90th day thereafter through November 20, 2002, based on the market price of the common stock. The Initial Adjustment. On the first adjustment date, June 4, 2000, the Class B Warrants will become exercisable for a specified number of shares for which the Class B Warrants are then exercisable will be adjusted by an amount equal to the sum of: (1) the quotient obtained by dividing: (a) the product of (i) number of shares of common stock originally issued in the December 1999 private placement that continue to be held by Class B Warrant holders on June 4, 2000 (up to 761,610 shares), (ii) the $13.1301 (the initial purchase price), and (iii) 1.03 (the initial adjustment factor) by (b) the initial "adjustment price," which is defined as the lesser of (i) $9.8476 or (ii) the average market price of the common stock, which is defined as the average of the closing bid prices for the 20 trading days out of the 30 immediately preceding trading days on which the lowest closing bid prices occurred. (2) less the number of number of shares of common stock originally issued in the December 1999 private placement that continue to be held by the Class B Warrant holders on June 4, 2000 (up to 761,610 shares). The Second Adjustment. On the second adjustment date, September 2, 2000, the specified number of shares reserved for which the Class B Warrants are then exercisable will be adjusted by an amount equal to the sum of: (1) the quotient obtained by dividing: (a) the product of (i) number of shares of common stock originally issued in the December 1999 private placement that continue to be held by Class B Warrant holders on the second day of adjustment (September 2, 2000), plus shares issued or issuable upon exercise of Class B Warrants and then held by Class B Warrant holders, (ii) the initial adjustment price on the immediately preceding adjustment date (June 4, 2000), and (iii) 1.015 (the adjustment factor) by 11 14 (b) the "adjustment price," which is defined as the lesser of (i) $9.8476 or (ii) the average market price of the common stock, which is defined as the average of the closing bid prices for the 15 trading days out of the 30 immediately preceding trading days on which the lowest closing bid prices occurred. (2) less the number of shares of common stock originally issued in the December 1999 private placement that continue to be held by Class B Warrant holders on the second day of adjustment (September 2, 2000), plus shares issued or issuable upon exercise of Class B Warrants and then held by Class B Warrant holders. If the amount of the adjustment is positive, then the number of shares issuable upon exercise of Class B Warrants on the first adjustment date will be increased by the amount of the adjustment. If the amount is negative, then the number of shares issuable upon exercise of Class B Warrants on the first adjustment date will be decreased by the amount of the adjustment (but not less than zero). Subsequent Adjustments. We will be required to make similar adjustments (increases or decreases) to the number of shares issuable upon exercise of Class B Warrants every 90 days after the second adjustment date (September 2, 2000) until November 20, 2002. The amount of each adjustment will equal the sum of: (1) the quotient obtained by dividing: (a) the product of (i) number of shares of common stock originally issued in the December 1999 private placement that continue to be held by Class B Warrant holders on the day of adjustment, plus shares issued or issuable upon exercise of Class B Warrants and then held by Class B Warrant holders, (ii) the adjustment price on the immediately preceding adjustment date, and (iii) 1.015 (the adjustment factor) by (b) the current adjustment price, which is defined as the lesser of (i) $9.8476 or (ii) the average market price of the common stock, which is defined as the average of the closing bid prices for the 10 trading days out of the 30 immediately preceding trading days on which the lowest closing bid prices occurred. (2) less the number of shares of common stock originally issued in the December 1999 private placement that continue to be held by Class B Warrant holders on the day of adjustment, plus shares issued or issuable upon exercise of Class B Warrants and then held by Class B Warrant holders. Notwithstanding the above, if the "average market price" of our common stock exceeds $20.00 per share on any adjustment date, the "adjustment price" used in the formulas shall be increased by 50% of the excess of the "average market price" over $20.00. On the second and each subsequent adjustment date, the number of shares for which each Class B Warrant is then exercisable is further reduced by the number of shares for which the Class B Warrant is exercised during the preceding 90-day period. The Class B Warrants may not be exercised until the holder shall have first sold all of the shares of common stock initially purchased by the Class B Warrant holder in the December 1999 private placement. In addition, until December 1, 2000, each selling stockholder may not exercise its Class B Warrant to the extent the sum of the number of initial shares purchased in the December 1999 private placement plus the number of shares issued or issuable upon the exercise of the Class B Warrant would exceed 1,000,000 shares. Under certain circumstances described in the subscription agreements and the Class B Warrants, we have the right to repurchase the shares of common stock and the Class B Warrants held by the selling stockholders. 12 15 SELLING STOCKHOLDERS The following table sets forth information regarding the ownership of our common stock by the selling stockholders and the maximum number of shares that may be sold pursuant to this prospectus. The selling stockholders listed below may use this prospectus to sell their common stock and the common stock to be issued upon exercise of their warrants. Under the terms of the Class A and B Warrants, no selling stockholder may exercise warrants to the extent that the exercise would cause the selling stockholder's beneficial ownership of our common stock (excluding shares underlying unexercised warrants) to exceed 4.9% of the number of shares issued and outstanding.
Shares Which Shares Owned After Offering Number of Shares May be Sold (1) Owned Before the Pursuant to this ---------------------------- Selling Stockholder Offering Prospectus Number Percentage - ------------------------------------- -------------------- ------------------- ---------- ------------- Advantage Fund II Ltd. 569,073 (2) 1,886,544 (4) 96,875 * Koch Investment Group Limited 530,323 (3) 1,886,544 (5) 58,125 * * Less than one percent.
(1) Assumes all shares offered are sold. (2) Consists of (a) the initial 380,805 shares issued to the selling stockholder in the December 1999 private placement; (b) 91,393 shares issuable upon exercise of the Class A Warrant; and (c) 96,875 shares issuable upon exercise of warrants issued in December 1998. The December 1998 warrants are subject to the same 4.9% limitation on beneficial ownership applicable to the Class A and Class B Warrants. (3) Consists of (a) the initial 380,805 shares issued to the selling stockholder in the December 1999 private placement; (b) 91,393 shares issuable upon exercise of the Class A Warrant; and (c) 58,125 shares issuable upon exercise of warrants issued in December 1998. The December 1998 warrants are subject to the same 4.9% limitation on beneficial ownership applicable to the Class A and Class B Warrants. (4) Consists of (a) the initial 380,805 shares issued to Advantage Fund II, Ltd. in the December 1999 private placement; (b) 91,393 shares issuable upon exercise of the Class A Warrants; and (c) up to 1,414,346 shares which may be issuable upon exercise of the Class B Warrants. Genesee International, Inc., the investment manager of Advantage Fund II, may be deemed to beneficially own the shares offered by Advantage Fund II through its shared dispositive and voting power over such shares. Mr. Donald R. Morken, the controlling stockholder of Genesee International, may be deemed to control the exercise by Genesee International of shared dispositive and voting power over the shares. (5) Consists of (a) the initial 380,805 shares issued to Koch Investment Group Limited in the December 1999 private placement; (b) 91,393 shares issuable upon exercise of the Class A Warrants; and (c) up to 1,414,346 shares issuable upon exercise of the Class B Warrants. Koch Industries, Inc. the indirect parent company of Koch Investment Group, may be deemed to beneficially own the shares offered by Koch Investment Group through its shared dispositive and voting power over the shares. Messrs. Charles Koch and David Koch, the majority stockholders of Koch Industries, may be deemed to control the exercise by Koch Industries of shared dispositive and voting power over the shares. None of the selling stockholders, nor their officers, directors and major shareholders, has held any material relationship with RMI.NET or any of its affiliates within the past three years other than as an owner of RMI.NET's securities. USE OF PROCEEDS We have reserved up to 3,011,479 shares of common stock for issuance upon the exercise of outstanding Class A and Class B warrants, without giving effect to additional shares that may be issued pursuant to anti-dilution 13 16 provisions. We cannot be sure that warrant holders will exercise any of the warrants that are currently outstanding and thus, we may not receive any proceeds. However, if all Class A and Class B Warrants are exercised for the full number of shares offered for resale pursuant to this prospectus upon the exercise of the warrants, we will receive net proceeds of approximately $1,828,000. If we do receive proceeds from the exercise of warrants, we plan to use the net proceeds for general corporate purposes, including: o repaying our obligations as they become due; o financing capital expenditures; and o working capital. Pending use of the net proceeds for any of these purposes, we may invest the net proceeds in short-term investment grade instruments, interest-bearing bank accounts, certificates of deposit, money market securities, U.S. government securities, or mortgage-backed securities guaranteed by federal agencies. PLAN OF DISTRIBUTION The common stock covered by this prospectus may be offered and sold from time to time by the selling stockholders or by their pledgees, donees, transferees or other successors in interest, including in one or more of the following transactions: o on the Nasdaq National Market; o in the over-the-counter market; o in transactions other than on the Nasdaq National Market or in the over-the-counter market; o through brokers or dealers, or in direct transactions with purchasers; o in connection with short sales; o by pledge to secure debts and other obligations; o in connection with the writing of options, in hedge transactions, and in settlement of other transactions in standardized or over-the-counter options; or o in a combination of any of the above transactions. The selling stockholders may sell their shares at prevailing market prices, at prices related to prevailing market prices, at negotiated prices, or at fixed prices. There is no assurance that the selling stockholders will sell any or all of their common stock. Brokers and dealers that are used will either receive discounts or commissions from the selling stockholders, or will receive commissions from the purchasers. The selling stockholders may also elect to sell their shares pursuant to Rule 144 under the Securities Act of 1933. The selling stockholders may choose not to exercise any of their common stock purchase warrants. However, if the selling stockholders do exercise their warrants, we will issue an appropriate amount of common stock and cancel the underlying warrants upon payment of the exercise price. 14 17 We have agreed to indemnify the selling stockholders against certain liabilities, including liabilities arising under the Securities Act of 1933. LEGAL OPINION For the purposes of this offering, Christopher J. Melcher, Vice President and General Counsel of RMI.NET, Inc., has given his opinion as to the validity of the shares offered by the selling stockholders. As of January 20, 2000, Mr. Melcher beneficially owns 159,450 shares of RMI.NET common stock. EXPERTS Ernst & Young, LLP, independent auditors, have audited our consolidated financial statements and schedule as of and for the year ended December 31, 1998 included in our Annual Report on Form 10-K for the year ended December 31, 1998, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement. Baird, Kurtz and Dobson, independent accountants, have audited our consolidated financial statements and schedule as of December 31, 1997 and for each of the two years in the period then ended included in our Annual Report on Form 10-K for the year ended December 31, 1998, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements and schedule are incorporated by reference in reliance on Ernst & Young LLP's and Baird, Kurtz & Dobson's reports, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements, and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC's web site at www.sec.gov. You may also read and copy any document we file at the SEC's Public Reference Rooms in Washington, D.C., New York, New York and Chicago, Illinois. The Public Reference Room in Washington, D.C. is located at 450 Fifth Street, N.W. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Rooms. Our common stock is listed on the Nasdaq National Market. Reports, proxy statements, and other information concerning RMI.NET can be reviewed at the offices of Nasdaq Operations, 1735 "K" Street, N.W., Washington, D.C. 20006. The SEC allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until we sell all of the common stock: o Annual Report on Form 10-K for the year ended December 31, 1998; o 1999 Definitive Revised Proxy Statement; o Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1999; o Current Reports on Form 8-K (and amendments) originally filed January 8, February 17, June 28, July 1, 8 and 19, and, August 26 and 30, September 14, 15, and 27, December 6 and 9, 1999 and January 7, 2000; and 15 18 o the description of our common stock contained in our registration statement on Form 8-A, filed August 14, 1996. We have also filed a registration statement on Form S-3 with the SEC under the Securities Act of 1933. This prospectus does not contain all of the information set forth in the registration statement. You should read the registration statement for further information about our company and the common stock. You may request a copy of these filings at no cost. Please direct your requests to: Christopher J. Melcher Vice President and General Counsel RMI.NET, Inc. 999 Eighteenth Street, Suite 2201 Denver, Colorado 80202 (303) 672-0700 You may also want to refer to our web site at www.rmi.net. However, our web site is not a part of this prospectus. You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We are not making an offer of the common stock in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front page of those documents. 16 19 TABLE OF CONTENTS
Page ---- Risk Factors .......................................... 2 Cautionary Note About Forward-Looking Statements ...... 9 Description of Securities ............................. 10 Selling Stockholders .................................. 13 Use of Proceeds ....................................... 13 Plan of Distribution .................................. 14 Legal Opinion ......................................... 15 Experts ............................................... 15 Where You Can Find More Information ................... 15
COMMON STOCK $0.001 PAR VALUE RMI.NET, INC. PROSPECTUS JANUARY , 2000 20 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following expenses incurred in connection with the sale of the securities being registered will be borne by the Registrant. Other than the SEC registration fee and Nasdaq filing fee, the amounts stated are estimates. SEC Registration Fee $ 3,123.00 Nasdaq Filing Fee 15,232.00 Printing and Engraving 1,000.00 Legal Fees and Expenses 10,000.00 Accounting Fees and Expenses 10,000.00 Miscellaneous 3,000.00 --------------- TOTAL $ 42,355.00 ===============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article 8 of the Registrant's Certificate of Incorporation, as amended, provides: "No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except as to liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for violations of Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law hereafter is amended to eliminate or limit further the liability of a director, then, in addition to the elimination and limitation of liability provided by the preceding sentence, the liability of each director shall be eliminated or limited to the fullest extent provided or permitted by the amended Delaware General Corporation Law. Any repeal or modification of this Article 8 shall not adversely affect any right or protection of a director under this Article 8 as in effect immediately prior to such repeal or modification with respect to any liability that would have accrued, but for this Article 8, prior to such repeal or modification." Section 5.1 of the Registrant's bylaws provides, in general, that the Registrant shall, to the fullest extent permitted by the DGCL, as now or hereafter in effect, indemnify any person who was or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether criminal, civil, administrative, or investigative (a "Proceeding"), by reason of the fact that he is or was a director or officer of the Registrant, or, by reason of the fact that such officer or director is or was serving at the request of the Registrant as a director, office, employee, or agent of another corporation, partnership, joint venture, trust, association, or other enterprise, against all liability and loss suffered and expenses (including attorneys' fees), judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement reasonably incurred by him in connection with such Proceeding, including any Proceeding by or on behalf of the Registrant and will advance all reasonable expenses incurred by or on behalf of any such person in connection with any Proceeding, whether prior to or after final disposition of such Proceeding. Section 5.8 of the bylaws also provides that the Registrant may also indemnify and advance expenses to employees or agents who are not officers or directors of the Registrant. The Registrant has purchased a directors' and officers' liability insurance contract that provides, within stated limits, reimbursement either to a director or officer whose actions in his capacity result in liability, or to the Registrant, in the event it has indemnified the director or officer. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Registrant, the Registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. No dealer, salesman or any other person has been authorized in connection with this Offering to give any information or to make any representations other than those contained in this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Registrant. This prospectus does not II-1 21 constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the circumstances of the Registrant or the facts herein set forth since the date hereof. ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ ----------------------- 2.01 Agreement and Plan of Reorganization and Liquidation by and Among Rocky Mountain Internet, Inc., DataXchange Network, Inc., and Certain of the Shareholders of DataXchange Network, Inc., dated as of December 8, 1998 (13) 3.01 Amended and Restated Certificate of Incorporation (19) 3.02 Bylaws of Rocky Mountain Internet, Inc. (1) 3.03 Certificate of Amendment of Certificate of Incorporation of Rocky Mountain Internet, Inc. (16) 3.04 Certificate of Designations of Series B Convertible Preferred Stock (16) 4.01 Form of Warrant Agreement dated September 5,1996 between Rocky Mountain Internet, Inc. and American Securities Transfer, Inc. (1) 4.02 Form of Subordinated Convertible Promissory Note (1) 4.03 Form of Lock-Up Agreement for Shareholders (1) 4.04 Form of Lock-Up Agreement for Preferred Stockholders (1) 4.05 Form of Lock-Up Agreement for Debenture Holders (1) 4.06 Form of Stock Certificate (1) 4.07 Form of Warrant Certificate (1) 4.08 Warrant Agreement between Rocky Mountain Internet, Inc. and Douglas H. Hanson dated October 1, 1997 (8) 4.09 1996 Employees' Stock Option Plan (6) 4.10 1996 Non-Employee Directors' Stock Option Plan (6) 4.11 Rocky Mountain Internet Inc. 1997 Non-Qualified Stock Option Plan (7) 4.12 1997 Stock Option Plan (9) 4.12.1 First Amendment to Non-Qualified Stock Option Agreement pursuant to the Rocky Mountain Internet, Inc. 1997 Stock Option Plan (16) 4.12.2 First Amendment to Incentive Stock Option Agreement pursuant to the Rocky Mountain Internet, Inc. 1997 Stock Option Plan) (16) 4.13 Rocky Mountain Internet, Inc. 1998 Employees' Stock Option Plan (10) 4.14 Rocky Mountain Internet, Inc. 1998 Non-Employee Directors' Stock Option Plan (11) 4.15 Subscription Agreement, dated as of December 10, 1998, by and between Rocky Mountain Internet, Inc. and Koch Industries, Inc. (15) 4.16 Subscription Agreement, dated as of December 10, 1998, by and between Rocky Mountain Internet, Inc. and Advantage Fund II Ltd. (15) 4.17 Form of Common Stock Purchase Warrant issued to Koch Industries, Inc., Advantage Fund II Ltd., Wharton Capital Partners Ltd., Leslie Bines, and Neidiger Tucker Bruner Inc. (15) 4.18 Form of Registration Rights Agreement between Rocky Mountain Internet, Inc. and (i) Koch Industries, Inc.; and (ii) Advantage Fund II Ltd. (15) 4.19 Form of Registration Rights Agreement between Rocky Mountain Internet and (i) Wharton Capital Partners Ltd.; (ii) Leslie Bines; and (iii) Neidiger Tucker Bruner Inc. (15) 4.20 Form of Subscription Agreement dated as of December 7, 1999* 4.21 Form of Class A Warrant (Annex I to Subscription Agreement)* 4.22 Form of Class B Warrant (Annex II to Subscription Agreement)* 4.23 Form of Registration Rights Agreement (Annex IV to Subscription Agreement)* 5.01 Opinion and Consent of Christopher J. Melcher, Esq., as to legality of securities being registered. * 10.01 Agreement of Lease between Denver-Stellar Associates Limited Partnership, Landlord and Rocky Mountain Internet, Inc., Tenant (2)
II-2 22 10.02 Asset Purchase Agreement - Acquisition of CompuNerd, Inc. (2) 10.03 Confirmation of $2.0 million lease line of credit (2) 10.04 Agreement between MCI and Rocky Mountain Internet, Inc. governing the provision of professional information system development services for the design and development of the MCI internal Intranet project referred to as Electronic Advice. (2) 10.05 Sublease Agreement - February 26, 1997 - 1800 Glenarm, Denver, CO (4) 10.06 Acquisition Agreement for The Information Exchange (4) 10.07 Asset Purchase Agreement for On-Line Network Enterprises (4) 10.08 1996 Incentive Compensation Plan - Annual Bonus Incentive (4) 10.09 1997 Incentive Compensation Plan - Annual Bonus Incentive (4) 10.10 Termination Agreement of joint venture between Rocky Mountain Internet, Inc. and Zero Error Networks, Inc. (5) 10.11 Private Placement Memorandum (5) 10.12 Carrier Services Switchless Agreement Between Frontier Communications of the West, Inc. and Rocky Mountain Broadband, Inc.** (15) 10.13 Wholesale Usage Agreement Between PSINet Inc. and Rocky Mountain Internet, Inc.** (15) 10.14 PacNet Reseller Agreement between PacNet Inc. and Rocky Mountain Internet, Inc.** (15) 10.15 Operating Agreement of The Mountain Area EXchange LLC (15) 10.16 Software License and Consulting Services Agreement Between Rocky Mountain Internet, Inc. and Novazen Inc.** (15) 10.19 Merger Agreement among Rocky Mountain Internet, Inc., RMI-INI, Internet Now, Hutchinson Persons, Leslie Kelly, Taufik, Islam, Susan Coupal, and Gary Kim, dated November 20, 1998 (12) 10.20 Asset Purchase Agreement between Rocky Mountain Internet, Inc. and Unicom Communications Corporation dated as of November 24, 1998 (12) 10.21 Asset Purchase Agreement among Rocky Mountain Internet, Inc., Stonehenge Business Systems Corporation, Todd Keener, and Danette Keener, dated as of November 30, 1998 (12) 10.22 Commitment letter dated December 10, 1998 from Advantage Fund Ltd. to Rocky Mountain Internet, Inc. (15) 10.23 Agreement and Plan of Merger by and between Rocky Mountain Internet, Inc. and August 5th Corporation, d/b/a Dave's World dated February 2, 1999 (17) 10.24 Asset Purchase Agreement by and among Rocky Mountain Internet, Inc., ImageWare Technologies, L.L.C., and Communication Network Services, L.L.C. dated February 5, 1999 (17) 10.25 Agreement and Plan of Merger by and among Rocky Mountain Internet, inc. d/b/a/ RMI.NET, Inc. and IdealDial Corporation. (20) 10.26 Agreement and Plan of Merger by and among Rocky Mountain Internet, inc. d/b/a/ RMI.NET, Inc. and Internet Connect, Inc. (20) 10.27 Agreement and Plan of Merger and Reorganization by and among Rocky Mountain Internet, Inc. d/b/a/ RMI.NET, Inc. and Colorado Mountain Net, Inc. dated June 16, 1999 (21) 10.28 Stock Exchange Agreement between Rocky Mountain Internet, Inc. d/b/a RMI.NET, Inc. and Roger L. Penner (CommerceGate) dated June 24, 1999 (22) 10.29 Asset Purchase Agreement by and between Rocky Mountain Internet, Inc. d/b/a RMI.NET, Inc. and CyberDesic Communications Corporation, Inc. dated June 28, 1999 (23) 10.30 Asset Purchase Agreement by and among RMI.NET, Inc. f/k/a Rocky Mountain Internet, Inc. and Triad Resources, LLC dated July 30, 1999 (24) 10.31 Asset Purchase Agreement by and among RMI.NET, Inc. and ACES Research, Inc. dated July 30, 1999 (25) 10.32 Asset Purchase Agreement by and among RMI.NET, Inc. and Novo Media Group, Inc. dated August 30, 1999 (26) 10.33 Asset Purchase Agreement by and among RMI.NET, Inc. and Wolfe Internet Access, LLC dated August 31, 1999 (27) 10.34 Asset Purchase Agreement by and among RMI.NET, Inc. and Networld.com, Inc. and FutureOne, Inc. dated November 19, 1999 (28) 10.35 Asset Purchase Agreement by and among RMI.NET, Inc. and Western Regional Networks, Inc. dated November 24, 1999 (29) 10.36 Asset Purchase Agreement by and among RMI.NET, Inc. and AIS Network Corporation dated December 23, 1999 (30)
II-3 23 16.01 Letter re change in certifying accountant (3) 16.02 Letter re change in certifying accountant (14) 21.01 Subsidiaries of the Registrant (18) 23.01 Consent of Ernst & Young LLP *** 23.02 Consent of Baird, Kurtz & Dobson *** 23.03 Consent of Christopher J. Melcher, Esq. (included in Exhibit 5.01) * 24.01 Power of Attorney (31) 27.01 Financial Data Schedule (19)
* Filed herein. ** Portions of these documents have been omitted pursuant to a request for confidential treatment. *** To be filed by amendment. (1) Incorporated by reference from the Registrant's Registration Statement on Form SB-2 (Reg. No. 333-05040C) and amendments thereto, as previously filed with the Securities and Exchange Commission. (2) Incorporated by reference from the Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1996. (3) Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 28, 1997. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996. (5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997. (6) Incorporated by reference to the Registrant's documents filed with the Registrant's Initial Public Offering. (7) Incorporated by reference to the Registrant's Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on September 26, 1997. (8) Incorporated by reference to the Registrant's Current Report on Form 8-K dated October 6, 1997. (9) Incorporated by reference to the Definitive Proxy Statement (Appendix A) filed on Schedule 14A on February 13, 1998. (10) Incorporated by reference to the Definitive Proxy Statement (Appendix B) filed on Schedule 14A on February 13, 1998. (11) Incorporated by reference to the Definitive Proxy Statement (Appendix C) filed on Schedule 14A on February 13, 1998. (12) Incorporated by reference to the Registrant's Current Report on Form 8-K dated November 20, 1998. (13) Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 8, 1998. (14) Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 9, 1998. (15) Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 10, 1998. (16) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (Reg. No. 333-52731) and amendments thereto, as previously filed with the Securities and Exchange Commission. (17) Incorporated by reference to the Registrant's Current Report on Form 8-K dated February 2, 1999. (18) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (19) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (20) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated June 11, 1999. (21) Incorporated by reference to the Registrant's Current Report on Form 8-K dated June 16, 1999. (22) Incorporated by reference to the Registrant's Current Report on Form 8-K dated June 23, 1999. (23) Incorporated by reference to the Registrant's Current Report on Form 8-K dated June 28, 1999. (24) Incorporated by reference to the Registrant's Current Report on Form 8-K dated July 30, 1999. (25) Incorporated by reference to the Registrant's Current Report on Form 8-K dated July 30, 1999. (26) Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 30, 1999. (27) Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 31, 1999. (28) Incorporated by reference to the Registrant's Current Report on Form 8-K dated November 19, 1999. (29) Incorporated by reference to the Registrant's Current Report on Form 8-K dated November 24, 1999. (30) Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 23, 1999. (31) Included in Part II of this Registration Statement under the caption "Signatures." II-4 24 ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the 1934 Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-5 25 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on January 21, 2000. RMI.NET, INC. a Delaware corporation By: /s/ Douglas H. Hanson ------------------------------- Name: Douglas H. Hanson Title: Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) POWER OF ATTORNEY We, the undersigned officers and directors of RMI.NET, Inc. hereby severally constitute Douglas H. Hanson, Christopher J. Melcher, and Michael D. Dingman, Jr., and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below the Registration Statement filed herewith and any and all amendments to said Registration Statement, and generally to do all such things in our name and behalf in our capacities as officers and directors to enable RMI.NET, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney has been signed below by the following persons in the capacities and on the dates indicated:
NAME TITLE DATE - ---- ----- ---- /s/ Douglas H. Hanson Chief Executive Officer, President January 21, 2000 - ----------------------------------------- and Chairman of the Board of Douglas H. Hanson Directors (Principal Executive Officer) /s/ Michael D. Dingman, Jr. Treasurer (Principal Financial January 21, 2000 - ----------------------------------------- Officer and Principal Accounting Michael D. Dingman, Jr. Officer) /s/ D.D. Hock Director January 21, 2000 - ----------------------------------------- D.D. Hock
II-6 26 /s/ Mary Beth Vitale Director January 21, 2000 - ----------------------------------------- Mary Beth Vitale /s/ Robert S. Grabowski Director January 21, 2000 - ----------------------------------------- Robert S. Grabowski /s/ Lewis H. Silverberg Director January 21, 2000 - ----------------------------------------- Lewis H. Silverberg
II-7 27 EXHIBIT INDEX*
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ ----------------------- 4.20 Form of Subscription Agreement dated as of December 7, 1999 4.21 Form of Class A Warrant (Annex I to Subscription Agreement) 4.22 Form of Class B Warrant (Annex II to Subscription Agreement) 4.23 Form of Registration Rights Agreement (Annex IV to Subscription Agreement) 5.01 Opinion and Consent of Christopher J. Melcher, Esq., as to legality of securities being registered 23.01 Consent of Ernst & Young LLP ** 23.02 Consent of Baird, Kurtz & Dobson ** 23.03 Consent of Christopher J. Melcher, Esq. (included in Exhibit 5.01) 24.01 Power of Attorney (included in Part II of this Registration Statement under the caption "Signatures" )
* Excludes exhibits incorporated by reference. For a list of exhibits incorporated by reference, refer to Item 16 above. ** To be filed by amendment. EX-4.20 2 FORM OF SUBSCRIPTION AGREEMENT DATED 12/7/99 1 Exhibit 4.20 SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 7, 1999 BY AND BETWEEN RMI.NET, INC. AND __________________________________________ ____________________ COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS 2 SUBSCRIPTION AGREEMENT COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS RMI.NET, INC.
