-----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, D8gX3CdnicDgK6LZ5WFttUrjedsr+/IgZRVomr8Wjv+6wq0WoSzIY7rjs4OglEuR /K69YgPZeOyVJtlzFECszw== 0001047469-99-000605.txt : 19990111 0001047469-99-000605.hdr.sgml : 19990111 ACCESSION NUMBER: 0001047469-99-000605 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981210 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCKY MOUNTAIN INTERNET 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: 8-K SEC ACT: SEC FILE NUMBER: 000-28738 FILM NUMBER: 99503556 BUSINESS ADDRESS: STREET 1: 1099 18TH STREET STREET 2: STE 3000 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036720700 MAIL ADDRESS: STREET 1: 1099 18TH STREET STREET 2: STE 3000 CITY: DENVER STATE: CO ZIP: 80202 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (earliest event reported): December 10, 1998 Rocky Mountain Internet, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 001-12063 84-1322326 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1099 Eighteenth Street, 30th Floor, Denver, Colorado 80202 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 672-0700 ---------------------------- - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) ITEM 5. OTHER EVENTS. On December 10, 1998, the Company completed a private placement (the "Offering') of 8,000 shares of its newly-designated Series B Convertible Preferred Stock (the "Series B Preferred Stock") for gross proceeds of $8,000,000, or $1,000 per share, before associated costs, fees and expenses. The Offering was exempted from securities registration under the provisions 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"). Shares of the Series B Preferred Stock were issued to two institutional investors in a private transaction not involving a public offering under the 1933 Act. The Series B Preferred Stock is convertible, subject to certain restrictions, into shares of common stock of the Company at a variable rate, based on a formula linked to the market price at the time of conversion. The terms include restrictions on conversion depending on certain market conditions, restrictions against short sales and other hedging transactions by the investors and a conversion rate which may be at a premium or discount to the market price depending on the time of conversion. The holders of the Series B Preferred Stock are entitled to receive dividends at the rate of $50.00 per year per share of Series B Preferred Stock, one-half of which is payable semiannually. Dividends are payable in cash or, at the option of the Company, and subject to certain limitations and restrictions, in additional shares of Series B Preferred Stock. In addition, the Company issued warrants to purchase 155,000 shares of common stock with an exercise price equal to 130% of the closing day market price, exercisable at any time over the next five years, to the purchasers of the Series B Preferred Stock and warrants to purchase 100,000 shares of common stock with an exercise price equal to 120% of the closing date market price, exercisable over the next five years, to certain brokers in connection with the transaction. The Company has agreed to register for resale the common stock issuable upon conversion of the Series B Preferred Stock (including any shares of Series B Preferred Stock issued as dividends) and the exercise of the warrants pursuant to registration rights agreements. In connection with the Offering, Advantage Fund II Ltd., a British Virgin Islands corporation which was one of the investors in the Offering, agreed, at the Company's option and subject to certain conditions, to purchase $5,000,000 of a new series of preferred stock with the same terms as the Series B Preferred Stock. The commitment expires on the earlier of 365 days after the effective date of the registration statement referred to in the previous paragraph, subject to earlier termination by the Company or by Advantage Fund II Ltd. under certain conditions. The Company will use the proceeds from the sale of the Series B Preferred Stock for general working capital purposes and in the operation of its business. -1- ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. 4.15 Subscription Agreement, dated as of December 10, 1998, by and between Rocky Mountain Internet, Inc. and Koch Industries, Inc. 4.16 Subscription Agreement, dated as of December 10, 1998, by and between Rocky Mountain Internet, Inc. and Advantage Fund II Ltd. 4.17 Form of Common Stock Purchase Warrant issued to Koch Industries, Inc. and Advantage Fund II Ltd. 4.18 Form of Common Stock Purchase Warrant issued to Wharton Capital Partners Ltd., Leslie Bines, and Neidiger Tucker Bruner Inc. 4.19 Form of Registration Rights Agreement between Rocky Mountain Internet, Inc. and (i) Koch Industries, Inc.; and (ii) Advantage Fund II Ltd. 4.20 Form of Registration Rights Agreement between Rocky Mountain Internet and (i) Wharton Capital Partners Ltd.; (ii) Leslie Bines; and (iii) Neidiger Tucker Bruner Inc. 10.22 Commitment Letter dated December 10, 1998 from Advantage Fund II Ltd. to Rocky