PAGE ---- 1. AGREEMENT TO SUBSCRIBE......................................................................1 (a) Subscription.......................................................................1 (b) Form of Payment....................................................................1 (c) Method of Payment..................................................................2 2. BUYER REPRESENTATIONS, WARRANTIES, ETC......................................................2 (a) Purchase for Investment............................................................2 (b) Accredited Investor................................................................2 (c) Reoffers and Resales...............................................................2 (d) Company Reliance...................................................................2 (e) Information Provided...............................................................2 (f) Absence of Approvals...............................................................3 (g) Subscription Agreement.............................................................3 3. COMPANY REPRESENTATIONS, WARRANTIES, ETC....................................................3 (a) Organization and Authority.........................................................3 (b) Capitalization.....................................................................3 (c) Concerning the Shares and the Common Stock.........................................4 (d) Subscription Agreement and Other Transaction Documents.............................4 (e) Non-contravention..................................................................4 (f) Approvals..........................................................................5 (g) Information Provided...............................................................5 (h) Absence of Certain Changes.........................................................5 (i) Absence of Certain Proceedings.....................................................5 (j) Properties.........................................................................6 (k) Labor Relations....................................................................6 (l) SEC Filings........................................................................7 (m) Absence of Brokers, Finders, Etc...................................................7 (n) No Solicitation....................................................................7 (o) Certain Issuances of Securities....................................................7 (p) Absence of Rights Agreement........................................................7 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.......................................................7 (a) Transfer Restrictions..............................................................7 (b) Restrictive Legend.................................................................8 (c) Registration Rights Agreement......................................................9 (d) Form D.............................................................................9 (e) Authorization for Trading; Reporting Status........................................9
3 (f) Use of Proceeds....................................................................9 (g) Blue Sky Laws......................................................................9 (h) Certain Expenses...................................................................9 (i) Certain Issuances of Securities....................................................10 (j) Certain Trading Restrictions.......................................................11 (k) Monthly Reports....................................................................11 (l) Best Efforts.......................................................................11 5. REPURCHASE AT OPTION OF THE COMPANY.........................................................11 (a) Repurchase Right...................................................................11 (b) Certain Definitions................................................................11 6. CLOSING DATE................................................................................12 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE....................................12 8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE............................................13 9. MISCELLANEOUS...............................................................................13 (a) Governing Law......................................................................13 (b) Counterparts.......................................................................13 (c) Headings, etc......................................................................13 (d) Severability.......................................................................14 (e) Amendments.........................................................................14 (f) Waivers............................................................................14 (g) Notices............................................................................14 (h) Assignment.........................................................................14 (i) Survival of Representations and Warranties.........................................14 (j) Entire Agreement...................................................................14 (k) Termination........................................................................14 (l) Further Assurances.................................................................15 (m) Public Statements, Press Releases, Etc.............................................15 (n) Construction.......................................................................15
SCHEDULES Schedule 3(a)-1 Subsidiaries ANNEXES Annex I Form of Common Stock Purchase Warrant, Class A Annex II Form of Common Stock Purchase Warrant, Class B Annex III Joint Escrow Instructions Annex IV Form of Registration Rights Agreement Annex V Form of Opinion of Counsel to Be Delivered on Closing Date 4 SUBSCRIPTION AGREEMENT THIS SUBSCRIPTION AGREEMENT, dated as of December 7, 1999, by and between RMI.NET, INC., a Delaware corporation (the "Company"), with headquarters located at 999 18th Street, Suite 2201, Denver, Colorado 80202, and __________________________(the "Buyer"). W I T N E S S E T H: WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the conditions of this Agreement, shares of Common Stock, $.001 par value (the "Common Stock"), of the Company and in connection therewith the Company is to issue to the Buyer warrants to purchase shares of Common Stock as provided in this Agreement; and WHEREAS, the Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D as promulgated by the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"); NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE. (a) SUBSCRIPTION. The Buyer hereby agrees to purchase from the Company the number of shares (the "Common Shares") of Common Stock set forth on the signature page of this Agreement at the price per share and for the aggregate purchase price set forth on the signature page of this Agreement (the "Purchase Price"). The Purchase Price shall be payable in United States dollars. In connection with the purchase of the Common Shares by the Buyer, the Company shall issue to the Buyer, at the closing on the Closing Date (as defined herein), (1) Common Stock Purchase Warrants, Class A in the form attached hereto as ANNEX I (the "Class A Warrants") to purchase the number of shares of Common Stock set forth therein (subject to adjustment as provided in the Class A Warrants) and (2) Common Stock Purchase Warrants, Class B in the form attached hereto as ANNEX II (the "Class B Warrants") to purchase the number of shares of Common Stock set forth therein (subject to adjustment as provided in the Class B Warrants). The Class A Warrants and the Class B Warrants are referred to herein collectively as the "Warrants." The shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "Warrant Shares." The Common Shares and the Warrant Shares are referred to herein collectively as the "Shares." The Shares and the Warrants are referred to herein collectively as the "Securities." (b) FORM OF PAYMENT. The Buyer shall pay the Purchase Price for the Common Shares by delivering good funds in United States Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached hereto as ANNEX III (the "Joint Escrow Instructions"). Such delivery of funds shall be made against delivery by the Company of the certificates for the Common Shares and the Warrants registered in the name of the Buyer or its nominee. Promptly following payment by the Buyer to the Escrow Agent of the Purchase Price, but in any event prior to the Closing Date (as defined herein), the Company shall deliver certificates for the Common Shares and the Warrants, registered in the corporate securities records of the Company in the name of the Buyer or its nominee, to the Escrow 1 5 Agent. The certificates for the Common Shares shall be delivered by the Company to the Escrow Agent on a delivery against payment basis at the closing. By signing this Agreement, the Buyer and the Company each agrees to all of the terms and conditions of, and becomes a party to, the Joint Escrow Instructions, all of the provisions of which are incorporated herein by this reference as if set forth in full. (c) METHOD OF PAYMENT. Payment of the Purchase Price for the Common Shares shall be made by wire transfer of funds to: Not later than 4:00 p.m., New York City time, on the date which is one Business Day after the Company shall have accepted this Agreement and returned a signed counterpart of this Agreement to the Buyer or its legal counsel, the Buyer shall deposit with the Escrow Agent an amount equal to the Purchase Price. As used in this Agreement, the term "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. 2. BUYER REPRESENTATIONS, WARRANTIES, ETC. The Buyer represents and warrants to, and covenants and agrees with, the Company as follows: (a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Common Shares and acquiring the Warrants, and upon exercise of the Warrants will acquire the Warrant Shares, for its own account for investment only and not with a view towards the public sale or distribution thereof, except as contemplated by the Registration Rights Agreement (as defined herein); (b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3); (c) REOFFERS AND RESALES. All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the Securities being offered and sold under the 1933 Act or pursuant to an exemption from registration; (d) COMPANY RELIANCE. The Buyer understands that the Common Shares are being offered and sold, the Warrants are being issued, and the Warrant Shares are being offered, in each case to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Common Shares and the Warrants and to receive an offer of the Warrant Shares; 2 6 (e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Common Shares and the issuance of the Warrants and the offer of the Warrant Shares which have been requested by the Buyer; the Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received satisfactory answers to any such inquiries; without limiting the generality of the foregoing, the Buyer has had the opportunity to obtain and to review the Company's (1) Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 10-K"), (2) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1999, June 30, 1999 and September 30, 1999, (3) definitive proxy statement for the Company's 1999 Annual Meeting of Shareholders held on June 24, 1999 and (4) Current Reports on Form 8-K filed June 28, July 1, July 8, July 19, August 26, August 30, September 14, September 15, 1999 and December 6, 1999 and on Form 8-K/A filed April 19, July 1, July 12 and November 15, 1999, in each case as filed with the SEC (collectively, the "SEC Reports"); and the Buyer understands that its investment in the Shares involves a high degree of risk; (f) ABSENCE OF APPROVALS. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Shares; and (g) SUBSCRIPTION AGREEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Buyer and is a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally. 3. COMPANY REPRESENTATIONS, WARRANTIES, ETC. The Company represents and warrants to, and covenants and agrees with, the Buyer that: (a) ORGANIZATION AND AUTHORITY. Each of the Company and its subsidiaries listed on SCHEDULE 3(a)-1 attached hereto (the "Subsidiaries") is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all requisite corporate power and authority to (i) own, lease and operate its properties and to carry on its business as now being conducted, and (ii) to execute, deliver and perform its obligations under this Agreement, the Warrants, the Registration Rights Agreement, the form of which is attached hereto as ANNEX IV (the "Registration Rights Agreement"), and the other agreements to be executed and delivered by the Company in connection herewith, and to consummate the transactions contemplated hereby and thereby. Each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein such qualification is necessary and where failure so to qualify could have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole (a "Company Material Adverse Effect"). The Company has no subsidiaries or equity investment in any person other than the Subsidiaries. (b) CAPITALIZATION. The authorized capital stock of the Company consists of (a) 100,000,000 shares of Common Stock of which 18,807,926 shares were outstanding on November 30, 1999, all of which are fully paid and nonassessable; and (b) 750,000 shares of Preferred Stock, $.001 par value, of which 9,600 shares are designated as Series B Convertible 3 7 Preferred Stock and none of which are outstanding; and on the Closing Date there will be (x) no material increase from November 30, 1999 in the number of shares of Common Stock outstanding and (y) no issuances of preferred stock or other equity securities other than Common Stock will have occurred since November 30, 1999. No shares of the Company's former Series A Preferred Stock, $.001 par value, are outstanding and such series was retired on April 30, 1998. As of November 30, 1999, the Company had outstanding options, warrants and similar rights entitling the holders to purchase 1,890,833 shares of Common Stock. Other than as set forth in the preceding sentence, the Company does not have outstanding any material amount of securities (or obligations to issue any such securities) convertible into, exchangeable for or otherwise entitling the holders thereof to acquire shares of Common Stock, except as disclosed in the SEC Reports. The Company has duly reserved from its authorized and unissued shares of Common Stock the full number of shares required for (a) all options, warrants, convertible securities and other rights to acquire shares of Common Stock which are outstanding and (b) all shares of Common Stock and options and other rights to acquire shares of Common Stock which may be issued or granted under the stock option and similar plans which have been adopted by the Company or any of the Subsidiaries. No antidilution or similar adjustments will occur by reason of the issuance of the Common Shares or the issuance or exercise of the Warrants or the issuance of the shares of Common Stock and the issuance or exercise of the warrants to be issued pursuant to the other subscription agreement for the purchase of shares of Common Stock and the acquisition of common stock purchase warrants being entered into in connection herewith (the "Other Subscription Agreement"). The outstanding shares of Common Stock and outstanding options, warrants and other securities convertible into, exchangeable for or otherwise entitling the holder thereof to acquire shares of Common Stock have been duly authorized and validly issued. None of such outstanding shares of Common Stock, options, warrants and other securities has been issued in violation of the preemptive rights of any securityholder of the Company. The offers and sales of the outstanding shares of Common Stock and such options, warrants and other securities were at all relevant times either registered under the 1933 Act and applicable state securities laws or exempt from such requirements. No holder of any of the Company's securities has any rights, "demand," "piggy-back" or otherwise, to have such securities registered by reason of the intention to file, filing or effectiveness of the Registration Statement (as defined in the Registration Rights Agreement). (c) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have been duly authorized. The Common Shares, when issued and paid for in accordance with this Agreement and the Warrant Shares, when issued upon exercise of the Warrants, will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. There are no preemptive or similar rights of any stockholder of the Company or any other person to acquire any of the Shares. The Company has duly reserved 1,500,000 shares of Common Stock for issuance as Common Shares and for exercise of the Warrants and for the shares of Common Stock and warrants issuable in connection with the Other Subscription Agreement, and such shares shall remain so reserved, and the Company shall from time to time reserve such additional shares of Common Stock as shall be required to be reserved pursuant to the Warrants, as long as the Warrants are exercisable. The Common Stock is listed for trading on the Nasdaq National Market ("Nasdaq") and (1) the Company and the Common Stock meet the criteria for continued listing and trading on Nasdaq; (2) the Company has not been notified since January 1, 1998 by Nasdaq or the Nasdaq SmallCap Market ("Nasdaq SmallCap") of any failure or potential failure to meet the criteria for continued listing and trading thereon and (3) no suspension of trading in the Common Stock is in effect. The Company knows of no reason that the Shares will not be eligible for listing on Nasdaq. 4 8 (d) SUBSCRIPTION AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This Agreement, the Registration Rights Agreement and the Warrants and the other agreements and instruments contemplated hereby and thereby have been duly and validly authorized by the Company, this Agreement has been duly executed and delivered by the Company and this Agreement is, and the Registration Rights Agreement and the Warrants and such other agreements, when executed and delivered by the Company, will be, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally. (e) NON-CONTRAVENTION. The execution and delivery by the Company of this Agreement and the other documents contemplated by this Agreement and the consummation by the Company of the issuance of the Common Shares and the Warrants as contemplated by this Agreement, and the other transactions contemplated by this Agreement, the Registration Rights Agreement and the Warrants do not and will not, with or without the giving of notice or the lapse of time, or both (i) result in any violation of any terms of the Certificate of Incorporation, as amended, or By-laws of the Company or any Subsidiary, (ii) conflict with or result in a breach by the Company or any Subsidiary of any of the terms or provisions of, or constitute a default under, or result in the modification, amendment, termination or cancellation of, result in the acceleration of any obligation of the Company or any Subsidiary under, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary pursuant to, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties or assets is bound or affected, (iii) violate or contravene any applicable law, rule or regulation or any applicable decree, judgment or order of any court, United States federal or state regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any Subsidiary or any of their respective properties or assets or (iv) have any Company Material Adverse Effect on any permit, certification, registration, approval, consent, license or franchise necessary for the Company or any Subsidiary to own or lease and operate any of their respective properties or to conduct any of their respective businesses or the ability of the Company or any Subsidiary to make use thereof. (f) APPROVALS. No authorization, approval or consent of, or filing with, any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained or made by the Company for (1) the execution, delivery and performance by the Company of this Agreement, the Registration Rights Agreement, the Warrants and the other agreements and instruments contemplated hereby and thereby, (2) the issuance and sale of the Common Shares and the issuance of the Warrants as contemplated by this Agreement and (3) the issuance of Warrant Shares upon the exercise of the Warrants, other than (x) registration of the resale of the Shares under the 1933 Act as contemplated by the Registration Rights Agreement, (y) as may be required under applicable state securities or "blue sky" laws and (z) filing of one or more Forms D with respect to the Securities as required under Regulation D. (g) INFORMATION PROVIDED. The information provided by or on behalf of the Company to the Buyer in connection with the transactions contemplated by this Agreement, including, without limitation, the information referred to in Section 2(e) of this Agreement, does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are 5 9 made, not misleading, it being understood that, for purposes of this Section 3(g), any statement contained in such information shall be deemed to be modified or superseded for purposes of this Section 3(g) to the extent that a statement in any document included in such information which was prepared or filed with the SEC on a later date modifies or replaces such statement, whether or not such later prepared or filed statement so states. The Company has not filed any reports with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), since December 31, 1998 other than the SEC Reports. (h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, there has been no change and no development which could have a Company Material Adverse Effect, except as disclosed in the SEC Reports. Except as and to the extent disclosed, reflected or reserved against in the financial statements of the Company and the notes thereto included in the SEC Reports, neither the Company nor any Subsidiary has any material (individually or in the aggregate) liabilities, debts or obligations whether accrued, absolute, contingent or otherwise, and whether due or to become due. Subsequent to December 31, 1998, neither the Company nor any Subsidiary has incurred any liabilities, debts or obligations of any nature whatsoever which are individually or in the aggregate material to the Company and the Subsidiaries taken as a whole, other than those incurred in the ordinary course of their respective businesses or disclosed in the SEC Reports. (i) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the SEC Reports, there is no action, suit, proceeding, inquiry or investigation before or by any court, arbitrator, public board or body or governmental agency (collectively, an "Action") pending or, to the knowledge of the Company or any Subsidiary, threatened against the Company or any Subsidiary, in any such case wherein an unfavorable decision, ruling or finding could have a Company Material Adverse Effect or a material adverse effect on the transactions contemplated by this Agreement or any of the documents contemplated hereby or which could adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of such other documents; neither the Company or any Subsidiary nor any director or officer thereof is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty; the Company does not have pending before the SEC any request for confidential treatment of information and to the best of the Company's knowledge no such request will be made by the Company prior to the time the Registration Statement relating to the Shares which is contemplated by the Registration Rights Agreement is first ordered effective by the SEC; and there has not been, and to the best of the Company's knowledge there is not pending or contemplated, any investigation by the SEC involving the Company or any current or former director or officer of the Company. (j) PROPERTIES. The Company and the Subsidiaries have good title to or leasehold interests in all property real and personal (tangible and intangible) and other assets owned by them, free and clear of all security interests, charges, mortgages, liens or other encumbrances, except with respect to capital lease obligations and protective filings by lessors and except such as are described in the SEC Reports or such as do not materially interfere with the use of such property made, or proposed to be made, by the Company or any Subsidiary. The leases, licenses or other contracts or instruments under which the Company and the Subsidiaries lease, hold or are entitled to use any property, real or personal, are valid, subsisting and enforceable with only such exceptions as do not materially interfere with the use of such property made, or proposed to be made, by the Company or any Subsidiary. Neither the Company nor any Subsidiary has received notice of any material violation of any applicable law, ordinance, regulation, order or requirement relating to its owned or leased properties. The 6 10 Company does not have any knowledge of, and the Company has not given or received any notice of, any pending conflicts with or infringement of the rights of others with respect to any Company Proprietary Rights (as defined herein) or with respect to any license of Company Proprietary Rights. No action, suit, arbitration, or legal, administrative or other proceeding or investigation is pending, or, to the best knowledge of the Company, threatened, which involves any Company Proprietary Rights. Neither the Company nor any Subsidiary is subject to any judgment, order, writ, injunction or decree of any court or any federal, state, local, foreign or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any arbitrator, or has entered into or is a party to any contract which restricts or impairs the use of any such Company Proprietary Rights in a manner which would have a material adverse effect on the use by the Company or any Subsidiary of any of the Company Proprietary Rights. To the best knowledge of the Company, no Company Proprietary Rights and no services or products sold by the Company or any Subsidiary, conflict with or infringe upon any proprietary rights available to any third party. Neither the Company nor any Subsidiary has received written notice of any pending conflict with or infringement upon such third-party proprietary rights. Neither the Company nor any Subsidiary has entered into any consent, indemnification, forbearance to sue or settlement agreement with respect to Company Proprietary Rights other than in the ordinary course of business. No claims have been asserted by any person with respect to the validity of the Company's or any Subsidiary's ownership or right to use the Company Proprietary Rights and, to the best knowledge of the Company, there is no reasonable basis for any such claim to be successful. To the best knowledge of the Company, the Company Proprietary Rights are valid and enforceable. No registration relating to the Company Proprietary Rights has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and are in good standing, except for such lapses, expirations, abandonments, cancellations, adversarial proceedings or failures to be in good standing which would not, singly or in the aggregate, have a Company Material Adverse Effect. The Company and the Subsidiaries have complied, in all material respects, with their respective contractual obligations relating to the protection of the Company Proprietary Rights used pursuant to licenses. To the best knowledge of the Company, no person is infringing on or violating the Company Proprietary Rights. As used herein, the term "Company Proprietary Rights" means all patents, patent applications, inventions, trademarks, trade names, applications for registration of trademarks, service marks, service mark applications, copyrights, know-how, manufacturing processes, formulae, trade secrets, licenses and rights in any thereof and any other intangible property and assets which are material to the businesses of the Company and the Subsidiaries as now conducted, as proposed to be conducted or as described in this Agreement. (k) LABOR RELATIONS. No material labor problem exists or, to the knowledge of the Company or any Subsidiary, is imminent with respect to any of the employees of the Company or any Subsidiary. (l) SEC FILINGS. The Company has timely filed all required forms, reports and other documents required to be filed by the Company with the SEC under the 1934 Act. All of such forms, reports and other documents complied, when filed, in all material respects, with all applicable requirements of the 1933 Act and the 1934 Act. (m) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar person is entitled to any commission, fee or other compensation by reason of the transactions contemplated by this Agreement other than Wharton Capital Partners Ltd. and an affiliated entity, and the Company shall pay, and indemnify and hold harmless the Buyer from, any claim 7 11 made against the Buyer by such persons and any other person for any such commission, fee or other compensation. (n) NO SOLICITATION. No form of general solicitation or general advertising was used by the Company or, to the best of its knowledge, any other person acting on behalf of the Company, in respect of or in connection with the offer and sale of the Securities. Neither the Company nor, to its knowledge, any person acting on behalf of the Company has, either directly or indirectly, sold or offered for sale to any person any of the Shares or the Warrants or, within the six months prior to the date hereof, any other similar security of the Company except as contemplated by this Agreement and the Other Subscription Agreement; and neither the Company nor any person authorized to act on its behalf will sell or offer for sale any shares of Common Stock or Warrants, or solicit any offers to buy any shares of Preferred Stock or shares of Common Stock or Warrants, so as thereby to cause the issuance or sale of any of the Shares or the issuance of the Warrants to be in violation of Section 5 of the 1933 Act. (o) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued any shares of Common Stock or shares of any series of preferred stock or other securities convertible into, exchangeable for or otherwise entitling the holder to acquire shares of Common Stock which are subject to Rule 4460(i)(1)(D) of Nasdaq as in effect from time to time or any successor, replacement or similar provision thereof or of any other market on which the Common Stock is listed for trading (the "Shareholder Approval Rule") and which would be integrated with the sale of the Common Shares to the Buyer or the issuance of Warrant Shares upon exercise of the Warrants for purposes of the Shareholder Approval Rule. (p) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS. (a) TRANSFER RESTRICTIONS. (1) The Company and the Buyer acknowledge and agree that (A) the Shares and the Warrants have not been and are not being registered under the provisions of the 1933 Act and, except as provided in the Registration Rights Agreement with respect to the resale of the Shares, the Shares have not been and are not being registered for resale under the 1933 Act, and the Securities may not be transferred unless (i) subsequently registered for resale thereunder or (ii) the Buyer shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (B) any resale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act ("Rule 144") may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any such resale of Securities under circumstances in which the seller, or the person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (C) neither the Company nor any other person is under any obligation to register the Securities (other than pursuant to the Registration Rights Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder (other than pursuant to Section 4(d) hereof and pursuant to the Registration Rights Agreement). (2) In addition to the restrictions set forth in Section 4(a)(1), so long as the Company is in compliance in all material respects with its obligations to the Buyer under this 8 12 Agreement, the Warrants and the Registration Rights Agreement, the Buyer may not sell or transfer any Securities in a transaction other than pursuant to a registration statement under the 1933 Act or pursuant to Rule 144 (a "Private Transaction") without obtaining the prior approval of the Company of the proposed transferee in such Private Transaction (the "Proposed Transferee") in accordance with this Section 4(a)(2). At least ten Business Days prior to the consummation of a Private Transaction, the Buyer shall notify the Company of the identity of the Proposed Transferee and the amount of Securities proposed to be transferred. If within eight Business Days after receiving such notice the Company provides the Buyer with a certified copy of a resolution of the Company's Board of Directors (a "Restricted Person Resolution") stating that the Proposed Transferee is a Restricted Person (as defined herein), the Buyer may not transfer any Securities to such Proposed Transferee without again seeking the approval of the Company pursuant to this Section 4(a)(2). If the Company notifies the Buyer of its approval of such Proposed Transferee or fails to deliver a Restricted Person Resolution to the Buyer within such eight Business Day period, the Company shall be deemed to have approved the Proposed Transferee and shall thereupon cooperate with the Buyer to promptly consummate such Private Transaction in accordance with this Agreement and Section 9 of the Registration Rights Agreement. As used in this Agreement, "Restricted Person" means a Proposed Transferee, as reasonably determined by the Board of Directors of the Company, who has acquired, or is reasonably likely to attempt to acquire, shares of Common Stock for the purpose of (i) seeking control of or seeking to influence control of the Company or its Board of Directors, (ii) entering into an unsolicited business combination transaction with the Company or (iii) seeking to influence the management or policies of the Company. (b) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees that the Warrants shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the Warrants): The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities have been acquired for investment and may not be resold, transferred or assigned in the absence of an effective registration statement for the securities under the Securities Act of 1933, as amended, or an opinion of counsel that registration is not required under said Act. (2) The Buyer further acknowledges and agrees that until such time as the Shares have been registered for resale under the 1933 Act as contemplated by the Registration Rights Agreement, the certificates for the Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for the Shares): The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities have been acquired for investment and may not be resold, transferred or assigned in the absence of an effective registration statement for the securities under the Securities Act of 1933, as amended, or an opinion of counsel that registration is not required under said Act. (3) Once the Registration Statement required to be filed by the Company pursuant to Section 2 of the Registration Rights Agreement has been declared effective, thereafter (1) upon request of the Buyer the Company will substitute certificates without restrictive legend for certificates for all Shares issued prior to the date such Registration Statement is declared effective by the SEC which bear such restrictive legend and remove any stop-transfer restriction relating thereto promptly, but in no event later than three Trading Days 9 13 (as defined herein) after surrender of such certificates by the Buyer and (2) the Company shall not place any restrictive legend on certificates for Warrant Shares or impose any stop-transfer restriction thereon. As used in this Agreement, "Trading Day" means a day on whichever of (x) the national securities exchange, (y) Nasdaq or (z) the Nasdaq SmallCap which at the time constitutes the principal securities market for the Common Stock is open for general trading. (c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into the Registration Rights Agreement in the form attached hereto as ANNEX IV on or before the Closing Date. (d) FORM D. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Buyer agrees to cooperate with the Company in connection with such filing and, upon request of the Company, to provide all information relating to the Buyer reasonably required for such filing. (e) AUTHORIZATION FOR TRADING; REPORTING STATUS. On or before the Closing Date, the Company shall file a notification for listing of additional shares with the Nasdaq relating to the Shares and shall provide evidence of such filing to the Buyer. So long as the Buyer beneficially owns any of the Shares or the Warrants, the Company shall file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. (f) USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or has any present intention of acquiring any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System ("margin stock"). The proceeds of sale of the Shares will be used for general working capital purposes and in the operation of the Company's business. None of such proceeds will be used, directly or indirectly (1) to make any loan to or investment in any other person (other than financing the Company's subsidiaries in the ordinary course of business or in connection with an acquisition of another corporation or business or assets of another corporation or business) or (2) for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute the transactions contemplated by this Agreement a "purpose credit" within the meaning of such Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the transactions contemplated hereby to violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the 1934 Act, in each case as in effect now or as the same may hereafter be in effect. (g) BLUE SKY LAWS. On or before the Closing Date, the Company shall take such action as shall be necessary to qualify, or to obtain an exemption for, the Common Shares for sale to the Buyer and the Warrants for issuance to the Buyer pursuant to this Agreement and the Warrant Shares for issuance to the Buyer upon exercise of the Warrants under such of the securities or "blue sky" laws of jurisdictions as shall be applicable to the sale of the Common Shares and the issuance of the Warrants pursuant to this Agreement and the issuance to the Buyer of Warrant Shares upon exercise of the Warrants. The Company shall furnish copies of all filings, applications, orders and grants or confirmations of exemptions relating to such securities or "blue sky" laws on or prior to the Closing Date. 10 14 (h) CERTAIN EXPENSES. If the closing occurs, the Company shall pay or reimburse the Buyer for all reasonable expenses (including, without limitation, legal fees and expenses of counsel to the Buyer and the Buyer's due diligence expenses) not in excess of $30,000 incurred by the Buyer in connection with this Agreement and the transactions contemplated hereby and the buyer under the Other Subscription Agreement. In addition, the Company or the Buyer, as the case may be, shall pay on demand all expenses incurred by the other party, including reasonable attorneys' fees and expenses, as a consequence of, or in connection with (1) the negotiation, preparation or execution of any amendment, modification or waiver of this Agreement, the Registration Rights Agreement, the Warrants and the other agreements and instruments contemplated hereby and thereby requested by the requesting party, (2) any default or breach of any of the defaulting or breaching party's obligations set forth in any of such agreements or instruments and (3) the enforcement or restructuring of any right of, including the collection of any payments due, the other party under any of such agreements or instruments, including any action or proceeding relating to such enforcement, or any order, injunction or other process seeking to restrain a party from paying any amount due the other party, in which the other party prevails. (i) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company obtains the approval of its stockholders as required by the Shareholder Approval Rule or a waiver thereof from Nasdaq, the Company will not issue any shares of Common Stock or shares of any series of preferred stock or other securities convertible into, exchangeable for, or otherwise entitling the holder to acquire, shares of Common Stock which would be subject to the requirements of the Shareholder Approval Rule and which would be integrated with the sale of the Common Shares and issuance of the Warrants to the Buyer or the issuance of Warrant Shares upon exercise of the Warrants for purposes of the Shareholder Approval Rule. (2) During the period from the date of this Agreement to the date on which the Registration Statement shall have been effective with the SEC for 180 consecutive days, the Company shall not offer, sell, contract to sell or issue (or engage any person to assist the Company in taking any such action) (A) any security (whether debt or equity) containing terms relating to the number of shares issuable and the purchase price therefor which are similar to the terms of the Class B Warrants or (B) any equity securities or securities convertible into, exchangeable for or otherwise entitling the holder to acquire, any Common Stock at a price below the market price of the Common Stock on the date of such issuance (or below an average market price for a reasonable period prior to such issuance) or the date of conversion, exchange or other exercise thereof, including, without limitation, any combination of different types of securities where the aggregate purchase price paid or payable for all securities is less than the aggregate market value of such securities and, in the case of warrants and similar securities, taking into account reasonable assumptions regarding valuation using the Black-Scholes model and similar techniques (collectively, "Equity Securities"); provided, however, that nothing in this Section 4(i)(2) shall prohibit the Company from issuing securities (w) pursuant to compensation plans for employees, directors, officers, advisers or consultants of the Company and in accordance with the terms of such plans as in effect as of the date of this Agreement, (x) upon exercise of conversion, exchange, purchase or similar rights issued, granted or given by the Company and outstanding as of the date of this Agreement and disclosed in the SEC Reports or this Agreement, (y) pursuant to a public offering underwritten on a firm commitment basis registered under the 1933 Act or (z) as part of a transaction involving a strategic alliance, acquisition of stock or assets, merger, collaboration, joint venture, partnership or other similar arrangement of the Company with another corporation, partnership or other business entity which is engaged in a business similar to or related to the business of the Company, so long as 11 15 in the case of this clause (z) the Board of Directors by resolution duly adopted (and a copy of which shall be furnished to the Buyer promptly after adoption) determines that such issuance is fair to the holders of each class and series of capital stock of the Company and to the Buyer in respect of its equity interest in the Company that is represented by the Shares and the Warrants. (3) Subject to the restrictions in Section 4(i)(1), during the period from the date of execution and delivery of this Agreement to the date which is one year after the Closing Date, the Company shall not offer, sell, contract to sell or issue (or engage any person to assist the Company in taking any such action) any Equity Securities without giving the Buyer the first right to acquire the Equity Securities on the same terms as the Equity Securities are to be offered to other investors; provided, however, that this Section 4(i)(3) shall not apply to the offer or sale of Equity Securities by the Company in the transactions, and subject to the conditions, set forth in clauses (w), (x), (y) and (z) of the proviso to the first sentence of Section 4(i)(2) above. The Company shall give notice to the Buyer of the detailed terms of the Equity Securities proposed to be issued and, promptly after requested by the Buyer, such other information as requested by the Buyer to the extent such information is reasonably available to the Company. The Buyer may, by notice to the Company, exercise such right of first refusal at any time until the later of (x) ten Business Days after such notice from the Company to the Buyer and (y) one Business Day after the Company provides such additional information as shall have been requested by the Buyer during such ten Business Day period. (j) CERTAIN TRADING RESTRICTIONS. The Buyer agrees that on the Closing Date it will have no short position in the Common Stock. The Buyer agrees on its behalf and on behalf of its affiliates that on and after the Closing Date it will not engage in any short sales or other hedging transactions relating to the Common Stock so long as the Company does not intentionally or negligently fail to comply in all material respects with its obligations to the Buyer under this Agreement, the Warrants and the Registration Rights Agreement which failure results in a material adverse effect on the Buyer's ability to timely sell Shares as contemplated by this Agreement and, in the event of any noncompliance with such obligations, such noncompliance is cured within ten Business Days of the Company's receipt of notice thereof from the Buyer. (k) MONTHLY REPORTS. Within five Business Days after the end of each calendar month commencing December 1999 to and including the month in which the Buyer sells or transfers all remaining Common Shares, the Buyer shall give notice to the Company of the number of Common Shares held by the Buyer as of the close of business on the last day of each such month. (l) BEST EFFORTS. Each of the parties shall use its best efforts timely to satisfy each of the conditions to the other party's obligations to sell and purchase the Common Shares set forth in Section 7 or 8, as the case may be, of this Agreement on or before the Closing Date. 5. REPURCHASE AT OPTION OF THE COMPANY. If (i) the Company shall be in compliance in all material respects with its obligations to the Buyer (including, without limitation, its obligations under this Agreement, the Warrants and the Registration Rights Agreement), (ii) on the date the Repurchase Notice (as defined herein) is given and at all times until the Repurchase Date (as defined herein), the Registration Statement is effective and available for use by the Buyer for the resale of its Shares and (iii) on the date the Repurchase Notice is given and on the Repurchase Date, the Company has available and unrestricted Cash and Cash Equivalent Balances not less than the aggregate 12 16 amount to be paid to repurchase shares of Common Stock pursuant to Section 5 of this Agreement and the Other Subscription Agreement, then the Company shall have the right to repurchase outstanding Common Shares and Warrant Shares issued upon exercise of the Class B Warrants held by the Buyer (collectively, "Outstanding Shares") as follows: (a) REPURCHASE RIGHT. If the Company gives a Repurchase Notice to the Buyer not less than ten Trading Days or more than 30 Trading Days prior to the Repurchase Date, the Company may at any time repurchase all or from time to time any part of the Outstanding Shares held on the Repurchase Date which are subject to such Repurchase Notice in accordance with this Section 5. On the Repurchase Date, the Company shall make payment to the Buyer of the applicable Repurchase Price (as defined herein) multiplied by the number of Outstanding Shares to be repurchased in immediately available funds to such account as specified by the Buyer in writing to the Company at least one Trading Day prior to the Repurchase Date. Notwithstanding anything to the contrary in this Section 5, prior to the Repurchase Date or such later date on which the Repurchase Price is paid, the Buyer shall be free to sell or otherwise transfer any Outstanding Shares which are subject to the Repurchase Notice with respect to such Repurchase Date. (b) CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "Cash and Cash Equivalent Balances" of any person on any date shall be determined from such person's books maintained in accordance with Generally Accepted Accounting Principles, and means, without duplication, the sum of (1) the cash accrued by such person and its subsidiaries on a consolidated basis on such date and available for use by such person and its subsidiaries on such date and (2) all assets which would, on a consolidated balance sheet of such person and its subsidiaries prepared as of such date in accordance with Generally Accepted Accounting Principles, be classified as cash or cash equivalents, less the amount thereof which secures any outstanding indebtedness of the Company or its Subsidiaries. "Generally Accepted Accounting Principles" for any person means the generally accepted accounting principles and practices applied by such person from time to time in the preparation of its audited financial statements. "Market Price" shall have the meaning provided in the Class B Warrants. "Repurchase Date" means the date of repurchase of Outstanding Shares pursuant to Section 5. "Repurchase Notice" means a notice given by the Company to the Buyer pursuant to Section 5 exercising the Company's right to repurchase all or a portion of the Outstanding Shares pursuant to Section 5 which states (1) the number of Outstanding Shares which are to be repurchased, (2) the Repurchase Price and the formula for determining the same, determined in accordance herewith and (3) the applicable Repurchase Date. "Repurchase Price" means, for each Outstanding Share repurchased pursuant to Section 5, 120% of the greater of: (x) the arithmetic average of the Market Price on each of the five consecutive Trading Days prior to the date the Repurchase Notice is given to the Buyer, (y) the arithmetic average of the Market Price on each of the five consecutive Trading Days prior to the Repurchase Date and (z) if determined prior to 180 days after the Closing Date, the price 13 17 per share paid by the Buyer for the Common Shares on the Closing Date or, if determined on or after the day which is 180 days after the Closing Date, the most recent Adjustment Price (as defined in the Class B Warrants). 6. CLOSING DATE. Subject to the satisfaction or waiver of the conditions set forth in Sections 7 and 8, the date and time of the issuance and sale of the Common Shares and the issuance of the Warrants (the "Closing Date") shall be 12:00 noon, New York City time, on or before the date which is one Business Day after the date the Buyer has deposited the Purchase Price with the Escrow Agent in accordance with Section 1(b), or such other mutually agreed to time. The closing shall occur on the Closing Date at the_________________________________. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE. The Buyer understands that the Company's obligation to sell the Common Shares and issue the Warrants to the Buyer pursuant to this Agreement is conditioned upon the satisfaction of the following conditions precedent on or before the Closing Date (any or all of which may be waived by the Company in its sole discretion): (a) The receipt and acceptance by the Company of this Agreement as evidenced by execution of this Agreement by the Company and delivery of an executed counterpart of this Agreement to the Buyer or its legal counsel; (b) Delivery by the Buyer to the Escrow Agent of good funds as payment in full of an amount equal to the Purchase Price for the Common Shares in accordance with Section 1(b) hereof; and (c) The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement as if made on the Closing Date and the performance by the Buyer on or before the Closing Date of all covenants and agreements of the Buyer required to be performed on or before the Closing Date. 8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The Company understands that the Buyer's obligation to purchase the Common Shares and acquire the Warrants on the Closing Date is conditioned upon the satisfaction of the following conditions precedent on or before the Closing Date (any or all of which may be waived by the Buyer in its sole discretion): (a) Delivery by the Company to the Escrow Agent of the certificates for the Common Shares, the Class A Warrants and the Class B Warrants in accordance with this Agreement; (b) The accuracy on the Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Closing Date and the performance by the Company on or before the Closing Date of all covenants and agreements of the Company required to be performed on or before the Closing Date, and receipt by the Buyer of a certificate, dated the Closing Date, of the Chief Executive Officer of the Company confirming such matters and such other matters as the Buyer may reasonably request; 14 18 (c) The receipt by the Buyer of a certificate, dated the Closing Date, of the Secretary of the Company certifying (1) the Certificate of Incorporation, as amended, and By-Laws of the Company as in effect on the Closing Date and (2) all resolutions of the Board of Directors (and committees thereof) of the Company relating to this Agreement and the transactions contemplated hereby; and (d) Receipt by the Buyer on the Closing Date of an opinion of Christopher J. Melcher, Esq., Vice President and General Counsel of the Company, dated the Closing Date, in form, scope and substance reasonably satisfactory to the Buyer, to the effect set forth in ANNEX V attached hereto. 9. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Colorado. (b) COUNTERPARTS. This Agreement may be executed in counterparts and by the parties hereto on separate counterparts, all of which together shall constitute one and the same instrument. A facsimile transmission of this Agreement bearing a signature on behalf of a party hereto shall be legal and binding on such party. Although this Agreement is dated as of the date first set forth above, the actual date of execution and delivery of this Agreement by each party is the date set forth below such party's signature on the signature page hereof. Any reference in this Agreement or in any of the documents executed and delivered by the parties hereto in connection herewith to (1) the date of execution and delivery of this Agreement by the Buyer shall be deemed a reference to the date set forth below the Buyer's signature on the signature page hereof, (2) the date of execution and delivery of this Agreement by the Company shall be deemed a reference to the date set forth below the Company's signature on the signature page hereof and (3) the date of execution and delivery of this Agreement or the date of execution and delivery of this Agreement by the Buyer and the Company shall be deemed a reference to the later of the dates set forth below the signatures of the parties on the signature page hereof. (c) HEADINGS, ETC. The headings, captions and footers of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. (e) AMENDMENTS. No amendment, modification, waiver, discharge or termination of any provision of this Agreement nor consent to any departure by the Buyer or the Company therefrom shall in any event be effective unless the same shall be in writing and signed by the party to be charged with enforcement, and then shall be effective only in the specific instance and for the purpose for which given. No course of dealing between the parties hereto shall operate as an amendment of this Agreement. (f) WAIVERS. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, or any course of 15 19 dealings between the parties, shall not operate as a waiver thereof or an amendment hereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or exercise of any other right or power. (g) NOTICES. Any notices required or permitted to be given under the terms of this Agreement shall be delivered personally (which shall include telephone line facsimile transmission with answer back confirmation) or by courier and shall be effective upon receipt, in the case of the Company addressed to the Company at its address shown in the introductory paragraph of this Agreement, Attention: Chief Executive Officer (telephone line facsimile transmission number (303) 672-0711) or, in the case of the Buyer, at its address or telephone line facsimile transmission number shown on the signature page of this Agreement, with a copy to_________________________________________________ or such other address or telephone line facsimile transmission number as a party shall have provided by notice to the other party in accordance with this provision. (h) ASSIGNMENT. Prior to the Closing Date, the Buyer may not assign its rights and obligations under this Agreement. Any transfer of the Shares or the Warrants by the Buyer after the Closing Date shall be made in accordance with Section 4(a). After the Closing Date, the Buyer shall have the right to assign its rights and obligations under this Agreement in connection with any transfer of the Buyer's rights under the Registration Rights Agreement by compliance with the provisions of Section 9 of the Registration Rights Agreement. (i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective representations, warranties, covenants and agreements of the Buyer and the Company contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall survive the delivery of and payment for the Common Shares and shall remain in full force and effect regardless of any investigation made by or on behalf of them or any person controlling or advising any of them. (j) ENTIRE AGREEMENT. This Agreement and its Schedules and Annexes set forth the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, with respect thereto. (k) TERMINATION. Either party shall have the right to terminate this Agreement by giving notice to the other party at any time at or prior to the Closing Date if: (1) the other party shall have failed, refused, or been unable at or prior to the date of such termination of this Agreement to perform any of its obligations hereunder; (2) any other condition of the terminating party's obligations hereunder is not fulfilled; or (3) the closing shall not have occurred on a Closing Date on or before December 15, 1999, other than solely by reason of a breach of this Agreement by the terminating party. Any such termination shall be effective upon the giving of notice thereof by the terminating party. Upon such termination, neither party shall have any further obligation to the other party hereunder; provided, however, that each party shall remain liable for an amount not to exceed 16 20 $30,000 for any breach by such party of this Agreement or the other documents contemplated hereby which occurred on or prior to the date of such termination, including, without limitation, liability for the fees and expenses of counsel for the non-breaching party. (l) FURTHER ASSURANCES. Each party to this Agreement will perform any and all acts and execute any and all documents as may be necessary and proper under the circumstances in order to accomplish the intents and purposes of this Agreement and to carry out its provisions. (m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the Buyer shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or other public disclosure with respect to such transactions as is required by applicable law or Nasdaq regulation (although the Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). (n) CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 17 21 IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer and the Company by their respective officers or other representatives thereunto duly authorized on the respective dates set forth below. NUMBER OF SHARES: --------------------- PRICE PER SHARE: $ --------------------- AGGREGATE PURCHASE PRICE: $ --------------- ---------------------- By: , ------------------------------------ as General Manager By: ------------------------------------ President Date: December 7, 1999 ----------------- Address: ------------------------------- Facsimile No.: ------------------------- RMI.NET, INC. By: ------------------------------------ Douglas H. Hanson Chairman & CEO Date: December 7, 1999 ---------------- EX-4.21 3 FORM OF CLASS A WARRANT (ANNEX I TO SUBSCRIPTION) 1 Exhibit 4.21 ANNEX I TO SUBSCRIPTION AGREEMENT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. Right to Purchase 91,393 Shares of Common Stock of RMI.NET, Inc. RMI.NET, INC. COMMON STOCK PURCHASE WARRANT, CLASS A No. A-___ RMI.NET, INC., a Delaware corporation (the "Company"), hereby certifies that, for value received,____________________ or registered assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof, and before 5:00 p.m., New York City time, on the Expiration Date (such capitalized term and all other capitalized terms used herein having the respective meanings provided herein), 91,393 fully paid and nonassessable shares of Common Stock at a purchase price per share equal to the Purchase Price. The number of such shares of Common Stock and the Purchase Price are subject to adjustment as provided in this Warrant. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: "Class A Warrants" means this Warrant and the other Common Stock Purchase Warrants, Class A issued or issuable by the Company pursuant to the Subscription Agreement and the Other Subscription Agreement. "Class B Warrants" means the Common Stock Purchase Warrants, Class B issued or issuable by the Company pursuant to the Subscription Agreement and the Other Subscription Agreement. "Common Stock" means the Company's Common Stock, $.001 par value per share, as authorized on the date hereof, and any other securities into which or for which the Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. 2 "Company" shall include RMI.NET, Inc., a Delaware corporation, and any corporation that shall succeed to or assume the obligation of RMI.NET, Inc. hereunder in accordance with the terms hereof. "Company Put Closing Date" shall have the meaning provided in Section 1.4(a). "Company Put Notice" means a Company Put Notice, in the form of Exhibit 2 to this Warrant. "Company Put Requirements" means (1) The Registration Statement shall be effective and available for use for the resale of the shares of Common Stock issuable upon exercise of this Warrant and the Other Warrants and shall be expected to remain effective and available for use for at least 30 days after the issuance of the Common Stock that is issuable pursuant to this Warrant by reason of the Company Put Notice; and (2) The Company shall, simultaneously with the giving of the Company Put Notice, have exercised its rights under Section 1.3 of each of the Other Class A Warrants to require the holders of such Other Class A Warrants to exercise such Other Class A Warrants in to the same proportion as this Warrant is being required to be exercised. "Company Put Threshold Event" means the occurrence of a period of 20 consecutive Trading Days during which period the closing bid price of the Common Stock on Nasdaq as reported by Bloomberg, L.P. is greater than 150% of the Purchase Price on each of such Trading Days. "Expiration Date" means December 7, 2004. "Issuance Date" means the first date of original issuance of this Warrant. "Nasdaq" means the Nasdaq National Market. "1934 Act" means the Securities Exchange Act of 1934, as amended. "1933 Act" means the Securities Act of 1933, as amended. "Other Class A Warrants" means the Class A Warrants issued pursuant to the Other Subscription Agreement. "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4. "Other Subscription Agreement" means the subscription agreement, dated as of the date of the Subscription Agreement, between the Company and the buyer named therein, as amended from time to time in accordance with its terms. -2- 3 "Other Warrants" means the Class A Warrants (other than this Warrant) and the Class B Warrants. "Purchase Price" shall mean $9.8476 per share, subject to adjustment as provided in this Warrant. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 7, 1999, by and between the Company and the original Holder of this Warrant, as amended from time to time in accordance with its terms. "Registration Statement" shall have the meaning provided in the Registration Rights Agreement. "Subscription Agreement" means the Subscription Agreement, dated as of December 7, 1999, by and between the Company and the original Holder of this Warrant, as amended from time to time in accordance with its terms. "Trading Day" means a day on which the principal securities market for the Common Stock is open for general trading of securities. "Transaction Documents" means this Warrant, the Class B Warrants issued to the original Holder of this Warrant on the Issuance Date, the Subscription Agreement and the Registration Rights Agreement. 1. EXERCISE OF WARRANT; COMPANY PUT RIGHT. 1.1 EXERCISE. (a) This Warrant may be exercised by the Holder hereof in full or in part at any time or from time to time during the exercise period specified in the first paragraph hereof until the Expiration Date by surrender of this Warrant and the subscription form in the form of EXHIBIT 1 to this Warrant (duly executed by the Holder) to the Company and by making payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying (a) the number of shares of Common Stock designated by the Holder in the subscription form by (b) the Purchase Price then in effect. If at the request of the Company the subscription form is delivered to the Company's transfer agent for the Common Stock, the Holder shall provide a copy of the subscription form to the Company at the time of exercise and the Company will confirm the exercise instructions given therein by notice to the Company's transfer agent within one Trading Day after receiving subscription form. On any partial exercise the Company will forthwith issue and deliver to or upon the order of the Holder hereof a new Warrant or Warrants of like tenor, in the name of the Holder hereof or as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, providing in the aggregate on the face or faces thereof for the purchase of the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. (b) Notwithstanding any other provision of this Warrant, in no event shall the Holder be entitled at any time to purchase a number of shares of Common Stock on exercise of this Warrant in excess of that number of shares upon purchase of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and all persons whose beneficial ownership of shares of Common Stock would be aggregated with the Holder's beneficial ownership of shares of Common Stock for purposes of Section 13(d) of the 1934 Act and Regulation 13D-G thereunder (each such person other than the Holder an "Aggregated -3- 4 Person" and all such persons other than the Holder, collectively, the "Aggregated Persons") (other than shares of Common Stock deemed beneficially owned through the ownership by the Holder and all Aggregated Persons of the Holder of the unexercised portion of this Warrant and the unexercised or unconverted portion of any other security of the Company which contains similar provisions) (2) the number of shares of Common Stock issuable upon exercise of the portion of this Warrant with respect to which the determination in this sentence is being made, would result in beneficial ownership by the Holder and all Aggregated Persons of the Holder of more than 4.9% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of the immediately preceding sentence. 1.2 NET ISSUANCE. Notwithstanding anything to the contrary contained in Section 1.1, the Holder may elect to exercise this Warrant in whole or in part by receiving shares of Common Stock equal to the net issuance value (as determined below) of this Warrant, or any part hereof, upon surrender of this Warrant to the principal office of the Company together with the subscription form annexed hereto (duly executed by the Holder), in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y(A-B) ------ A Where: X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock as to which this Warrant is to be exercised A = the current fair market value of one share of Common Stock calculated as of the last Trading Day immediately preceding the exercise of this Warrant B = the Purchase Price As used herein, current fair market value of Common Stock as of a specified date shall mean with respect to each share of Common Stock the closing sale price of the Common Stock on the principal securities market on which the Common Stock may at the time be listed or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on the principal securities market at the end of such day, or, if on such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the Nasdaq System as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not quoted in the Nasdaq System, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of five consecutive Trading Days consisting of the day as of which the current fair market value of a share of Common Stock is being determined (or if such day is not a Trading Day, the Trading Day next preceding such day) and the four consecutive Trading Days prior to such day. If on the date for which current fair market value is to be determined the Common Stock is not listed on any securities exchange or quoted in the Nasdaq System or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could then obtain from a willing buyer (not a current -4- 5 employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors of the Company, unless prior to such date the Company has become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the current fair market value of the Common Stock shall be deemed to be the value received by the holders of the Company's Common Stock for each share thereof pursuant to the Company's acquisition. 1.3 COMPANY PUT RIGHT. (a) If a Company Put Threshold Event occurs, then at any time within ten Trading Days after such Company Put Threshold Event, the Company shall have the right to require the Holder to exercise this Warrant in full or in part in accordance with Sections 1.1 and 1.2 with respect to the shares of Common Stock that are subject to this Warrant that the Holder has not previously purchased and to require the holders of the Other Class A Warrants to exercise such Other Class A Warrants in full or in part (in the same proportion as this Warrant) with respect to all of the shares of Common Stock that such holders have not previously purchased. To exercise its right to require the Holder to purchase Common Stock pursuant to this Warrant, the Company shall give the Holder a Company Put Notice within five Trading Days after the Company Put Threshold Event and the Holder shall be obligated to exercise this Warrant as specified in such Notice if the requirements of this Section and Section 1.4 are satisfied. The Company may give the Holder a Company Put Notice no more frequently than once during any period of 90 consecutive days. Notwithstanding the Company's put rights, nothing in this Section 1.3 or Section 1.4 shall prevent the Holder from exercising this Warrant in accordance with Sections 1.1 and 1.2 at any time prior to the Company Put Closing Date (as defined herein). (b) The Company shall be entitled to give the Company Put Notice only if the Company Put Requirements are met on the date the Company Put Notice is given. If the Company shall have given the Company Put Notice with respect to a particular Company Put Threshold Event, the Company shall be entitled to require the Holder to purchase shares of Common Stock pursuant to this Section 1.3 only if the Company Put Requirements are met at all times from the time the Company gives such Company Put Notice to and including the applicable Company Put Closing Date. 1.4 EXERCISE OF COMPANY PUT RIGHT; CONDITIONS. (a) Notwithstanding anything to the contrary in this Warrant, the date and time of the issuance and sale of shares of Common Stock pursuant to the exercise of the Company's rights under Section 1.3 and this Section 1.4 shall be the date which is not earlier than ten Trading Days and not later than 30 Trading Days after the Company gives the Company Put Notice, or such earlier date as specified by the Holder by notice to the Company (the "Company Put Closing Date"). The closing of such exercise shall occur at a location and time of day as mutually agreed by the Holder and the Company. (b) The obligation of the Holder to exercise this Warrant pursuant to Section 1.3 on the Company Put Closing Date is subject to the satisfaction of the following conditions precedent (any or all of which may be waived by the Holder in its sole discretion): (1) On the Company Put Closing Date, no legal action, suit or proceeding shall be pending or threatened which seeks to restrain or prohibit the transactions contemplated by this Warrant or the other Transaction Documents; -5- 6 (2) The material representations and warranties of the Company contained in the Transaction Documents shall have been true and correct on the respective dates of the Transaction Documents and shall be true and correct on the Company Put Closing Date, as if made on and as of the Company Put Closing Date (except for representations made as of a specific date, which representations shall be true and correct as of such date) and on or before the Company Put Closing Date the Company shall have performed all covenants and agreements of the Company contained in the Transaction Documents required to be performed by the Company on or before the Company Put Closing Date; (3) At all times from the time the Company gives the Company Put Notice to and including the Company Put Closing Date, the Company Put Requirements shall have been met; (4) The Company shall have delivered to the Holder its certificate, dated the Company Put Closing Date, duly executed by its Chief Executive Officer to the effect set forth in clauses (1), (2) and (3) of this Section 1.4(b); (5) On the Put Closing Date, the Holder shall have received an opinion of counsel selected by the Company and reasonably acceptable to the Holder, dated the Put Closing Date, addressed to the Holder, in form, scope and substance reasonably satisfactory to the Holder, substantially in the form of EXHIBIT 3 to this Warrant; and (6) On the Company Put Closing Date (i) trading in securities on the New York Stock Exchange, Inc., the American Stock Exchange, Inc., the Nasdaq or the Nasdaq SmallCap shall not have been suspended or materially limited and (ii) a general moratorium on commercial banking activities in the State of Colorado or the State of New York shall not have been declared by either federal or state authorities. 2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as practicable after the exercise of this Warrant, and in any event within three Trading Days thereafter, the Company at its expense (including the payment by it of any applicable issue or stamp taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which the Holder shall be entitled on such exercise, in such denominations as may be requested by the Holder, plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash equal to such fraction multiplied by the then current fair market value (as determined in accordance with subsection 1.2) of one full share, together with any other stock or other securities and property (including cash, where applicable) to which the Holder is entitled upon such exercise pursuant to Section 1 or otherwise. Upon exercise of this Warrant as provided herein, the Company's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Holder, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such exercise. If the Company fails to issue and deliver the certificates for the Common Stock to the Holder pursuant to the first sentence of this paragraph as and when required to do so, in addition to any other liabilities the Company may have hereunder and -6- 7 under applicable law, the Company shall pay or reimburse the Holder on demand for all out-of-pocket expenses including, without limitation, reasonable fees and expenses of legal counsel incurred by the Holder as a result of such failure. 3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.; RECLASSIFICATION, ETC. In case at any time or from time to time after the Issuance Date, all the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, other than additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Section 5), then and in each such case the Holder, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) which the Holder would hold on the date of such exercise if on the date thereof the Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the case referred to in subdivisions (b) and (c) of this Section 3) receivable by the Holder as aforesaid during such period, giving effect to all adjustments called for during such period by Section 4. Notwithstanding anything in this Section 3 to the contrary, no adjustments pursuant to this Section 3 shall actually be made until the cumulative effect of the adjustments called for by this Section 3 since the date of the last adjustment actually made would change the amount of stock or other securities and property which the Holder would hold by more than 1%. 4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time after the Issuance Date, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition of such reorganization, consolidation, merger, sale or conveyance, the Company shall give at least 30 days notice to the Holder of such pending transaction whereby the Holder shall have the right to exercise this Warrant prior to any such reorganization, consolidation, merger, sale or conveyance. Any exercise of this Warrant pursuant to notice under this Section shall be conditioned upon the closing of such reorganization, consolidation, merger, sale or conveyance which is the subject of the notice and the exercise of this Warrant shall not be deemed to have occ until immediately prior to the closing of such transaction. 5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that after the Issuance Date the Company shall (i) issue additional shares of Common Stock as a dividend or -7- 8 other distribution on outstanding Common Stock, (ii) subdivide or reclassify its outstanding share of Common Stock, or (iii) combine its outstanding share of Common Stock into a smaller number of shares of Common Stock, then, in each event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the Purchase Price in effect immediately prior to such event by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 5. The Holder shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive that number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would be issuable on such exercise immediately prior to such issuance by a fraction of which (i) the numerator is the Purchase Price in effect immediately prior to such issuance and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 6. ADJUSTMENT FOR CERTAIN STOCK ISSUANCES. In case at any time the Company shall issue shares of its Common Stock or debt or equity securities convertible into or exercisable or exchangeable for shares of Common Stock (collectively, the "Newly Issued Shares"), other than (i) an issuance pro rata to all holders of its outstanding Common Stock, (ii) pursuant to compensation plans for employees, directors, officers, advisers or consultants of the Company and in accordance with the terms of such plans as in effect on the Issuance Date, (iii) upon exercise of conversion, exchange, purchase or similar rights issued, granted or given by the Company and outstanding on the Issuance Date, (iv) pursuant to a public offering underwritten on a firm commitment basis registered under the 1933 Act or (v) as part of a transaction involving a strategic alliance, acquisition of stock or assets, merger, collaboration, joint venture, partnership or other similar arrangement of the Company with another corpo partnership or other business entity which is engaged in a business similar to or related to the business of the Company, so long as in the case of this clause (v) the Board of Directors of the Company by resolution duly adopted (and a copy of which shall be furnished to the Holder promptly after adoption) determines that such issuance is fair to the holders of each class and series of capital stock of the Company and to the Holder in respect of its equity interest in the Company, at a price below the Purchase Price in effect at the time of such issuance, then following such issuance of Newly Issued Shares the number of shares of Common Stock which the Holder shall be entitled to receive upon exercise of this Warrant shall be increased and the Purchase Price shall be decreased to the respective amounts determined pursuant to this Section 6. The number of shares of Common Stock purchasable upon the exercise of this Warrant following any such adjustment shall be determined by multiplying the number of shares purchasable upon exercise of this Warrant immediately prior to such adjustment by a fraction, the numerator of which shall be the sum of (a) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all options, warrants, purchase rights or convertible securities which are exercisable at the time of the issuance of the Newly Issued Shares), plus (b) the number of Newly Issued Shares, and the denominator of which shall be the sum of (a) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the conversion of all options, warrants, purchase rights or convertible securities which are exercisable at the time of the issuance of the Newly Issued Shares), plus (b) the number of shares of Common Stock which the aggregate consideration, if any, received by the Company for the number of Newly Issued Shares would purchase at a price equal to the Purchase Price in effect at the time of such issuance. Upon any adjustment under this Section 6, the number of -8- 9 shares of Common Stock purchasable upon exercise of this Warrant in full immediately after such adjustment shall be rounded to the nearest one-one-hundredth of a share of Common Stock subject, however, to Section 2 of this Warrant relating to fractional shares of Common Stock. Such adjustment of the number of shares purchasable provided for in this Section 6 may be expressed as the following mathematical formula: X = W x [O+N] -------- [O+(C/P)] where: C = aggregate consideration received by the Company for the Newly Issued Shares N = number of Newly Issued Shares O = number of shares of Common Stock outstanding (on a fully diluted basis, as described above) prior to the issuance of the Newly Issued Shares P = Purchase Price in effect at the time of the issuance of the Newly Issued Shares W = number of shares issuable upon exercise of this Warrant prior to the issuance of the Newly Issued Shares X = number of shares issuable upon exercise of this Warrant after the issuance of the Newly Issued Shares Upon the issuance of such Newly Issued Shares, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the Purchase Price in effect immediately prior to such event by a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant prior to the issuance of the Newly Issued Shares and the denominator of which shall be the number of shares of Common Stock issuable upon the exercise of this Warrant after the issuance of the Newly Issued Shares as provided in this Section 6, and the product so obtained shall thereafter be the Purchase Price then in effect. The number of shares issuable upon exercise of this Warrant and the Purchase Price, as each is so adjusted, shall be readjusted in the same manner upon the happening of any successive issuances of Newly Issued Shares described in this Section 6. 7. FURTHER ASSURANCES. The Company will take all action that may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock, free from all taxes, liens and charges with respect to the issue thereof, on the exercise of all or any portion of this Warrant from time to time outstanding. 8. NOTICES OF RECORD DATE, ETC. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend on, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or -9- 10 (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets of the Company to or consolidation or merger of the Company with or into any other person (other than a wholly-owned subsidiary of the Company), or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the Holder, at least ten days prior to such record date, a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall also state that the action in question or the record date is subject to the effectiveness of a registration statement under the 1933 Act, or a favorable vote of stockholders, if either is required. Such notice shall be mailed at least ten days prior to the date specified in such notice on which any such action is to be taken or the record date, whichever is earlier. 9. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The Company will at all times reserve and keep available out of its authorized but unissued shares of capital stock, solely for issuance and delivery on the exercise of this Warrant, a sufficient number of shares of Common Stock (or Other Securities) to effect the full exercise of this Warrant and the exercise, conversion or exchange of any other warrant or security of the Company exercisable for, convertible into, exchangeable for or otherwise entitling the holder to acquire shares of Common Stock (or Other Securities), and if at any time the number of authorized but unissued shares of Common Stock (or Other Securities) shall not be sufficient to effect such exercise, conversion or exchange, the Company shall take such action as may be necessary to increase its authorized but unissued shares of Common Stock (or Other Securities) to such number as shall be sufficient for such purposes. 10. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of the successors to and assigns of the Holder. This Warrant and all rights hereunder, in whole or in part, are registrable at the office or agency of the Company referred to below by the Holder hereof in person or by his duly authorized attorney, upon surrender of this Warrant properly endorsed. 11. REGISTER OF WARRANTS. The Company shall maintain, at the principal office of the Company (or such other office as it may designate by notice to the Holder hereof), a register in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each successor and prior owner of such Warrant. The Company shall be entitled to treat the person in whose name this Warrant is so registered as the sole and absolute owner of this Warrant for all purposes. -10- 11 12. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the surrender hereof by the Holder hereof at the office or agency of the Company referred to in Section 11, for one or more new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by said Holder hereof at the time of such surrender. 13. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 14. WARRANT AGENT. The Company may, by written notice to the Holder, appoint the transfer agent and registrar for the Common Stock as the Company's agent for purposes of issuing shares of Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, and the Company may, by notice to the Holder, appoint an agent having an office in the United States of America for the purpose of exchanging this Warrant pursuant to Section 12 and replacing this Warrant pursuant to Section 13, or either of the foregoing, and thereafter any such exchange or replacement, as the case may be, shall be made at such office by such agent. 15. REMEDIES. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 16. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder hereof to purchase Common Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 17. NOTICES, ETC. All notices and other communications from the Company to the registered Holder or from the registered Holder to the Company shall be delivered personally (which shall include telephone line facsimile transmission with answer back confirmation) or by courier and shall be effective upon receipt, addressed to each party at the address or telephone line facsimile transmission number for each party set forth in the Subscription Agreement or at such other address or telephone line facsimile transmission number as a party shall have provided to the other party in accordance with this provision. 18. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the Holder represents to the Company that this Warrant is being acquired for the Holder's own account and for the purpose of investment and not with a view to, or for sale in connection with, the distribution thereof, nor with any present intention of distributing or selling this Warrant or the Common Stock issuable upon exercise of this Warrant. The Holder acknowledges and agrees -11- 12 that this Warrant and, except as otherwise provided in the Registration Rights Agreement, the shares of Common Stock issuable upon exercise of this Warrant (if any) have not been (and at the time of acquisition by the Holder, will not have been or will not be), registered under the 1933 Act or under the securities laws of any state, in reliance upon certain exemptive provisions of such statutes. The Holder further recognizes and acknowledges that (a) because this Warrant and, except as provided in the Registration Rights Agreement, the Common Stock issuable upon exercise of this Warrant (if any) are unregistered, they may not be eligible for resale, and may only be resold in the future pursuant to an effective registration statement under the 1933 Act and any applicable state securities laws, or pursuant to a valid exemption from such registration requirements and (b) the transfer of this Warrant and the Common Stock issuable upon the exercise hereof are subject to the restrictions on transfer set forth in the Registration Rights Agreement and in Section 4 of the Subscription Agreement. Unless the shares of Common Stock issuable upon exercise of this Warrant have theretofore been registered for resale under the 1933 Act, the Company may require, as a condition to the issuance of Common Stock upon the exercise of this Warrant (i) in the case of an exercise in accordance with Section 1.1 hereof, a confirmation as of the date of exercise of the Holder's representations pursuant to this Section 18, or (ii) in the case of an exercise in accordance with Section 1.2 hereof, an opinion of counsel reasonably satisfactory to the Company that the shares of Common Stock to be issued upon such exercise may be issued without registration under the 1933 Act. 19. LEGEND. Unless theretofore registered for resale under the 1933 Act, each certificate for shares issued upon exercise of this Warrant shall bear the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities have been acquired for investment and may not be resold, transferred or assigned in the absence of an effective registration statement for the securities under the Securities Act of 1933, as amended, or an opinion of counsel that registration is not required under said Act. 20. LIMITATION OF HOLDER'S LIABILITY. In connection with any exercise by the Company of its rights under Section 1.3, the Holder (a) shall be liable for damages from breach of the Holder's obligations relating to such exercise only if and to the extent such breach shall have been determined by final judgment, not subject to further appeal, of a court of competent jurisdiction to have resulted from conduct of the Holder which constitutes gross negligence or willful misconduct, (b) shall have no liability in connection with any dispute or legal action relating to such exercise if at any time prior to a final judgment referred to in the immediately preceding clause (a) the Holder shall have tendered the Purchase Price of, or surrendered this Warrant in accordance with Section 1.2 in respect of, all shares of Common Stock the purchase of which is in dispute (in which case the Company shall issue such shares to the Holder in accordance with this Warrant) and (c) if the immediately preceding clause (b) is inapplicable, shall not in any event be liable for damages or liability arising from or in any way relating to any breach or alleged breach by the Holder of its obligations under this Warrant or otherwise in connection with this Warrant in an amount in excess of the aggregate Purchase Price payable upon exercise of the unexercised portion of this Warrant. This Warrant and the terms and provisions hereof are for the sole and exclusive benefit of the Holder, the Company and the Holder's permitted assigns and in no event shall the Holder have any liability to any stockholder or creditor of the Company or any other Person (other than the Company, subject to the limitations on liability to the Company contained herein) in any way relating to or arising from this Warrant or the transactions contemplated hereby. -12- 13 21. ATTORNEYS' FEES. In any litigation, arbitration or court proceeding between the Company and Holder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant. 22. AMENDMENT; WAIVER. This Warrant and any terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. Notwithstanding any other provision of this Warrant or the Subscription Agreement, in addition to the requirements of the immediately preceding sentence, any amendment of (x) Section 1.1(b), (y) the definition of the term Aggregated Person or (z) this sentence shall require approval by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, present in person or represented by proxy at a duly convened meeting of stockholders of the Company, and entitled to vote, or the consent thereto in writing by holders of a majority of the outstanding shares of Common Stock, and the stockholders of the Company are hereby expressly made third party beneficiaries of this sentence. 23. MISCELLANEOUS. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of Colorado. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. -13- 14 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on its behalf by one of its officers thereunto duly authorized. Dated: December ___, 1999 RMI.NET, INC. By: ------------------------- Title: ---------------------- -14- 15 EXHIBIT 1 FORM OF SUBSCRIPTION RMI.NET, INC. (To be signed only on exercise of Warrant) TO: RMI.NET, Inc. 999 18th Street Suite 2201 Denver, Colorado 80202 Attention: Chief Financial Officer 1. The undersigned Holder of the attached original, executed Warrant hereby elects to exercise its purchase right under such Warrant with respect to ______________ shares of Common Stock, as defined in the Warrant, of RMI.NET, Inc., a Delaware corporation (the "Company"). 2. The undersigned Holder (check one): p (a) elects to pay the aggregate purchase price for such shares of Common Stock (the "Exercise Shares") (i) by lawful money of the United States or the enclosed certified or official bank check payable in United States dollars to the order of the Company in the amount of $___________, or (ii) by wire transfer of United States funds to the account of the Company in the amount of $____________, which transfer has been made before or simultaneously with the delivery of this Form of Subscription pursuant to the instructions of the Company; or p (b) elects to receive shares of Common Stock having a value equal to the value of the Warrant calculated in accordance with Section 1.2 of the Warrant. 3. Please issue a stock certificate or certificates representing the appropriate number of shares of Common Stock in the name of the undersigned or in such other name as is specified below: Name: -------------------------- Address: ----------------------- ------------------------------ 16 4. The undersigned Holder hereby represents to the Company that the exercise of the Warrant elected hereby does not violate Section 1.1(b) of the Warrant. Dated: HOLDER: ------- ---, --- ----------------------------------- By: ------------------------------- (Signature must conform to name of Holder as specified on the face of the Warrant) Name: Title: Address: ------------------------ -------------------------------- 17 EXHIBIT 2 COMPANY PUT NOTICE RMI.NET, INC. TO: -------------------- Name of Holder 1. RMI.NET, Inc., a Delaware corporation (the "Company"), hereby elects to exercise its right under the Company's Common Stock Purchase Warrant, Class A, No. ___ (the "Warrant") to require the Holder to exercise the Warrant for ______________ shares of Common Stock of the Company. 2. The Company Put Closing Date will be ______________, unless another date is specified by the Holder pursuant to Section 1.4(a) of the Warrant. 3. The Company hereby represents and warrants that the Company Put Requirements are satisfied on the date this Notice is given. 4. Capitalized terms used in this Notice and not otherwise defined herein shall have the respective meanings provided in the Warrant. Dated: RMI.NET, INC. ------- ---, ---- By: ------------------------ Name: Title: 18 EXHIBIT 3 [Letterhead of Company Counsel] [Company Put Closing Date] To the Holders Listed on Schedule A hereto RE: RMI.NET, INC. Ladies and Gentlemen: We have acted as counsel to RMI.NET, Inc., a Delaware corporation (the "Company"), in connection with issuance by the Company of Common Stock Purchase Warrants, Class A (the "Warrants") to purchase shares (the "Warrant Shares") of Common Stock, $.001 par value, of the Company, pursuant to the several Subscription Agreements, dated as of December 70+*-, 1999 (the "Agreements"), between the Company and the several Buyers named therein (the "Buyers"). This opinion is rendered pursuant to Section 1.4(b)(5) of the Warrants in connection with the exercise by the Company of its put rights pursuant of Section 1.3 of the Warrants. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned to such terms in the Agreements and the Warrants. [OTHER INTRODUCTORY STATEMENTS ACCEPTABLE TO THE BUYERS MAY BE INCLUDED PRIOR TO EXECUTION OF THE SUBSCRIPTION AGREEMENTS.] Based upon the foregoing, we are of the opinion that: (1) The Warrant Shares have been duly authorized and, when issued upon exercise of the Warrants in accordance with the terms of Sections 1.3, 1.4 and the other applicable provisions of the Warrants will be validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder; (2) The issuance by the Company of the Warrant Shares do not, with or without the giving of notice or the lapse of time, or both, (i) result in any violation of any term of the certificate of incorporation or by-laws of the Company, (ii) conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under, or result in the modification of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company pursuant to, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company is a party or by which the Company or any of its properties or assets are bound or affected or (iii) violate or contravene any applicable law, rule or regulation or any applicable decree, judgment or order of any court, federal or state regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any of its properties or assets or (iv) have any material adverse effect on any permit, certification, registration, approval, consent, license or franchise necessary for the Company to own or lease and operate any of its properties and to conduct any of its business or the ability of the Company to make use thereof; 19 (3) There is no legal action, suit, or proceeding pending or, to the best of our knowledge, threatened against or affecting the Company which seeks to restrain or prohibit the transactions contemplated by the Warrants, the Class B Warrants or the Agreements; (4) Assuming the representations and warranties of the Buyers in Section 2 of the Agreements are true and correct, the Warrant Shares may be issued to the Holders upon exercise of the Warrants without registration under the 1933 Act; and (5) The Registration Statement is effective under the 1933 Act, to the best of our knowledge, no stop order proceedings with respect thereto have been instituted or threatened by the SEC, and the prospectus contained therein may be used by the Holders and the other selling stockholders named therein for resale of the Warrant Shares in accordance with the 1933 Act and the "Plan of Distribution" contained in such prospectus. These opinions are limited to the matters expressly stated herein and are rendered solely for your benefit and may not be quoted or relied upon for any other purpose or by an other person. Very truly yours, EX-4.22 4 FORM OF CLASS B WARRANT (ANNEX II TO SUBSCRIPTION) 1 Exhibit 4.22 ANNEX II TO SUBSCRIPTION AGREEMENT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. Right to Purchase the Specified Number of Shares of Common Stock of RMI.NET, Inc. RMI.NET, INC. COMMON STOCK PURCHASE WARRANT, CLASS B NO. B- --- RMI.NET, INC., a Delaware corporation (the "Company"), hereby certifies that, for value received, ______________or registered assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time during the Exercise Period (such capitalized term and all other capitalized terms used herein having the respective meanings provided herein), the Specified Number of fully paid and nonassessable shares of Common Stock at a purchase price per share equal to the Purchase Price. The number of such shares of Common Stock is subject to adjustment as provided in this Warrant. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: "Adjustment Date" means any of the First Adjustment Date, the Second Adjustment Date and each date which occurs every 90 days after the Second Adjustment Date through and including the date with is 1,080 days after the Issuance Date. "Adjustment Factor" means (a) 1.03 on the First Adjustment Date and (b) 1.015 on each subsequent Adjustment Date. "Adjustment Price" means, on each Adjustment Date, the lesser of (a) the Ceiling Price and (b) the Average Market Price; provided, however, that if on any Adjustment Date the Average Market Price is greater than $20.00, "Adjustment Price" means the sum of (x) the Ceiling Price plus (y) 50% of the excess of such Average Market Price over $20.00 (the references to "$20.00" in this definition are subject to equitable adjustment from time to time on terms reasonably acceptable to the Holder for stock splits, stock dividends, combinations, recapitalizations, reclassifications, distributions, Tender Offers and similar events occurring after the Issuance Date). 2 "Adjustment Shares" means the number of shares of Common Stock, determined on each Adjustment Date in accordance with Section 1.2(a), to be added to or deducted from the Specified Number on each Adjustment Date in accordance with Section 1.2(b). "Auditors" means Ernst & Young LLP or such other firm of independent public accountants of recognized national standing as shall have been engaged by the Company to audit its financial statements. "Auditors' Determination" means a determination requested by the Company and signed by the Auditors concurring with the Company's conclusion that a requirement of the Company to make a payment pursuant to Section 1.4(a) by reason of the occurrence of a specified Share Limitation Event would result in the Company being required to classify the shares of Common Stock issuable upon exercise of this Warrant as redeemable common stock on a balance sheet of the Company prepared in accordance with Generally Accepted Accounting Principles and which shall set forth (i) in reasonable detail all relevant facts considered by the Auditors in connection therewith, (ii) all applicable accounting principles and assumptions made in connection therewith, and (iii) in reasonable detail or have attached thereto copies of all legal, expert and other advice or information used by the Auditors in reaching their conclusion. "Average Market Price" means the arithmetic average of the Market Price on each of the following number of Trading Days, whether or not consecutive, during the applicable Measurement Period on which the lowest Market Prices occurred: Measurement Period for No. of Trading Days ---------------------- ------------------- First Adjustment Date 20 Second Adjustment Date 15 Each Subsequent Adjustment Date 10
"Cash and Cash Equivalent Balances" of any person on any date shall be determined from such person's books maintained in accordance with Generally Accepted Accounting Principles, and means, without duplication, the sum of (1) the cash accrued by such person and its subsidiaries on a consolidated basis on such date and available for use by such person and its subsidiaries on such date and (2) all assets which would, on a consolidated balance sheet of such person and its subsidiaries prepared as of such date in accordance with Generally Accepted Accounting Principles, be classified as cash or cash equivalents, less the amount thereof which secures any outstanding indebtedness of such person or its subsidiaries. "Ceiling Price" means $9.8476 (subject to equitable adjustment from time to time on terms reasonably acceptable to the Holder for stock splits, stock dividends, combinations, recapitalizations, reclassifications, distributions, Tender Offers and similar events occurring after the Issuance Date). "Class A Warrants" means the Common Stock Purchase Warrants, Class A issued by the Company pursuant to the Subscription Agreement. -2- 3 "Class B Warrant Shares" means those shares of Common Stock issued upon exercise of this Warrant (subject to equitable adjustment from time to time on terms reasonably acceptable to the Holder for stock splits, stock dividends, combinations, recapitalizations, reclassifications, distributions, Tender Offers and similar events occurring after the Issuance Date). "Common Shares Held" as of any date means the sum of (1) the number of Initial Shares which are then held by the Holder plus (2) the number of Class B Warrant Shares which are then held by the Holder plus (3) the number of shares of Common Stock which are issuable upon exercise of this Warrant immediately prior to the determination of the number of Adjustment Shares pursuant to Section 1.2(a). "Common Stock" means the Company's Common Stock, $.001 par value per share, as authorized on the date hereof, and any other securities into which or for which the Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Company" shall include RMI.NET, Inc., a Delaware corporation, and any corporation that shall succeed to or assume the obligations of RMI.NET, Inc. hereunder in accordance with the terms hereof. "Control Notice" means a notice given by the Company to the Holder, in accordance with Section 1.4(b), (i) stating that a Share Limitation Event has occurred by reason of events which are not solely within the control of the Company and (ii) enclosing an executed copy of an Auditors' Determination. "Exercise Period" means the period commencing on the First Adjustment Date and ending on the later of the date which is (x) 1,095 days after the Issuance Date or (y) five Trading Days after the Specified Number for the Adjustment Date occurring on the 1,080th day after the Issuance Date is mutually agreed by the Company and the Holder. "First Adjustment Date" means the date which is 180 days after the Issuance Date. "Generally Accepted Accounting Principles" for any person means the generally accepted accounting principles and practices applied by such person from time to time in the preparation of its audited financial statements. "Holder Repurchase Price" means, for each share of Common Stock which may not be issued upon exercise of this Warrant by reason of the Shareholder Approval Rule in accordance with Section 1.4, 120% of the greater of: (x) the arithmetic average of the Market Price on each of the five consecutive Trading Days immediately prior to the date of the repurchase notice given by the Holder to the Company pursuant to Section 1.4, (y) the arithmetic average of the Market Price on each of the five consecutive Trading Days immediately prior to the repurchase date pursuant to Section 1.4 and (z) if determined prior to the First Adjustment Date, the price per share paid by the Holder for the shares of Common Stock purchased on the Issuance Date pursuant to the Subscription Agreement or, if determined on or after the First Adjustment Date, the most recent Adjustment Price (subject to equitable adjustment from time to time on terms reasonably acceptable to the Holder for stock splits, stock dividends, combinations, -3- 4 recapitalizations, reclassifications, distributions, Tender Offers and similar events occurring after the Issuance Date). "Initial Purchase Price" means $13.1301 (subject to equitable adjustment from time to time on terms reasonably acceptable to the Holder for stock splits, stock dividends, combinations, recapitalizations, reclassifications, distributions, Tender Offers and similar events occurring after the Issuance Date). "Initial Shares" means those shares of Common Stock purchased by the Holder on the Issuance Date pursuant to the Subscription Agreement (subject to equitable adjustment from time to time on terms reasonably acceptable to the Holder for stock splits, stock dividends, combinations, recapitalizations, reclassifications, distributions, Tender Offers and similar events occurring after the Issuance Date). "Issuance Date" means the first date of original issuance of this Warrant. "Market Price" of the Common Stock on any date means the closing bid price for one share of Common Stock on such date on the first applicable among the following: (a) the national securities exchange on which the shares of Common Stock are listed which constitutes the principal securities market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the principal market for the Common Stock on such date, or (c) the Nasdaq SmallCap, if the Nasdaq SmallCap constitutes the principal securities market for the Common Stock on such date, in any such case as reported by Bloomberg, LP.; provided, however, that if during any Measurement Period or other period during which the Market Price is being determined: (i) The Company shall declare or pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock or fix any record date for any such action, then the Market Price for each day in such Measurement Period or such other period which day is prior to the earlier of (1) the date fixed for the determination of stockholders entitled to receive such dividend or other distribution and (2) the date on which ex-dividend trading in the Common Stock with respect to such dividend or distribution begins shall be reduced by multiplying the Market Price (determined without regard to this proviso) for each such day in such Measurement Period or such other period by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the earlier of (1) the record date fixed for such determination and (2) the date on which ex-dividend trading in the Common Stock with respect to such dividend or distribution begins and the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution; (ii) The Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock, or fix a record date for such issuance, which rights or warrants entitle such holders (for a period expiring within forty-five (45) days after the date fixed for the determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Market Price (determined without regard to this proviso) for any day in such Measurement Period or such other period which day is prior to the end of such 45-day period, then the Market Price for each such day shall be reduced so that the same shall equal the price -4- 5 determined by multiplying the Market Price (determined without regard to this proviso) by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the record date fixed for the determination of stockholders entitled to receive such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Market Price, and the denominator of which shall be the number of shares of Common Stock outstanding on the close of business on such record date plus the total number of additional shares of Common Stock so offered for subscription or purchase. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than the Market Price (determined without regard to this proviso), and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined in good faith by a resolution of the Board of Directors of the Company; (iii) The outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock or a record date for any such subdivision shall be fixed, then the Market Price of the Common Stock for each day in such Measurement Period or such other period which day is prior to the earlier of (1) the day upon which such subdivision becomes effective and (2) the date on which ex-dividend trading in the Common Stock with respect to such subdivision begins shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Market Price for each day in such Measurement Period or such other period which day is prior to the earlier of (1) the date on which such combination becomes effective and (2) the date on which trading in the Common Stock on a basis which gives effect to such combination begins, shall be proportionately increased; (iv) The Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which clause (i) of this proviso applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding any rights or warrants referred to in clause (ii) of this proviso and dividends and distributions paid exclusively in cash and excluding any capital stock, evidences of indebtedness, cash or assets distributed upon a merger or consolidation) (the foregoing hereinafter in this clause (iv) of this proviso called the "Securities"), or fix a record date for any such distribution, then, in each such case, the Market Price for each day in such Measurement Period or such other period which day is prior to the earlier of (1) the record date for such distribution and (2) the date on which ex-dividend trading in the Common Stock with respect to such distribution begins shall be reduced so that the same shall be equal to the price determined by multiplying the Market Price (determined without regard to this proviso) by a fraction, the numerator of which shall be the Market Price (determined without regard to this proviso) for such date less the fair market value (as determined in good faith by resolution of the Board of Directors of the Company) on such date of the portion of the Securities so distributed or to be distributed applicable to one share of Common Stock and the denominator of which shall be the Market Price (determined without regard to -5- 6 this proviso) for such date. If the Board of Directors of the Company determines the fair market value of any distribution for purposes of this clause (iv) by reference to the actual or when issued trading market for any Securities comprising all or part of such distribution, it must in doing so consider the prices in such market on the same day for which an adjustment in the Market Price is being determined. For purposes of this clause (iv) and clauses (i) and (ii) of this proviso, any dividend or distribution to which this clause (iv) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock to which clause (i) or (ii) of this proviso applies (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants other than such shares of Common Stock or rights or warrants to which clause (i) or (ii) of this proviso applies (and any Market Price reduction required by this clause (iv) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Market Price reduction required by clauses (i) and (ii) of this proviso with respect to such dividend or distribution shall then be made), except that any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of clause (i) of this proviso; (v) The Company or any subsidiary of the Company shall (x) by dividend or otherwise, distribute to all holders of its Common Stock cash in (or fix any record date for any such distribution), or (y) repurchase or reacquire shares of its Common Stock (other than an Option Share Surrender) for, in either case, an aggregate amount that, combined with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash after the Issuance Date and within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this clause (v) has been made, (2) the aggregate amount of any cash plus the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company) of consideration paid in respect of any repurchase or other reacquisition by the Company or any subsidiary of the Company of any shares of Common Stock (other than an Option Share Surrender) made after the Issuance Date and within the 12 months preceding the date of payment of such distribution or making of such repurchase or reacquisition, as the case may be, and in respect of which no adjustment pursuant to this clause (v) has been made, and (3) the aggregate of any cash plus the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company) of consideration payable in respect of any Tender Offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution or completion of such repurchase or reacquisition, as the case may be, and in respect of which no adjustment pursuant to clause (vi) of this proviso has been made (such aggregate amount combined with the amounts in clauses (1), (2) and (3) above being the "Combined Amount"), exceeds 10% of the product of the Market Price (determined without regard to this proviso) for any day in such Measurement Period or such other period which day is prior to the earlier of (A) the record date -6- 7 with respect to such distribution and (B) the date on which ex-dividend trading in the Common Stock with respect to such distribution begins or the date of such repurchase or reacquisition, as the case may be, times the number of shares of Common Stock outstanding on such date, then, and in each such case, the Market Price for each such day shall be reduced so that the same shall equal the price determined by multiplying the Market Price (determined without regard to this proviso) for such day by a fraction (i) the numerator of which shall be equal to the Market Price (determined without regard to this proviso) for such day less an amount equal to the quotient of (x) the excess of such Combined Amount over such 10% and (y) the number of shares of Common Stock outstanding on such day and (ii) the denominator of which shall be equal to the Market Price (determined without regard to this proviso) for such day; or (vi) A Tender Offer made by the Company or any of its subsidiaries for all or any portion of the Common Stock shall expire and such Tender Offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the Tender Offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined in good faith by resolution of the Board of Directors of the Company) that combined together with (1) the aggregate of the cash plus the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company), as of the expiration of such Tender Offer, of consideration payable in respect of any other Tender Offers, by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such Tender Offer and in respect of which no adjustment pursuant to this clause (vi) has been made, (2) the aggregate amount of any cash plus the fair market value (as determined in good faith by a resolution of the Board of Directors of the Company) of consideration paid in respect of any repurchase or other reacquisition by the Company or any subsidiary of the Company of any shares of Common Stock (other than an Option Share Surrender) made after the Issuance Date and within the 12 months preceding the expiration of such Tender Offer and in respect of which no adjustment pursuant to clause (v) of this proviso has been made, and (3) the aggregate amount of any distributions to all holders of Common Stock made exclusively in cash within 12 months preceding the expiration of such Tender Offer and in respect of which no adjustment pursuant to clause (v) of this proviso has been made, exceeds 10% of the product of the Market Price (determined without regard to this proviso) for any day in such period times the number of shares of Common Stock outstanding on such day, then, and in each such case, the Market Price for such day shall be reduced so that the same shall equal the price determined by multiplying the Market Price (determined without regard to this proviso) for such day by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such day multiplied by the Market Price (determined without regard to this proviso) for such day and the denominator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the Tender Offer) of all shares validly tendered and not withdrawn as of the last time tenders could have been made pursuant to such Tender Offer (the "Expiration Time") (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of -7- 8 the number of shares of Common Stock outstanding (less any Purchased Shares) on such day times the Market Price (determined without regard to this proviso) of the Common Stock on the Trading Day next succeeding the Expiration Time. If the application of this clause (vi) to any Tender Offer would result in an increase in the Market Price (determined without regard to this proviso) for any trade, no adjustment shall be made for such Tender Offer under this clause (vi) for such day. "Measurement Period" means, with respect to any Adjustment Date, the period of 30 consecutive Trading Days ending on the Trading Day prior to such Adjustment Date. "Nasdaq" means the Nasdaq National Market. "Nasdaq SmallCap" means the Nasdaq SmallCap Market. "1934 Act" means the Securities Exchange Act of 1934, as amended. "1933 Act" means the Securities Act of 1933, as amended. "Other Class B Warrants" means the Common Stock Purchase Warrants, Class B issued by the Company pursuant to the Other Subscription Agreement. "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4. "Other Subscription Agreement" means the other subscription agreement for the purchase of shares of Common Stock and the acquisition of common stock purchase warrants entered into in connection with the Subscription Agreement, as amended from time to time in accordance with its terms. "Purchase Price" means the greater of (x) $.01 per share or (y) the par value per share of the Common Stock. "Quarterly Period" means the 90-day period commencing on each Adjustment Date. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 7, 1999, by and between the Company and the original Holder of this Warrant, as amended from time to time in accordance with its terms. "Registration Statement" shall have the meaning provided in the Registration Rights Agreement. "Repurchase Date" means the date of repurchase by the Company of the Securities pursuant to Section 1.3. -8- 9 "Repurchase Notice" means a notice given by the Company to the Holder pursuant to Section 1.3(c) exercising the Company's right to repurchase all of the Securities pursuant to Section 1.3(b) which states (1) the number of shares of Common Stock (including shares issuable upon exercise of this Warrant) which are to be repurchased, (2) the Repurchase Price and the formula for determining the same, determined in accordance herewith and (3) the Repurchase Date. "Repurchase Price" means, for each share of Common Stock repurchased pursuant to Section 1.3, the product of (x) the arithmetic average of the Market Price on each of the five consecutive Trading Days ending on and including the Adjustment Date following which the Repurchase Notice is given times (y) the Adjustment Factor for such Adjustment Date. "Second Adjustment Date" means the date which is 90 days after the First Adjustment Date. "Securities" as of any date means (1) the Initial Shares which are then held by the Holder, (2) the Class B Warrant Shares which are then held by the Holder and (3) this Warrant. "Share Limit" means 1,000,000 shares of Common Stock (subject to equitable adjustment from time to time on terms reasonably acceptable to the Holder for stock splits, stock dividends, combinations, recapitalizations, reclassifications, distributions, Tender Offers and similar events occurring after the Issuance Date). "Share Limitation Event" means a time at which the Company is unable to issue all shares of Common Stock otherwise required to be issued upon exercise of this Warrant by reason of the restrictions set forth in the Shareholder Approval Rule and the Company has not obtained a waiver thereof. "Shareholder Approval" shall mean the approval by a majority of the votes cast by the holders of shares of Common Stock (in person or by proxy) at a meeting of the stockholders of the Company (duly convened at which a quorum was present), or a unanimous written consent of holders of shares of Common Stock given without a meeting, of the issuance by the Company of 20% or more of the Common Stock of the Company outstanding on the Issuance Date for less than the greater of the book or market value of such Common Stock, as and to the extent required under the Shareholder Approval Rule. "Shareholder Approval Rule" means Rule 4460(i)(1)(D) of Nasdaq as in effect from time to time or any successor, replacement or similar rule or regulation of Nasdaq or any other principal securities market on which the Common Stock is listed for trading. "Shares" shall have the meaning provided in the Subscription Agreement. "Specified Number" means the number of shares of Common Stock for which this Warrant is exercisable from time to time as determined in accordance with Section 1.2. -9- 10 "Subscription Agreement" means the Subscription Agreement, dated as of December 7, 1999, by and between the Company and the original Holder of this Warrant, as amended from time to time in accordance with its terms. "Tender Offer" means a tender offer or exchange offer. "Total Common Shares" as of any date means the sum of (1) the number of Initial Shares plus (2) the number of Class B Warrant Shares plus (3) the number of shares of Common Stock which are issuable upon exercise of this Warrant on such date without taking into account the limitations in Sections 1.1(b), 1.1(c) and 1.3(a). "Trading Day" means a day on which the principal securities market for the Common Stock is open for general trading of securities. 1. EXERCISE OF WARRANT. 1.1 EXERCISE. (a) Subject to the limitations on exercises in Sections 1.1(b), 1.1(c) and 1.3(a), this Warrant may be exercised by the Holder hereof at any time or from time to time during the Exercise Period by delivery of the subscription form annexed hereto (duly executed by the Holder) to the Company and by making payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying (a) the number of shares of Common Stock designated by the Holder in the subscription form by (b) the Purchase Price. If at the request of the Company the subscription form is delivered to the Company's transfer agent for the Common Stock, the Holder shall provide a copy of the subscription form to the Company at the time of exercise and the Company will confirm the exercise instructions given therein by notice to the Company's transfer agent within one Trading Day after receiving such subscription form. The number of shares of Common Stock for which this Warrant may be exercised at any time during each Quarterly Period shall be the then applicable Specified Number less the number of shares, if any, for which this Warrant has previously been exercised during such Quarterly Period. Upon each exercise of this Warrant, the Holder shall not be required to surrender this Warrant to the Company unless the Holder has no further rights to purchase shares of Common Stock hereunder. The Holder and the Company shall maintain records showing the number of shares purchased in connection with each exercise of this Warrant and the dates of such exercises or shall use such other method, satisfactory to the Holder and the Company, so as to not require physical surrender of this Warrant upon each such exercise. (b) Notwithstanding any other provision of this Warrant, in no event shall the Holder be entitled at any time to purchase a number of shares of Common Stock on exercise of this Warrant in excess of that number of shares upon purchase of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and all persons whose beneficial ownership of shares of Common Stock would be aggregated with the Holder's beneficial ownership of shares of Common Stock for purposes of Section 13(d) of the 1934 Act and Regulation 13D-G thereunder (each such person other than the Holder an "Aggregated Person" and all such persons other than the Holder, collectively, the "Aggregated Persons") (other than shares of Common Stock deemed beneficially owned through the ownership by the Holder and all Aggregated Persons of the Holder of the unexercised portion of this Warrant and the unexercised or unconverted portion of any other security of the Company which contains similar provisions) and (2) the number of shares of Common Stock issuable upon exercise of the portion of this Warrant with respect to which the determination in this sentence is being made, would result in beneficial ownership by the Holder and all Aggregated Persons of the -10- 11 Holder of more than 4.9% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of the immediately preceding sentence. (c) Notwithstanding any other provision of this Warrant, in no event shall the Holder be entitled to purchase any shares of Common Stock on exercise of this Warrant unless and until the Holder shall have sold or otherwise transferred all of the Initial Shares to one or more unaffiliated purchasers or transferees. On or prior to the date of the first exercise of this Warrant, the Holder shall give notice to the Company that all of the Initial Shares have been sold or transferred in accordance with the immediately preceding sentence. 1.2 DETERMINATION OF SPECIFIED NUMBER. (a) On each Adjustment Date, the number of Adjustment Shares shall be computed as follows: AS = [(C x I x F) / A] - C where: AS = Adjustment Shares C = Common Shares Held I = on the First Adjustment Date, the Initial Purchase Price; on each subsequent Adjustment Date, the Adjustment Price determined on the immediately preceding Adjustment Date A = Adjustment Price F = Adjustment Factor (b) For each Adjustment Date on which the number of Adjustment Shares determined in accordance with Section 1.2(a) is zero or a positive number, (1) on the First Adjustment Date, the Specified Number shall equal the number of Adjustment Shares; and (2) on each subsequent Adjustment Date, the Specified Number shall equal (x) the Specified Number determined on the immediately preceding Adjustment Date plus (y) the number of Adjustment Shares less (z) the number of shares of Common Stock for which this Warrant was exercised during the most recently completed Quarterly Period. (c) For each Adjustment Date after the First Adjustment Date on which the number of Adjustment Shares determined in accordance with Section 1.2(a) is a negative number, the Specified Number shall equal (x) the Specified Number determined on the immediately preceding Adjustment Date less (y) the sum of (i) the number of Adjustment Shares (considered as a positive number for the purposes of this calculation) plus (ii) the number of shares of Common Stock for which this Warrant was exercised during the most recently completed Quarterly Period; provided, however, that in no event shall the Specified Number be less than zero. -11- 12 (d) On each Adjustment Date or within three Trading Days thereafter, the Holder shall give an Adjustment Notice in the form attached hereto to the Company. If the Holder fails to give an Adjustment Notice within three Trading Days after any Adjustment Date, the Company may notify the Holder of such failure and, if the Holder does not deliver such Adjustment Notice within three Trading Days after such notice of failure is given to the Holder, the Company shall give such Adjustment Notice to the Holder. Absent manifest error, the Adjustment Notice shall be binding on the Company and the Holder for purposes of making the determinations required by this Section 1.2. The Company and the Holder shall use their best efforts to promptly correct any error in any Adjustment Notice. 1.3 MAXIMUM SHARE LIMITATION; COMPANY REPURCHASE RIGHT. (a) Prior to the date which is 361 days after the Issuance Date, this Warrant may not be exercised to purchase shares of Common Stock to the extent, and only to the extent, such exercise would cause the Total Common Shares of the Holder to exceed the Share Limit. (b) If (i) on any Adjustment Date occurring after the third Adjustment Date the Total Common Shares of the Holder exceed the Share Limit, (ii) the Company shall be in compliance in all material respects with its obligations to the Holder (including, without limitation, its obligations under this Warrant, the Class A Warrants, the Subscription Agreement and the Registration Rights Agreement), (iii) on the date the Repurchase Notice is given and at all times until the Repurchase Date, the Registration Statement is effective and available for use by the Holder for the resale of its Shares and (iv) on the date the Repurchase Notice is given and on the Repurchase Date, the Company has available unrestricted Cash and Cash Equivalent Balances not less than the aggregate amount to be paid to repurchase shares of Common Stock pursuant to Section 1.3 of this Warrant and the Other Class B Warrants, then the Company shall have the right to repurchase the Securities held by the Holder in accordance with Section 1.3(c). (c) To exercise its repurchase right, the Company shall give a Repurchase Notice, not more frequently than once in any period of 180 consecutive days, on the Trading Day immediately following an Adjustment Date occurring after the third Adjustment Date. If the Repurchase Notice is timely given, the Company shall be obligated to repurchase all, or any part, of the Securities on a Repurchase Date which is not less than 20 Trading Days or more than 30 Trading Days after the date of the Repurchase Notice. If this Warrant is to be repurchased pursuant to this Section 1.3, the Company shall repurchase this Warrant as if this Warrant had been exercised, to the extent of the portion of this Warrant being repurchased, on the Repurchase Date and the shares of Common Stock issuable upon such exercise were held directly by the Holder and were being repurchased. On the Repurchase Date, the Company shall make payment to the Holder of the applicable Repurchase Price multiplied by the number of shares of Common Stock to be repurchased in immediately available funds to such account as specified by the Holder in writing to the Company at least one Trading Day prior to the Repurchase Date. Notwithstanding anything to the contrary in the foregoing provisions of this Section 1.3, prior to the Repurchase Date, or such later date on which the Repurchase Price is paid, the Holder shall be free to exercise this Warrant and to sell or otherwise transfer any shares of Common Stock which are subject to the Repurchase Notice with respect to such Repurchase Date. 1.4 NASDAQ SHARE LIMITATION; HOLDER REPURCHASE RIGHT. (a) The Company shall not be required to issue any shares of Common Stock upon exercise of this Warrant to the extent, and only to the extent, such issuance would violate the Shareholder -12- 13 Approval Rule. In such event, at the option of the Holder, the Company shall be required to repurchase from the Holder the Holder's rights hereunder with respect to the number of such issuable shares of Common Stock which may not be issued upon exercise of this Warrant by reason of the Shareholder Approval Rule. To exercise such repurchase right, the Holder shall give the Company written notice thereof stating the number of such issuable shares to be repurchased and the repurchase date, which date shall not be earlier than ten Trading Days and not later than 20 Trading Days after such notice is given to the Company. On the specified repurchase date the Company shall make payment to the Holder of the applicable Holder Repurchase Price multiplied by the number of such issuable shares to be repurchased in immediately available funds to such account as specified by the Buyer in writing to the Company at least one Trading Day prior to the repurchase date. Upon such repurchase, the Specified Number shall be reduced by the number of such issuable shares deemed to be repurchased. (b) Notwithstanding any other provision of this Warrant, if a Share Limitation Event occurs by reason of events which are not solely within the control of the Company, the Company shall have the right to give a Control Notice to the Holder at any time after such Share Limitation Event occurs and prior to the earlier of (1) the date on which the Holder's right (other than as limited by this Section 1.4(b)) to receive a cash payment pursuant to Section 1.4(a) by reason of the occurrence of such Share Limitation Event expires and (2) the date on which the Company is obligated to make a payment to the Holder pursuant to Section 1.4(a). For purposes of this Section 1.4(b), a Share Limitation Event shall be deemed to have occurred by reason of events which are not solely within the control of the Company if the requirement of the Company to make a payment pursuant to Section 1.4(a) would result in the Company being required to classify the shares of Common Stock issued upon exercise of this Warrant as redeemable common stock on a balance sheet of the Company prepared in accordance with Generally Accepted Accounting Principles. To the extent any facts are assumed for purposes of either the Company's conclusion as to such classification of such shares or the Auditors' Determination required to be delivered as part of the Control Notice, the validity of such conclusion or determination shall depend on such assumed facts being true and complete in all material respects. If the Company timely gives a Control Notice to the Holder, then in lieu of making the payment required by Section 1.4(a) pursuant to a notice given by the Holder by reason of such Share Limitation Event, on the next Adjustment Date to occur the Adjustment Price shall be reduced to 80% of the amount such Adjustment Price would otherwise be. Such reduction of the Adjustment Price shall continue in effect until the earliest of (x) the date which is 90 days after the Shareholder Approval shall have been obtained from the stockholders of the Company or waived by the Nasdaq or other securities market on which the Common Stock is then listed, (y) the date any further reduction of the Adjustment Price is made following a failure to obtain the Shareholder Approval as provided below, and (z) the date when this Warrant is no longer outstanding. On or after the date the Company gives such Control Notice, upon notice from the Holder, the Company promptly shall call a special meeting of its stockholders, to be held not later than 60 days after such notice is given, to seek the Shareholder Approval for the issuance of all shares of Common Stock issuable upon exercise of this Warrant without regard to the Shareholder Approval Rule and shall use its best efforts to obtain the Shareholder Approval. The Company shall prepare and file with the SEC within 30 days after such notice is given preliminary proxy materials which set forth a proposal to seek such Shareholder Approval. The Company shall provide the Holder an opportunity to consult with the Company regarding the content of such proxy materials insofar as it relates to the Shareholder Approval by providing copies of such preliminary proxy materials and any revised preliminary proxy materials to the Holder within a reasonable period of time prior to their filing with the SEC. The Company shall furnish to the Holder a copy of its definitive proxy materials for such special meeting and -13- 14 any amendments or supplements thereto promptly after the same are mailed to stockholders or filed with the SEC. Upon the earlier of (i) the failure to obtain the Shareholder Approval at the special meeting, of which failure the Company shall so notify the Holder, or (ii) the Company's failure to act in good faith in promptly holding such special meeting and seeking the Shareholder Approval, such of the following as shall be specified by notice to the Company from the Holder shall occur: (1) on the next Adjustment Date to occur the Adjustment Price shall be reduced to 60% of the amount such Adjustment Price would otherwise be and (2) the Company shall promptly file applications and take all other actions necessary to (i) list the Common Stock for trading and quotation on the OTC Bulletin Board or such other securities market or exchange which will not restrict the number of shares of Common Stock issuable upon exercise of this Warrant and (ii) upon filing such applications, request the immediate removal of the Common Stock from listing on the securities market on which it is then listed which restricts the issuance of shares of Common Stock upon exercise of this Warrant without the Shareholder Approval. 2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as practicable after the exercise of this Warrant, and in any event within three Trading Days thereafter, the Company at its expense (including the payment by it of any applicable issue or stamp taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which the Holder shall be entitled on such exercise, in such denominations as may be requested by the Holder, plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash equal to such fraction multiplied by the then current fair market value (as reasonably determined by the Company) of one full share, together with any other stock or other securities and property (including cash, where applicable) to which the Holder is entitled upon such exercise pursuant to Section 1 or otherwise. Upon exercise of this Warrant as provided herein, the Company's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Holder, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such exercise. If the Company fails to issue and deliver the certificates for the Common Stock to the Holder pursuant to the first sentence of this paragraph as and when required to do so, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse the Holder on demand for all out-of-pocket expenses including, without limitation, reasonable fees and expenses of legal counsel incurred by the Holder as a result of such failure. 