Mountain Internet, Inc. 99.7 News Release dated December 14, 1998 announcing the completion of the Offering. -2- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by its behalf by the undersigned hereunto duly authorized. Rocky Mountain Internet, Inc. ------------------------------------------------ (Registrant) Date: January 7, 1999 By: /s/ Peter J. Kushar ------------------------------------------ Peter J. Kushar, Secretary, Treasurer, and Chief Financial Officer EX-4.15 2 EXHIBIT 4.15 SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 10, 1998 BY AND BETWEEN ROCKY MOUNTAIN INTERNET, INC. AND KOCH INDUSTRIES, INC. -------------------- SERIES B CONVERTIBLE PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANTS SUBSCRIPTION AGREEMENT SERIES B CONVERTIBLE PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANTS ROCKY MOUNTAIN INTERNET, 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 3 (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 5 (e) Non-contravention 5 (f) Approvals 5 (g) Information Provided 6 (h) Absence of Certain Changes 6 (i) Absence of Certain Proceedings 6 (j) Properties 6 -2- (k) Labor Relations 7 (l) SEC Filings 7 (m) Absence of Brokers, Finders, Etc. 7 (n) No Solicitation 8 (o) Certain Issuances of Securities 8 (p) Absence of Rights Agreement 8 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS 8 (a) Transfer Restrictions 8 (b) Restrictive Legend 8 (c) Registration Rights Agreement 10 (d) Form D 10 (e) Authorization for Trading 10 (f) Use of Proceeds 10 (g) Blue Sky Laws 10 (h) Certain Expenses 10 (i) Certain Issuances of Securities 11 (j) Stockholder Approval 12 (k) Certain Trading Restrictions 12 (l) Restriction on Conversions 12 (m) Restriction on Beneficial Ownership 13 (n) Best Efforts 13 5. TRANSFER AGENT AGREEMENT 13 (a) Transfer Agent Agreement 13 (b) Conversion Procedure 13 6. CLOSING DATE 14 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE 14 8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE 14 9. MISCELLANEOUS 15 (a) Governing Law 15 -3- (b) Counterparts 15 (c) Headings, etc. 15 (d) Severability 15 (e) Amendments 15 (f) Waivers 15 (g) Notices 16 (h) Assignment 16 (i) Survival of Representations and Warranties 16 (j) Entire Agreement 16 (k) Termination 16 (l) Further Assurances 17 (m) Public Statements, Press Releases, Etc. 17 (n) Construction 17 SCHEDULES Schedule 3(a)-1 Subsidiaries Schedule 3(b)-1 Antidilution Adjustments Schedule 3(b)-2 Registration Rights Schedule 3(c)-1 Nasdaq Notification Schedule 3(i)-1 Confidential Treatment Requests Schedule 3(j)-1 Company Proprietary Rights ANNEXES Annex I Form of Certificate of Designations Annex II Form of Common Stock Purchase Warrant Annex III Joint Escrow Instructions Annex IV Form of Registration Rights Agreement Annex V Form of Transfer Agent Agreement Annex VI Form of Notice of Conversion of Series B Convertible Preferred Stock Annex VII Form of Opinion of Counsel to Be Delivered on Closing Date
-4- SUBSCRIPTION AGREEMENT THIS SUBSCRIPTION AGREEMENT, dated as of December 10, 1998, by and between ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"), with headquarters located at 1099 18th Street, Suite 3000, Denver, Colorado 80202, and KOCH INDUSTRIES, INC., a Kansas corporation (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 non-voting, convertible preferred stock of the Company which will be convertible into 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 "Preferred Shares") of Series B Convertible Preferred Stock, $.001 par value (the "Preferred Stock"), of the Company set forth on the signature page of this Agreement, having the terms and conditions as set forth in the form of the Certificate of Designations of the Series B Convertible Preferred Stock attached hereto as ANNEX I (the "Certificate of Designations") 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 Preferred Shares by the Buyer, the Company shall issue to the Buyer, at the closing on the Closing Date (as defined herein), Common Stock Purchase Warrants in the form attached hereto as ANNEX II (the "Warrants") to purchase the number of shares of Common Stock set forth therein (subject to adjustment as provided in the Warrants). -5- The shares of Preferred Stock issuable pursuant to Section 5 of the Certificate of Designations as dividends on the Preferred Shares are referred to herein as the "Dividend Shares." The shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "Warrant Shares." The Warrant Shares and the shares of Common Stock issuable upon conversion of the Preferred Shares and upon conversion of the Dividend Shares are referred to herein collectively as the "Common Shares." The Common Shares, the Preferred Shares and the Dividend 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 Preferred 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 Preferred 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, the Company shall deliver certificates for the Preferred Shares and the Warrants, registered in the name of the Buyer or its nominee, to the Escrow Agent. The certificates for the Preferred 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 Preferred Shares shall be made by wire transfer of funds to: Citibank, N.A. 153 East 53rd Street New York, New York 10043 ABA#021000089 For credit to A/C#37179446 For credit to the account of Brian W. Pusch Attorney Escrow Account Reference: Koch/Rocky 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 -6- 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 Preferred Shares and acquiring the Warrants, and will acquire all other Securities, 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 Preferred Shares are being offered and sold, the Warrants are being issued, and the Common 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 Preferred Shares and the Warrants and to receive an offer of the Common Shares; (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 Preferred Shares and the issuance of the Warrants and the offer of the Common 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 -7- obtain and to review the Company's (1) Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997 (the "1997 10-K"), (2) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998 (as amended on Form 10-QSB/A), June 30, 1998 and September 30, 1998, (3) definitive proxy statement for the Company's 1998 Annual Meeting of Shareholders held on March 12, 1998 and (4) Current Reports on Form 8-K and 8-K/A filed June 11, 1998, July 14, 1998, August 19, 1998, August 24, 1998 and December 7, 1998, 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 Certificate of Designations, the Warrants, the Registration Rights Agreement, the form of which is attached hereto as ANNEX IV (the "Registration Rights Agreement"), the Transfer Agent Agreement, the form of which is attached hereto as ANNEX V (the "Transfer Agent 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 -8- 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) 25,000,000 shares of Common Stock of which 9,193,649 shares were outstanding on December 9, 1998, all of which are fully paid and nonassessable; and (b) 750,000 shares of Preferred Stock, $.001 par value, none of which are outstanding, and 9,600 shares of which will be designated as Series B Convertible Preferred Stock, of which 8,000 shares will be issued pursuant to this Agreement and the other subscription agreement for the purchase of shares of Preferred Stock and the acquisition of common stock purchase warrants being entered into in connection herewith (the "Other Subscription Agreement"); and on the Closing Date there will be (x) no material increase from December 9, 1998 in the number of shares of Common Stock outstanding and (y) no issuances of preferred stock except as issued pursuant to this Agreement and the Other Subscription Agreement. 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 December 9, 1998, the Company had outstanding options, warrants and similar rights entitling the holders to purchase 8,193,026 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. Each outstandin class or series of securities for which any antidilution or similar adjustment arising by reason of the issuance or conversion of the Preferred Shares and the Dividend Shares or the issuance or exercise of the Warrants or the issuance or conversion of the shares of Preferred Stock and the issuance or exercise of the warrants to be issued pursuant to the Other Subscription Agreement will occur is identified on SCHEDULE 3(b)-1 attached hereto, together with the amount of such antidilution adjustment. 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, -9- 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. Except as set forth on SCHEDULE 3(b)-2 hereto, 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 Preferred Shares, when issued and paid for in accordance with this Agreement, the Dividend Shares, when issued as dividends on the outstanding shares of Preferred Stock, and the Common Shares, when issued upon conversion of the Preferred Shares or the Dividend Shares or upon exercise of the Warrants, as the case may be, 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 1,838,700 shares of Common Stock for conversion of the shares of Preferred Stock and exercise of the Warrants and the warrants issuable in connection with the Other Subscription Agreement, and such shares shall remain so reserved (subject to reduction from time to time for shares of Common Stock issued upon conversion of shares of Preferred Stock or redemption or other permitted retirement of shares of Preferred Stock), 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 Certificate of Designations, as long as the Preferred Stock is convertible, and pursuant to the Warrants, as long as the Warrants are exercisable. The Common Stock is listed for trading on the Nasdaq SmallCap Market ("Nasdaq") and (1) the Company and the Common Stock meet the criteria for continued listing and trading on Nasdaq; (2) except as set forth on SCHEDULE 3(c)-1 attached hereto, the Company has not been notified since January 1, 1996 by Nasdaq of any failure or