3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.; RECLASSIFICATION, ETC. In case at any time or from time to time after the Issuance Date, all the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or -14- 15 (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, other than additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Section 5), then and in each such case the Holder, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) which the Holder would hold on the date of such exercise if on the date thereof the Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the case referred to in subdivisions (b) and (c) of this Section 3) receivable by the Holder as aforesaid during such period, giving effect to all adjustments called for during such period by Section 4. Notwithstanding anything in this Section 3 to the contrary, no adjustments pursuant to this Section 3 shall actually be made until the cumulative effect of the adjustments called for by this Section 3 since the date of the last adjustment actually made would change the amount of stock or other securities and property which the Holder would hold by more than 1%. 4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time after the Issuance Date, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition of such reorganization, consolidation, merger, sale or conveyance, the Company shall give at least 30 days notice to the Holder of such pending transaction whereby the Holder shall have the right to exercise this Warrant prior to any such reorganization, consolidation, merger, sale or conveyance. Any exercise of this Warrant pursuant to notice under this Section shall be conditioned upon the closing of such reorganization, consolidation, merger, sale or conveyance which is the subject of the notice and the exercise of this Warrant shall not be deemed to have occurred until immediately prior to the closing of such transaction. 5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that after the Issuance Date the Company shall (i) issue additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) subdivide or reclassify its outstanding share of Common Stock, or (iii) combine its outstanding share of Common Stock into a smaller number of shares of Common Stock, then, in each event, the Specified Number shall, simultaneously with the happening of such event, be adjusted by multiplying the Specified Number in effect immediately prior to such event by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such event, and the product so obtained shall thereafter be the Specified Number then in effect. The Specified Number, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 5. 6. FURTHER ASSURANCES. The Company will take all action that may be necessary or appropriate in order that the Company may validly and legally issue fully paid and -15- 16 nonassessable shares of stock, free from all taxes, liens and charges with respect to the issue thereof, on the exercise of all or any portion of this Warrant from time to time outstanding. 7. NOTICES OF RECORD DATE, ETC. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend on, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets of the Company to or consolidation or merger of the Company with or into any other person (other than a wholly-owned subsidiary of the Company), or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the Holder, at least ten days prior to such record date, a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall also state that the action in question or the record date is subject to the effectiveness of a registration statement under the 1933 Act, or a favorable vote of stockholders, if either is required. Such notice shall be mailed at least ten days prior to the date specified in such notice on which any such action is to be taken or the record date, whichever is earlier. 8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The Company will at all times reserve and keep available out of its authorized but unissued shares of capital stock, solely for issuance and delivery on the exercise of this Warrant, a sufficient number of shares of Common Stock (or Other Securities) to effect the full exercise of this Warrant and the exercise, conversion or exchange of any other warrant or security of the Company exercisable for, convertible into, exchangeable for or otherwise entitling the holder to acquire shares of Common Stock (or Other Securities), and if at any time the number of authorized but unissued shares of Common Stock (or Other Securities) shall not be sufficient to effect such exercise, conversion or exchange, the Company shall take such action as may be necessary to increase its authorized but unissued shares of Common Stock (or Other Securities) to such number as shall be sufficient for such purposes. 9. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of the successors to and assigns of the Holder. This Warrant and all rights hereunder, in whole or in part, are registrable at the office or agency of the Company referred to below by the Holder -16- 17 hereof in person or by his duly authorized attorney, upon surrender of this Warrant properly endorsed. 10. REGISTER OF WARRANTS. The Company shall maintain, at the principal office of the Company (or such other office as it may designate by notice to the Holder hereof), a register in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each successor and prior owner of such Warrant. The Company shall be entitled to treat the person in whose name this Warrant is so registered as the sole and absolute owner of this Warrant for all purposes. 11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the surrender hereof by the Holder hereof at the office or agency of the Company referred to in Section 10, for one or more new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by said Holder hereof at the time of such surrender. 12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 13. WARRANT AGENT. The Company may, by written notice to the Holder, appoint the transfer agent and registrar for the Common Stock as the Company's agent for the purpose of issuing shares of Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, and the Company may, by notice to the Holder, appoint an agent having an office in the United States of America for the purpose of exchanging this Warrant pursuant to Section 11 and replacing this Warrant pursuant to Section 12, or either of the foregoing, and thereafter any such exchange or replacement, as the case may be, shall be made at such office by such agent. 14. REMEDIES. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder hereof to purchase Common Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 16. NOTICES, ETC. All notices and other communications from the Company to the registered Holder or from the registered Holder to the Company shall be delivered personally (which shall include telephone line facsimile transmission with answer back -17- 18 confirmation) or by courier and shall be effective upon receipt, addressed to each party at the address or telephone line facsimile transmission number for each party set forth in the Subscription Agreement or at such other address or telephone line facsimile transmission number as a party shall have provided to the other party in accordance with this provision. 17. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the Holder represents to the Company that this Warrant is being acquired for the Holder's own account and for the purpose of investment and not with a view to, or for sale in connection with, the distribution thereof, nor with any present intention of distributing or selling this Warrant or the Common Stock issuable upon exercise of this Warrant. The Holder acknowledges and agrees that this Warrant and, except as otherwise provided in the Registration Rights Agreement, the shares of Common Stock issuable upon exercise of this Warrant (if any) have not been (and at the time of acquisition by the Holder, will not have been or will not be), registered under the 1933 Act or under the securities laws of any state, in reliance upon certain exemptive provisions of such statutes. The Holder further recognizes and acknowledges that (a) because this Warrant and, except as provided in the Registration Rights Agreement, the Common Stock issuable upon exercise of this Warrant (if any) are unregistered, they may not be eligible for resale, and may only be resold in the future pursuant to an effective registration statement under the 1933 Act and any applicable state securities laws, or pursuant to a valid exemption from such registration requirements and (b) the transfer of this Warrant and the Common Stock issuable upon the exercise hereof are subject to the restrictions on transfer set forth in the Registration Rights Agreement and in Section 4 of the Subscription Agreement. Unless the shares of Common Stock issuable upon exercise of this Warrant have theretofore been registered for resale under the 1933 Act, the Company may require, as a condition to the issuance of Common Stock upon the exercise of this Warrant a confirmation as of the date of exercise of the Holder's representations pursuant to this Section 17. 18. LEGEND. Unless theretofore registered for resale under the 1933 Act, each certificate for shares issued upon exercise of this Warrant shall bear the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities have been acquired for investment and may not be resold, transferred or assigned in the absence of an effective registration statement for the securities under the Securities Act of 1933, as amended, or an opinion of counsel that registration is not required under said Act. 19. ATTORNEYS' FEES. In any litigation, arbitration or court proceeding between the Company and Holder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant. 20. AMENDMENT; WAIVER. This Warrant and any terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. Notwithstanding any other provision of this Warrant or the Subscription Agreement, in addition to the requirements of the immediately preceding sentence, any amendment of (x) Section 1.1(b), (y) the definition of the term Aggregated Person or (z) this sentence shall require approval by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, present in person or represented by proxy at a duly convened meeting of stockholders of the Company, and entitled to vote, or the consent thereto in writing by holders of a majority of the outstanding shares of Common Stock, and the stockholders of the Company are hereby expressly made third party beneficiaries of this sentence. -18- 19 21. MISCELLANEOUS. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of Colorado. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. -19- 20 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on its behalf by one of its officers thereunto duly authorized. Dated: December 7, 1999 RMI.NET, INC. By: --------------------------------- Title: Chairman & CEO ----------------------------- -20- 21 FORM OF SUBSCRIPTION RMI.NET, INC. (To be signed only on exercise of Warrant) TO: RMI.NET, Inc. 999 18th Street Suite 2201 Denver, Colorado 80202 Attention: Chief Financial Officer 1. The undersigned Holder of the attached original, executed Warrant hereby elects to exercise its purchase right under such Warrant with respect to ______________ shares of Common Stock, as defined in the Warrant, of RMI.NET, Inc., a Delaware corporation (the "Company"). 2. The undersigned Holder elects to pay the aggregate purchase price for such shares of Common Stock (the "Exercise Shares") (i) by lawful money of the United States or the enclosed certified or official bank check payable in United States dollars to the order of the Company in the amount of $___________, or (ii) by wire transfer of United States funds to the account of the Company in the amount of $____________, which transfer has been made before or simultaneously with the delivery of this Form of Subscription pursuant to the instructions of the Company. 3. Please issue a stock certificate or certificates representing the appropriate number of shares of Common Stock in the name of the undersigned or in such other name as is specified below: Name: Address: --------------------------------- --------------------------------- 4. The undersigned Holder hereby represents to the Company that the exercise of the Warrant elected hereby does not violate Section 1.1(b) of the Warrant. Dated: HOLDER: ------------ ----, ---- --------------------------------- 22 By: --------------------------------- (Signature must conform to name of Holder as specified on the face of the Warrant) Name: Title: Address: --------------------------------- ----------------------------------------- 23 ADJUSTMENT NOTICE TO: RMI.NET, Inc. 999 18th Street Suite 2201 Denver, Colorado 80202 Attention: Chief Financial Officer Facsimile No.: (303) 672-0711 This Adjustment Notice is given pursuant to the terms of the Common Stock Purchase Warrant, Class B, dated December 7, 1999, issued by RMI.NET, Inc., a Delaware corporation (the "Warrant"). Capitalized terms used herein and not otherwise defined herein have the respective meanings provided in the Warrant. The undersigned Holder hereby notifies the Company as follows: (1) Adjustment Date: --------------------------------- (2) Computation of number of Adjustment Shares ("AS") pursuant to Section 1.2(a): (a) Common Shares Held: ("C") ----------------- (b) If First Adjustment Date, Initial Purchase Price: $ ("I") ----------- If subsequent Adjustment Date, Adjustment Price on preceding Adjustment Date: $ ("I") -------------- (c) The Adjustment Price ("A") is based on (check one): p the Ceiling Price: $ -------- p the Average Market Price p the Ceiling Price plus 50% of excess of Average Market Price over $20.00 (d) To determine the Average Market Price, the Market Price on each of the ____ Trading Days during the Measurement Period on which the lowest Market Price occurred was as follows: Date Price ($) Date Price ($) ---- --------- ---- --------- - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ----------
24 - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- (e) Average Market Price: $ --------- (f) Adjustment Factor: ("F") ----------- (g) AS = [(C x I x F) /A] - C Adjustment Shares: -------------- (3) Specified Number on preceding Adjustment Date: ------------ (4) Shares issued upon exercises during last Quarterly Period: ------------ (5) Specified Number on Adjustment Date: --------------- NAME OF HOLDER: Date: --------------- ---------------------------------- By: ------------------------------- Name: Title: EX-4.23 5 FORM OF REGISTRATION RIGHTS AGREEMENT 1 Exhibit 4.23 ANNEX IV TO SUBSCRIPTION AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 7, 1999 (this "Agreement"), is made by and between RMI.NET, INC., a Delaware corporation (the "Company"), and the person named on the signature page hereto (the "Initial Investor"). W I T N E S S E T H: WHEREAS, in connection with the Subscription Agreement, dated as of December 7, 1999, between the Initial Investor and the Company (the "Subscription Agreement"), the Company has agreed, upon the terms and subject to the conditions of the Subscription Agreement, to issue and sell to the Initial Investor shares (the "Common Shares") of Common Stock, $.001 par value (the "Common Stock"), of the Company, and to issue Common Stock Purchase Warrants, Class A and Common Stock Purchase Warrants, Class B (collectively, the "Warrants") to purchase shares (the "Warrant Shares") of Common Stock; and WHEREAS, to induce the Initial Investor to execute and deliver the Subscription Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws with respect to the Common Shares and the Warrant Shares; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Initial Investor hereby agree as follows: 1. DEFINITIONS. (a) As used in this Agreement, the following terms shall have the following meanings: "Investor" or "Investors" means the Initial Investor and any transferee or assignee who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof. "Majority Holders" means those Investors who hold a majority in interest of the Registrable Securities, the Warrants and the "Registrable Securities" and "Warrants" as such terms are defined in the Other Registration Rights Agreement. "Nasdaq" means the Nasdaq National Market. "1934 Act" means the Securities Exchange Act of 1934, as amended. "Other Registration Rights Agreement" means the Registration Rights Agreement entered into in connection with the Other Subscription Agreement. 2 "Permitted Transferee" means any person (1) who is an "accredited investor" as defined in Regulation D under the 1933 Act, (2) who is not a Restricted Person named in a Restricted Person Resolution delivered to an Investor in accordance with Section 4(a)(2) of the Subscription Agreement and (3) who, immediately following the assignment of rights under this Agreement holds (x) at least 50,000 shares of Common Stock or (y) Warrants which at the time of such transfer are exercisable for at least 50,000 shares of Common Stock, or any combination thereof (the 50,000 share amounts referred to in this definition being subject to equitable adjustment from time to time on terms reasonably acceptable to the Majority Holders for (i) stock splits, (ii) stock dividends, (iii) combinations, (iv) capital reorganizations, (v) issuance to all holders of Common Stock of rights or warrants to purchase shares of Common Stock and (vi) similar events relating to the Common Stock, in each such case which occur on or after the Closing Date). "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the SEC. "Registrable Securities" means the Common Shares and the Warrant Shares. As to any particular securities, such securities shall cease to be Registrable Securities when they have been sold pursuant to an effective registration statement or in compliance with Rule 144 or are eligible to be sold pursuant to subsection (k) of Rule 144. "Registration Period" means the period from the Closing Date to the earlier of (i) the date which is five years after the SEC Effective Date, (ii) the date on which each Investor may sell all of its Registrable Securities without registration under the 1933 Act pursuant to subsection (k) of Rule 144, without restriction on the manner of sale or the volume of securities which may be sold in any period and without the requirement for the giving of any notice to, or the making of any filing with, the SEC and (iii) the date on which the Investors no longer beneficially own any Registrable Securities. "Registration Statement" means a registration statement of the Company under the 1933 Act, including any amendment thereto, required to be filed by the Company pursuant to this Agreement. "Rule 144" means Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit a holder of any securities to sell securities of the Company to the public without registration under the 1933 Act. "SEC" means the United States Securities and Exchange Commission. "SEC Effective Date" means the date the Registration Statement is declared effective by the SEC. "SEC Filing Date" means the date the Registration Statement is first filed with the SEC pursuant to Section 2(a). (b) Capitalized terms defined in the introductory paragraph or the recitals to this Agreement shall have the respective meanings therein provided. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Subscription Agreement. -2- 3 2. REGISTRATION. (a) MANDATORY REGISTRATION. (1) The Company shall prepare and, on or prior to the date which is 45 days after the Closing Date, file with the SEC a Registration Statement on Form S-3 which, on the date of filing with the SEC, covers the resale by the Initial Investor of a number of shares of Common Stock at least equal to the sum of (x) the number of Common Shares plus (y) the number of Warrant Shares issuable upon the exercise in full of the Class A Warrants plus (z) the number of Warrant Shares equal to 175% of the number of shares of Common Stock issuable upon the exercise of the Class B Warrants, determined as if the First Adjustment Date (as defined in the Class B Warrants) occurred and the Class B Warrants were otherwise exercised in full for cash in accordance with the terms thereof on the Trading Day prior to the SEC Filing Date (in each case determined without regard to the limitations on beneficial ownership contained in Section 1.1(b) of the Warrants). If at any time the number of shares of Common Stock included in the Registration Statement required to be filed as provided in the first sentence of this Section 2(a) shall be insufficient to cover 100% of the number of Warrant Shares issuable upon exercise of the unexercised portion of the Warrants, then promptly, but in no event later than 20 days after such insufficiency shall occur, the Company shall file with the SEC an additional Registration Statement on Form S-3 (which shall not constitute a post-effective amendment to the Registration Statement filed pursuant to the first sentence of this Section 2(a)), covering such number of shares of Common Stock as shall be sufficient to permit such exercise. For all purposes of this Agreement such additional Registration Statement shall be deemed to be the Registration Statement required to be filed by the Company pursuant to Section 2(a) of this Agreement, and the Company and the Investors shall have the same rights and obligations with respect to such additional Registration Statement as they shall have with respect to the initial Registration Statement required to be filed by the Company pursuant to this Section 2(a). The Registration Statement shall not include securities to be sold for the account of any selling security holder other than the Investors and the investors contemplated by the Other Registration Rights Agreement. (2) Prior to the SEC Effective Date or during any time subsequent to the SEC Effective Date when the Registration Statement for any reason is not available for use by any Investor for the resale of any Registrable Securities, the Company shall not file any other registration statement or any amendment thereto with the SEC under the 1933 Act or request the acceleration of the effectiveness of any other registration statement previously filed with the SEC, other than any registration statement registering securities issued (w) pursuant to compensation plans for employees, directors, officers, advisers or consultants of the Company and in accordance with the terms of such plans as in effect as of the date of this Agreement, (x) upon exercise of conversion, exchange, purchase or similar rights issued, granted or given by the Company and outstanding as of the date of this Agreement and disclosed in the SEC Reports or the Subscription Agreement, (y) pursuant to a public offering underwritten on a firm commitment basis registered under the 1933 Act or (z) as part of a transaction involving a strategic alliance, acquisition of stock or assets, merger, collaboration, joint venture, partnership or other similar arrangement of the Company with another corporation, partnership or other business entity which is engaged in a business similar to or related to the business of the Company, so long as in the case of this clause (z) the Board of Directors of the Company by resolution duly adopted (and a copy of which shall be furnished to the Investor promptly after adoption) determines that such issuance is fair to the holders of each class and series of capital stock of the Company and to the Investor in respect of its equity interest in the Company that is represented by the Shares and the Warrants. (b) CERTAIN OFFERINGS. If any offering pursuant to a Registration Statement pursuant to Section 2(a)(1) hereof involves an underwritten offering, Investors who hold a majority in interest of the Registrable Securities subject to such underwritten offering shall have the right to select one legal counsel and an investment banker or bankers and manager or managers to administer the offering, which investment banker or bankers or manager or managers shall be reasonably satisfactory to the Company. The Investors who hold the Registrable Securities to be included in such underwriting shall pay all underwriting discounts and commissions and other fees and expenses of such investment banker or -3- 4 bankers and manager or managers so selected in accordance with this Section 2(b) (other than fees and expenses relating to registration of Registrable Securities under federal or state securities laws, which are payable by the Company pursuant to Section 5 hereof) with respect to their Registrable Securities and the fees and expenses of such legal counsel so selected by the Investors. (c) CERTAIN PAYMENTS. If for any reason the Registration Statement covering at least the number of shares of Common Stock referred to in clauses (x) and (y) of Section 2(a)(1) is not declared effective by the SEC on or before the date which is 150 days after the Closing Date, the Company shall pay the Initial Investor an amount in cash equal to 1.5% of the Purchase Price for the Common Shares for each period of 30 days after such 150th day during which the Registration Statement is not effective (such amount to be prorated for any period of less than 30 days). Each such payment shall be made by the Company to the Initial Investor at the end of each such 30-day period by wire transfer of immediately available funds to such account as shall be specified by the Initial Investor in writing to the Company at least one Business Day prior to the date of each payment. Any such amount which is not paid when due shall bear interest at the rate of 14% per annum (or such other rate as shall be the maximum rate allowable by applicable law) until paid in full. (d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall determine to prepare and file with the SEC a registration statement relating to an offering for its own account or the account of others under the 1933 Act of any of its equity securities, other than a registration statement registering securities issued (1) pursuant to compensation plans for employees, directors, officers, advisers or consultants of the Company and in accordance with the terms of such plans as in effect as of the date of the Agreement or (2) as part of a transaction involving a strategic alliance, acquisition of stock or assets, merger, collaboration, joint venture, partnership or other similar arrangement of the Company with another corporation, partnership, or other business entity which is engaged in a business similar to or related to the business of the Company, so long as in the case of this clause (2) the Board of Directors of the Company by resolution duly adopted (and a copy of which shall be furnished to the Investor promptly after adoption) determines that such issuance is fair to the holders of each class and series of capital stock of the Company and to the Investor in respect of its equity interest in the Company that is represented by the Shares and the Warrants, the Company shall send to each Investor who is entitled to registration rights under this Section 2(d) written notice of such determination and, if within ten days after receipt of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, except that if, in connection with any underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)' judgment, such limitation is necessary to effect an orderly public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities, in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities the holders of which are not entitled by right to inclusion of securities in such Registration Statement; and provided further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the right to include such securities in the Registration Statement, based on the number of securities for which registration is requested except to the extent such pro rata exclusion of such other securities is prohibited under any written agreement entered into by the Company with the holder of such other securities prior to the date of this Agreement, in which case such other securities shall be excluded, if at all, in accordance with the terms of such agreement. No right to registration of Registrable Securities under this Section 2(d) shall be construed to limit any registration required under Section 2(a) hereof. The obligations of the -4- 5 Company under this Section 2(d) may be waived by the Majority Holders and shall expire after the Company has afforded the opportunity for the Investors to exercise registration rights under this Section 2(d) for two registrations; provided, however, that any Investor who shall have had any Registrable Securities excluded from any Registration Statement in accordance with this Section 2(d) shall be entitled to include in an additional Registration Statement filed by the Company the Registrable Securities so excluded. Notwithstanding any other provision of this Agreement, if the Registration Statement required to be filed pursuant to Section 2(a) of this Agreement shall have been ordered effective by the SEC and the Company shall have maintained the effectiveness of such Registration Statement as required by this Agreement and if the Company shall otherwise have complied in all material respects with its obligations under this Agreement, then the Company shall not be obligated to register any Registrable Securities on such Registration Statement referred to in this Section 2(d). (e) ELIGIBILITY FOR FORM S-3. The Company meets the requirements for the use of Form S-3 for registration of the Registrable Securities for resale by the Investors. The Company shall file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-3. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall: (a) prepare promptly, and file with the SEC not later than 45 days after the Closing Date, a Registration Statement with respect to the number of Registrable Securities provided in Section 2(a), and thereafter to use its best efforts to cause each Registration Statement relating to Registrable Securities to become effective as soon as possible after such filing, and keep the Registration Statement effective pursuant to Rule 415 at all times during the Registration Period; submit to the SEC, within three Business Days after the Company learns that no review of the Registration Statement will be made by the staff of the SEC or that the staff of the SEC has no further comments on the Registration Statement, as the case may be, a request for acceleration of effectiveness of the Registration Statement to a time and date not later than 48 hours after the submission of such request; notify the Investors of the effectiveness of the Registration Statement on the date the Registration Statement is declared effective; and the Company represents and warrants to, and covenants and agrees with, the Investors that the Registration Statement (including any amendments or supplements thereto and prospectuses contained therein), at the time it is first filed with the SEC, at the time it is ordered effective by the SEC and at all times during which it is required to be effective hereunder (and each such amendment and supplement at the time it is filed with the SEC and at all times during which it is available for use in connection with the offer and sale of the Registrable Securities) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (b) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during the Registration Period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement; (c) furnish to each Investor whose Registrable Securities are included in the Registration Statement and its legal counsel, (1) promptly after the same is prepared and publicly distributed, filed with the SEC or received by the Company, one copy of the Registration Statement and -5- 6 any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, each letter written by or on behalf of the Company to the SEC or the staff of the SEC and each item of correspondence from the SEC or the staff of the SEC relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment) and (2) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor; (d) use reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such securities or blue sky laws of such jurisdictions as the Investors who hold a majority in interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times until the end of the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto (I) to qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (II) to subject itself to general taxation in any such jurisdiction, (III) to file a general consent to service of process in any such jurisdiction, (IV) to provide any undertakings that cause more than nominal expense or burden to the Company or (V) to make any change in its Certificate of Incorporation or by-laws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders; (e) in the event that the Registrable Securities are being offered in an underwritten offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering; (f) as promptly as practicable after becoming aware of such event or circumstance, notify each Investor of any event or circumstance of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits 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, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, file such supplement or amendment with the SEC at such time as shall permit the Investors to sell Registrable Securities pursuant to the Registration Statement as promptly as practicable, and deliver a number of copies of such supplement or amendment to each Investor as such Investor may reasonably request; (g) as promptly as practicable after becoming aware of such event, notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of any stop order or other suspension of effectiveness of the Registration Statement at the earliest possible time; (h) permit a single firm of counsel designated as selling stockholders' counsel by the Investors who hold a majority in interest of the Registrable Securities being sold to review and comment on the Registration Statement and all amendments and supplements thereto a reasonable period of time prior to their filing with the SEC; -6- 7 (i) make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement; (j) at the request of the Investors who hold a majority in interest of the Registrable Securities being sold, furnish on the date that Registrable Securities are delivered to an underwriter, if any, for sale in connection with the Registration Statement (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters; and (ii) an opinion, dated such date, from counsel representing the Company for purposes of such Registration Statement, in form and substance as is customarily given in an underwritten public offering, addressed to the underwriters and the Investors; (k) make available for inspection by any Investor, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by any such Investor or underwriter (collectively, the "Inspectors"), all pertinent financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable each Investor to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction or (iii) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(k). Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at the Company's own expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. The Company shall hold in confidence and shall not make any disclosure of information concerning an Investor provided to the Company pursuant to Section 4(e) hereof unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction or (iv) such information has been made generally available to the public other than by disclosure in violation of this or, to the knowledge of the Company, any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor and allow such Investor, at such Investor's own expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information; (l) use its best efforts (i) to cause all the Registrable Securities covered by the Registration Statement to be listed on the Nasdaq or such other principal securities market on which securities of the same class or series issued by the Company are then listed or traded or (ii) if securities of -7- 8 the same class or series as the Registrable Securities are not then listed on Nasdaq or any such other securities market, to cause all of the Registrable Securities covered by the Registration Statement to be listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq SmallCap Market; (m) provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement; (n) cooperate with the Investors who hold Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request; and, within three Business Days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an instruction substantially in the form attached hereto as EXHIBIT 1 and shall cause legal counsel selected by the Company to deliver to the Investors an opinion of such counsel in the form attached hereto as EXHIBIT 2 (with a copy to the Company's transfer agent); (o) during the period the Company is required to maintain effectiveness of the Registration Statement pursuant to Section 3(a), the Company shall not bid for or purchase any Common Stock or any right to purchase Common Stock or attempt to induce any person to purchase any such security or right if such bid, purchase or attempt would in any way limit the right of the Investors to sell Registrable Securities by reason of the limitations set forth in Regulation M under the 1934 Act; and (p) take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of the Registrable Securities pursuant to the Registration Statement. 4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor (the "Requested Information") if any of such Investor's Registrable Securities are eligible for inclusion in the Registration Statement. If at least two Business Days prior to the filing date the Company has not received the Requested Information from an Investor (a "Non-Responsive Investor"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Investor but shall not be relieved of its obligation to file a Registration Statement with the SEC relating to the Registrable Securities of such Non-Responsive Investor promptly after such Non-Responsive Investor provides the Requested Information; provided, however, that (i) all expenses of the Company relating to the preparation, amendment and filing of the Registration Statement to include the Registrable Securities of such Non-Responsive Investor shall be paid by such Non-Responsive Investor and (ii) the Company shall not be considered in breach of any of its obligations to such Non-Responsive Investor to timely file the Registration Statement under this Agreement or be subject to any liability to such Non-Responsive -8- 9 Investor pursuant to Section 2(c) to the extent a delay in filing or obtaining the effectiveness of the Registration Statement for such Non-Responsive Investor is due to the failure of such Non-Responsive Investor to timely provide the Requested Information. (b) Each Investor by such Investor's acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement; (c) In the event Investors holding a majority in interest of the Registrable Securities being registered determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement; (d) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or 3(g), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession of the prospectus covering such Registrable Securities current at the time of receipt of such notice; (e) No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements approved by the Investors entitled hereunder to approve such arrangements, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and other fees and expenses of investment bankers and any manager or managers of such underwriting and legal expenses of the underwriters applicable with respect to its Registrable Securities, in each case to the extent not payable by the Company pursuant to the terms of this Agreement; and (f) Each Investor agrees to take all reasonable actions necessary to comply with the prospectus delivery requirements of the 1933 Act applicable to its sales of Registrable Securities. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions and other fees and expenses of investment bankers and other than brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees and the fees and disbursements of counsel for the Company and one legal counsel for the Investors and the investors under the Other Registration Rights Agreement (in addition to the payment of the Initial Investor's expenses to the extent provided in the Subscription Agreement), shall be borne by the Company, provided, however, that the Investors shall bear the fees and out-of-pocket expenses of the one legal counsel selected by the Investors and the investors under the Other Registration Rights Agreement pursuant to Section 2(b) hereof and thereof. -9- 10 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Investor who holds such Registrable Securities, the directors, if any, of such Investor, the officers, if any, of such Investor, each person, if any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act, any underwriter (as defined in the 1933 Act) for the Investors, the directors, if any, of such underwriter and the officers, if any, of such underwriter, and each person, if any, who controls any such underwriter within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Claims") to which any of them may become subject under the 1933 Act, the 1934 Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements or omissions in or violations with respect to the Registration Statement, or any post-effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation under the 1933 Act, the 1934 Act or any state securities law (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6(d) with respect to the number of legal counsel, the Company shall reimburse the Investors and the other Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (I) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement, the prospectus or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) hereof; (II) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3(c) hereof; and (III) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. (b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to indemnify and hold harmless, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or -10- 11 underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and such Investor will reimburse any legal or other expenses reasonably incurred by any Indemnified Party, promptly as such expenses are incurred and are due and payable, in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim as does not exceed the amount by which the net proceeds to such Investor from the sale of Registrable Securities pursuant to such Registration Statement exceeds the cost of such Registrable Securities to such Investor. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. (c) The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in any distribution, to the same extent as provided above, with respect to information so furnished in writing by such persons expressly for inclusion in the Registration Statement. (d) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel selected by the indemnifying party but reasonably acceptable to the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. In such event, the Company shall pay for only one separate legal counsel for the Investors; such legal counsel shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with -11- 12 respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation and (c) contribution by any seller of Registrable Securities shall be limited in amount to the amount by which the net amount of proceeds received by such seller from the sale of such Registrable Securities exceeds the purchase price paid by such seller for such Registrable Securities. 8. REPORTS UNDER 1934 ACT. With a view to making available to the Investors the benefits of Rule 144, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by the Investors to any Permitted Transferee only if: (a) the Investor agrees in writing with such Permitted Transferee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) except as otherwise provided in Section 4(a)(2) of the Subscription Agreement, the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such Permitted Transferee and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment the further disposition of such securities by such Permitted Transferee is restricted under the 1933 Act and applicable state securities laws, and (d) at or before the time the Company receives the written notice contemplated by clause (b) of this sentence (or such later time within ten Business Days after the Company approves a Proposed Transferee pursuant to Section 4(a)(2) of the Subscription Agreement) such Permitted Transferee agrees in writing with the Company to be bound by all of the provisions contained herein. In connection with any such transfer the Company shall, at the cost and expense of the Permitted Transferee, promptly after such assignment take such actions as shall be reasonably acceptable to the Initial Investor and such Permitted Transferee to assure that the Registration Statement and related prospectus are available for use by such Permitted Transferee for sales of the Registrable Securities in respect of which the rights to registration have been so assigned. In connection with any such assignment, each Investor shall have the right to assign to such Permitted Transferee such Investor's rights under the Subscription Agreement by notice of such assignment to the Company. Following such notice of assignment of rights under the Subscription Agreement, the Company shall be obligated to such Permitted Transferee to perform all of its covenants under the Subscription Agreement as if such Permitted Transferee were the Buyer under the Subscription Agreement. -12- 13 10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Majority Holders. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. 11. MISCELLANEOUS. (a) A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered (by hand, by courier, by telephone line facsimile transmission (with answer back confirmation) or other means) (i) if to the Company, at 999 18th Street, Suite 2201, Denver, Colorado 80202, Attention: Chief Executive Officer, telephone line facsimile transmission number (303) 672-0711, (ii) if to the Initial Investor, c/o _____________________________, telephone line facsimile transmission number _______________________ and (iii) if to any other Investor, at such address as such Investor shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 11(b), and shall be effective upon receipt. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) This Agreement shall be enforced, governed by and construed in accordance with the laws of the State of Colorado applicable to agreements made and to be performed entirely within such State. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. (e) This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. (f) Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. (g) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (h) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) The Company acknowledges that any failure by the Company to perform its material obligations under this Agreement, including, without limitation, the Company's obligations under Section 3(n), or any delay in such performance could result in damages to the Investors and the Company agrees that, in addition to any other liability the Company may have by reason of any such failure or -13- 14 delay, the Company shall be liable for the following damages to the extent caused by any such failure or delay: (i) an amount equal to the aggregate purchase price paid by the Initial Investor for the Securities pursuant to the Subscription Agreement plus (ii) an amount equal to the Initial Investor's historical rate of return on all of such Initial Investor's investments in private placements of debt and equity securities of corporate issuers multiplied by such aggregate purchase price paid. (j) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (k) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (l) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by telephone line facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. -14- 15 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of day and year first above written. RMI.NET, INC. By: ------------------------------------- Name: Title: ----------------------------------------- By: ------------------------------------- Name: Title: -15- 16 EXHIBIT 1 TO REGISTRATION RIGHTS AGREEMENT [Company Letterhead] [Date] American Securities Transfer & Trust, Inc., as Transfer Agent and Registrar 938 Quail Street Suite 101 Lakewood, Colorado 80215-5513 Ladies and Gentlemen: This letter shall serve as our irrevocable authorization and direction to you (1) to transfer or re-register the certificates for the shares of Common Stock, $.001 par value (the "Common Stock"), of RMI.NET, Inc., a Delaware corporation (the "Company"), represented by certificate numbers _______ and _______ for an aggregate of _______ shares (the "Outstanding Shares") of Common Stock presently registered in the name of [Name of Investors] upon surrender of such certificate(s) to you, notwithstanding the legend appearing on such certificates, and (2) to issue shares (the "Warrant Shares") of Common Stock to or upon the order of the holder from time to time on exercise of the Common Stock Purchase Warrants, Class A and Common Stock Purchase Warrants, Class B (collectively, the "Warrants") exercisable for Common Stock issued by the Company upon receipt by you of a subscription form from such holder in the form enclosed herewith. The transfer or re-registration of the certificates for the Outstanding Shares by you should be made at such time as you are requested to do so by the record holder of the Outstanding Shares. The certificate issued upon such transfer or re-registration should be registered in such name as requested by the holder of record of the certificate surrendered to you and should not bear any legend which would restrict the transfer of the shares represented thereby. In addition, you are hereby directed to remove any stop-transfer instruction relating to the Outstanding Shares. Certificates for the Warrant Shares should not bear any restrictive legend and should not be subject to any stop-transfer restriction. Contemporaneously with the delivery of this letter, the Company is delivering to you the following: (a) a list showing the name and address of each holder of record of the Warrants and the date of issuance, Warrant number, and, in the case of the Class A Warrants, the initial fixed number of shares issuable upon exercise thereof; (b) the form of subscription relating to the exercise of the Warrants; and (c) an opinion of Christopher J. Melcher, Esq., Vice President and General Counsel of the Company, as to registration of the Outstanding Shares and the Warrant Shares for resale under the Securities Act of 1933, as amended. 1-16 17 Should you have any questions concerning this matter, please contact me. Very truly yours, RMI.NET, INC. By: ------------------------------------- Name: Title: Enclosures cc: [Names of Investors] 1-17 18 EXHIBIT 2 TO REGISTRATION RIGHTS AGREEMENT [SEC Effective Date] [Names and Addresses of Investors] RMI.NET, INC. SHARES OF COMMON STOCK Ladies and Gentlemen: I am Vice President and General Counsel of RMI.NET, Inc., a Delaware corporation (the "Company"), and I understand that the Company has sold to [Names of Investors] (the "Holders") an aggregate of ________ shares (the "Common Shares") of the Company's Common Stock, $.001 par value (the "Common Stock"), and issued to the Holders Common Stock Purchase Warrants, Class A and Common Stock Purchase Warrants, Class B (collectively, the "Warrants"). The Common Shares were sold, and the Warrants were issued, to the Holders pursuant to several Subscription Agreements, dated as of December 7, 1999, by and between the Holders and the Company (the "Subscription Agreements"). Pursuant to the several Registration Rights Agreements, dated as of December 7, 1999, by and between the Company and each Holder (the "Registration Rights Agreements") entered into in connection with the purchase by the Holders of the Common Shares, the Company agreed with each Holder, among other things, to register for resale (1) the Common Shares and (2) the shares (the "Warrant Shares") of Common Stock issuable upon exercise of the Warrants under the Securities Act of 1933, as amended (the "1933 Act"), upon the terms provided in the Registration Rights Agreements. The Common Shares and the Warrant Shares are referred to herein collectively as the "Shares." Pursuant to the Registration Rights Agreements, on ____________________ , _____ the Company filed a Registration Statement on Form S-3 (File No. 333-__________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Shares, which names the Holders as selling stockholders thereunder. [Other introductory and scope of examination language to be inserted] Based on the foregoing, I am of the opinion that: (1) Since the Closing Date, the Company has timely filed with the SEC all forms, reports and other documents required to be filed with the SEC under the Securities 1934 Act of 1934, as amended (the "1934 Act"). All of such forms, reports and other documents complied, when filed, in all material respects, with all applicable requirements of the 1933 Act and the 1934 Act; (2) The Registration Statement and the Prospectus contained therein (other than the financial statements and financial schedules and other financial and statistical information contained or incorporated by reference therein, as to which I have not been requested to and do 2-18 19 not express any opinion) comply as to form in all material respects with the applicable requirements of the 1933 Act and the rules and regulations promulgated thereunder; and (3) The Registration Statement has become effective under the 1933 Act, to the best of my knowledge after due inquiry, no stop order proceedings with respect thereto have been instituted or threatened by the SEC. The Shares have been registered under the 1933 Act and may be resold by the respective Holders pursuant to the Registration Statement. I have participated in the preparation of the Registration Statement and the Prospectus, including review and discussions with officers and other representatives of the Company, representatives of the independent public accountants for the Company, and your representatives at which the contents of the Registration Statement and the Prospectus contained therein and related matters were discussed, and, although I am not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus contained therein, on the basis of the foregoing, nothing has come to my attention that leads me to believe either that the Registration Statement at the time the Registration Statement became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in the Registration Statement, as of its date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that I have not been requested to and do not express any view with respect to the financial statements and schedules and other financial and statistical data included or incorporated by reference in the Registration Statement or the Prospectus contained therein). Paragraph (3) of this opinion may be relied upon by American Securities Transfer & Trust, Inc., as Transfer Agent and Registrar (the "Transfer Agent"), as if addressed to the Transfer Agent. Very truly yours, cc: American Securities Transfer & Trust, Inc., as Transfer Agent and Registrar 2-19 EX-5.01 6 OPINION/CONSENT OF CHRISTOPHER J. MELCHER, ESQ. 1 Exhibit 5.01 LETTERHEAD OF RMI.NET, INC. January 21, 2000 RMI.NET, Inc. 999 Eighteenth Street, Suite 2201 Denver, Colorado 80202 Re: Registration of Common Stock; Registration Statement on Form S-3 Ladies and Gentlemen: I have acted as counsel to RMI.NET, Inc., a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, pursuant to the Company's Registration Statement on Form S-3 (the "Registration Statement"), of a public offering of up to 3,773,089 shares of common stock, $0.001 par value (the "Shares"), of the Company. All of the Shares are being sold by the Selling Security Holders identified in the "Selling Security Holders" section of the Registration Statement (the "Selling Security Holders"). In this capacity, I have examined the Registration Statement (including all amendments thereto), the Company's Certificate of Incorporation and originals or copies, certified or otherwise identified to our satisfaction, of such corporate records, agreements, documents, and other instruments of the Company relating to the authorization and issuance of the Shares to be sold by the Selling Security Holders and other matters as we have deemed relevant and necessary as a basis for the opinion hereinafter set forth. In conducting our examination I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such documents. Based upon the foregoing, and in reliance thereon, we are of the opinion that the Shares, when issued and delivered against payment therefor, will be legally and validly issued, fully paid, and non-assessable. I hereby consent to the incorporation of this opinion into the Registration Statement as Exhibit 5.1 thereto and to the reference to our firm under the heading "Legal Matters" in the prospectus constituting a part of the Registration Statement. Very truly yours, /s/ CHRISTOPHER J. MELCHER -----END PRIVACY-ENHANCED MESSAGE-----