potential failure to meet the criteria for continued listing and trading on Nasdaq and (3) no suspension of trading in the Common Stock is in effect. The Company knows of no reason that the Common Shares will not be eligible for listing on Nasdaq. (d) SUBSCRIPTION AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This Agreement, the Certificate of Designations, the Registration Rights Agreement, the Warrants and the Transfer Agent Agreement 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, the Warrants and the Transfer Agent Agreement and such other agreements, when executed and delivered by the Company, will be, valid -10- 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 Preferred Shares and the Warrants as contemplated by this Agreement, and the other transactions contemplated by this Agreement, the Certificate of Designations, the Registration Rights Agreement, the Warrants and the Transfer Agent Agreement 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, the Transfer Agent Agreement and the other agreements and instruments contemplated hereby and thereby, (2) the execution, filing and performance by the Company of the Certificate of Designations, (3) the issuance and sale of the Preferred Shares and the Dividend Shares and the issuance of the Warrants as contemplated by this Agreement and (4) the issuance -11- of Common Shares on conversion of the Preferred Shares or the Dividend Shares or upon the exercise of the Warrants or the issuance of Dividend Shares as dividends on shares of Preferred Stock, other than (w) the filing of the Certificate of Designations with the Secretary of State of the State of Delaware, (x) registration of the resale of the Common 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 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, 1997 other than the SEC Reports. (h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, 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, 1997, 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 would have a Company Material Adverse Effect or a material adverse effect on the -12- transactions contemplated by this Agreement or any of the documents contemplated hereby or which would 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; except as set forth on SCHEDULE 3(i)-1 attached hereto, 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 Common 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. Except as set forth on SCHEDULE 3(j)-1 attached hereto, the 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 -13- 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. Except as set forth on SCHEDULE 3(j)-1 attached hereto, 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 as disclosed in writing by the -14- Company to the Buyer with respect to certain persons prior to the date of execution and delivery of this Agreement by the Buyer, and the Company shall pay, and indemnify and hold harmless the Buyer from, any claim made against the Buyer by such persons or 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 Preferred 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 Preferred Stock or 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 4310(c)(25)(H) of the 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 "Stockholder Approval Rule") and which would be integrated with the sale of the Preferred Shares to the Buyer or the issuance of Common Shares upon conversion thereof or upon exercise of the Warrants or the Dividend Shares in payment of dividends thereon for purposes of the Stockholder 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. The Company and the Buyer acknowledge and agree that (1) the Preferred 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 Common Shares, the Common Shares -15- have not been and are not being registered for resale under the 1933 Act, and the Securities may not be transferred unless (A) subsequently registered for resale thereunder or (B) 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; (2) any resale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act may be made only in accordance with the terms of said Rule and further, if said Rule 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 (3) 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). (b) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees that the Preferred Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the Preferred 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 sold, 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. The number of shares constituting the portion of the Maximum Share Amount, as defined in the Certificate of Designations of the Series B Convertible Preferred Stock (the "Certificate of Designations"), allocated to the shares represented by this certificate for purposes of conversion thereof is 689,512. Section 10(b)(3)(A) of the Certificate of Designations permits a holder of the securities represented by this certificate to convert such securities in accordance with the Certificate of Designations without being required to surrender this certificate to the Company unless all of the securities represented hereby are so converted. Consequently, following conversion of any of the securities represented by this certificate, the number of shares represented by this certificate may be less than the number of shares stated hereon. Upon request of any proposed transferee -16- of this certificate, the Company will provide confirmation of the number of shares evidenced by this certificate. (2) The Buyer further 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. (3) The Buyer further acknowledges and agrees that until such time as the Common Shares have been registered for resale under the 1933 Act as contemplated by the Registration Rights Agreement, the certificates for the Common 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 Common 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. (4) 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 any Common 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 (as defined in the Certificate of Designations) after surrender of such certificates by the Buyer and (2) the Company shall not place any restrictive legend on certificates for Common Shares issued on conversion of or as dividends on the Preferred Shares or upon exercise of the Warrants or impose any stop-transfer restriction thereon. -17- (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 Common Shares and shall provide evidence of such filing to the Buyer. So long as the Buyer beneficially owns any of the Preferred Shares, the Dividend Shares, the Warrants or the Common Shares, 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 Preferred 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 -18- Preferred Shares for sale to the Buyer and the Warrants for issuance to the Buyer pursuant to this Agreement and the Common Shares for issuance to the Buyer on conversion of the Preferred Shares under such of the securities or "blue sky" laws of jurisdictions as shall be applicable to the sale of the Preferred Shares and the issuance of the Warrants pursuant to this Agreement and the issuance to the Buyer of Common Shares on conversion of the Preferred Shares and 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. (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 Certificate of Designations, the Registration Rights Agreement, the Warrants, the Transfer Agent Agreement 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 Stockholder Approval (as defined in the Certificate of Designations) or a waiver thereof from the Nasdaq, the Company will not issue any shares of Common Stock or shares of any other 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 Stockholder Approval Rule and which would be integrated with the sale of the Preferred Shares and issuance of the Warrants to the Buyer or the issuance of Common Shares upon conversion of the Preferred Shares or Dividend Shares or upon exercise of the Warrants for purposes of the Stockholder Approval Rule. (2) During the period from the date of this Agreement to the date on which the Registration Statement (as defined in the Registration Rights Agreement) shall -19- 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) with conversion or exchange terms similar in nature to the conversion rights of the Preferred Stock 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 (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 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 Preferred Shares, the Dividend Shares, if any, 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. The Buyer may, by notice to the Company, exercise such right of first refusal at any time until the later of (x) 15 Business Days after such notice from the Company to the Buyer and (y) five Business Days after the Company provides such additional information as shall -20- have been requested by the Buyer. (j) STOCKHOLDER APPROVAL. The Company shall seek and use its best efforts to obtain at the Company=s next regularly scheduled Annual Meeting of Stockholders, Stockholder Approval of the issuance of all shares of Preferred Stock issuable pursuant to the Certificate of Designations and all shares of Common Stock issuable upon conversion of the Preferred Stock. The Company shall prepare and file with the SEC within 30 days prior to the scheduled mailing of notice of such Annual Meeting preliminary proxy materials which set forth a proposal to seek such Stockholder Approval. The Company shall provide the Buyer an opportunity to consult with the Company regarding the content of such proxy materials insofar as it relates to the Stockholder Approval by providing copies of such preliminary proxy materials and any revised preliminary proxy materials to the Buyer a reasonable period of time prior to their filing with the SEC. Such consultation shall occur within five Business Days after the Buyer's receipt of each proposed draft of such materials. The Company shall furnish to the Buyer and its counsel a copy of its definitive proxy materials for such Annual Meeting and any amendments or supplements thereto promptly after the same are mailed to stockholders or filed with the SEC. (k) CERTAIN TRADING RESTRICTIONS. The Buyer agrees that on the Closing Date it will have no short position in the Common Stock. So long as (i) the Company is in compliance in all material respects with its obligations to the Buyer under this Agreement, the Certificate of Designations, the Warrants and the Registration Rights Agreement or (ii) any noncompliance with such obligations is cured within ten Business Days of the Company's receipt of notice thereof from the Buyer, the Buyer agrees on its behalf and on behalf of its Affiliates (as defined in the Certificate of Designations) that it will not engage in any short sales or other hedging transactions relating to the Common Stock; PROVIDED, HOWEVER, that for purposes of this Agreement any such transaction involving a number of shares of Common Stock which does not exceed the number of shares for which a Conversion Notice (as defined in Section 5(b)) has been submitted to the Transfer Agent (as defined in Section 5(a)) and the Company shall not be deemed to be a short sale or hedging transaction. (l) RESTRICTION ON CONVERSIONS. So long as the Company is in compliance in all material respects with its obligations to the Buyer under this Agreement, the Certificate of Designations, the Warrants and the Registration Rights Agreement, the aggregate number of Limitation Shares (as defined below) in any period of 30 consecutive days through November 30, 1999 shall not exceed 20% of the number of Preferred Shares purchased by the Buyer on the Closing Date. For purposes of this Agreement, "Limitation Shares" means, for each conversion of Preferred Shares pursuant to the Certificate of -21- Designations, the number of Preferred Shares converted into Common Stock when the Volume-Weighted Trading Price (as defined below) of the Common Stock on the Conversion Date for such conversion is less than 110% of the Conversion Price (as defined in the Certificate of Designations) applicable to such conversion; and "Volume-Weighted Trading Price" for any security for any period means the quotient obtained by dividing (A) the sum for all trades (regular way) of such security between 9:15 a.m. and 4:30 p.m., Eastern Time, on each Trading Day during such period on the principal securities market for such security of the product of (x) the number of shares of such security traded in each trade TIMES (y) the price at which such security was traded in such trade BY (B) the sum of the number of shares of such security traded in all such trades, as reported by Bloomberg, L.P. in its AQR function for such security. (m) RESTRICTION ON BENEFICIAL OWNERSHIP. So long as the Company is in compliance in all material respects with its obligations to the Buyer under this Agreement, the Certificate of Designations, the Warrants and the Registration Rights Agreement, the Buyer agrees to (i) comply with the restrictions on beneficial ownership of Common Stock set forth in the proviso to the second sentence of Section 10(a) of the Certificate of Designations as if the reference to "4.9%" therein were reduced to 1.8375% and (ii) require any transferee of the Preferred Shares or the Warrants to agree in writing with the Company to be bound by this Section 4(m). (n) 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 Preferred Shares set forth in Section 7 or 8, as the case may be, of this Agreement on or before the Closing Date. 5. TRANSFER AGENT AGREEMENT; CONVERSION PROCEDURE. (a) TRANSFER AGENT AGREEMENT. Prior to the Closing Date, the Company will (1) execute and deliver the Transfer Agent Agreement in the form attached hereto as ANNEX V and thereby irrevocably instruct, American Securities Transfer & Trust, Inc., as Transfer Agent and Registrar (the "Transfer Agent"), to issue certificates for the Common Shares from time to time upon conversion of the Preferred Shares and the Dividend Shares and exercise of the Warrants in such amounts as specified from time to time to the Transfer Agent in the Notices of Conversion surrendered in connection with such conversions and referred to in Section 5(b) of this Agreement and the Form of Subscription in the form attached to the Warrants and (2) appoint the Transfer Agent the conversion agent for the Preferred Stock and the exercise agent for the Warrants. The certificates for the Common Shares may bear the restrictive legend specified in Section 4(b) of this Agreement prior to registration of the resale of the Common Shares under the -22- 1933 Act. The certificates for the Common Shares shall be registered in the name of the Buyer or its designee and in such denominations to be specified by the Buyer in connection with each conversion of Preferred Shares or Dividend Shares or exercise of the Warrants. The Company warrants that no instruction other than (x) such instructions referred to in this Section 5, (y) stop transfer instructions to give effect to Section 4(a) prior to registration of the resale of the Common Shares under the 1933 Act and (z) the instructions required by Section 3(n) of the Registration Rights Agreement will be given by the Company to the Transfer Agent and that the Common Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. Nothing in this Section 5(a) shall limit in any way the Buyer's obligations and agreement to comply with the registration requirements of the 1933 Act upon resale of the Common Shares. If the Buyer provides the Company with an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company and its legal counsel, that registration of a resale by the Buyer of ny of the Securities is not required under the 1933 Act, the Company shall permit the transfer of such Securities and, in the case of the Common Shares, in accordance with clause (1)(B) of Section 4(a) of this Agreement, promptly instruct the Transfer Agent to issue upon transfer one or more share certificates in such name and in such denominations as specified by the Buyer within three Business Days after receipt of such opinion. Nothing in this Section 5(a) shall limit the obligations of the Company under Section 3(n) of the Registration Rights Agreement. (b) CONVERSION PROCEDURE. In connection with the exercise of conversion rights relating to the Preferred Shares and the Dividend Shares, the Buyer or any subsequent holder of the Preferred Shares shall complete, sign and furnish to the Transfer Agent and the Company a Notice of Conversion of Series B Convertible Preferred Stock in the form attached hereto as ANNEX VI (a "Conversion Notice"), which shall be deemed to satisfy all requirements of the Certificate of Designations. 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 Preferred 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 Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New York 10019. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE. -23- The Buyer understands that the Company's obligation to sell the Preferred 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 Preferred 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 Preferred 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 Preferred Shares and the 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; (c) The receipt by the Buyer of confirmation of the filing with the Secretary of State of the State of Delaware of the Certificate of Designations; (d) The receipt by the Buyer of a certificate, dated the Closing Date, of -24- 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; (e) The Transfer Agent shall have executed and delivered the Transfer Agent Agreement in the form attached hereto as ANNEX V; and (f) Receipt by the Buyer on the Closing Date of an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC, counsel for the Company, dated the Closing Date, in form, scope and substance reasonably satisfactory to the Buyer, to the effect set forth in ANNEX VII 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 -25- 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 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, 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. The Buyer hereby designates as its address for any notice required or permitted to be given to the Buyer pursuant to the Certificate of Designations the address shown on the signature page of this Agreement until the Buyer shall designate another address for such purpose. (h) ASSIGNMENT. Prior to the Closing Date, the Buyer may not assign its rights and obligations under this Agreement. Any transfer of the Preferred 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 and Section 4(m) of this Agreement. (i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective -26- 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 Preferred 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. The Buyer shall have the right to terminate this Agreement by giving notice to the Company at any time at or prior to the Closing Date if: (1) the Company 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 Buyer's obligations hereunder is not fulfilled; or (3) the closing shall not have occurred on a Closing Date on or before December 15, 1998, other than solely by reason of a breach of this Agreement by the Buyer. Any such termination shall be effective upon the giving of notice thereof by the Buyer. Upon such termination, the Buyer shall have no further obligation to the Company hereunder and the Company shall remain liable for any breach of this Agreement or the other documents contemplated hereby which occurred on or prior to the date of such termination. (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 -27- 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. -28- 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: $1,000.00 AGGREGATE PURCHASE PRICE: KOCH INDUSTRIES, INC. By: Name: Title: Date: Address: c/o CITCO Kaya Flamboyan 9 Curacao, Netherlands Antilles Facsimile No.: 011-599-9732-2008 ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: Date: -29- ANNEX III TO SUBSCRIPTION AGREEMENT JOINT ESCROW INSTRUCTIONS Dated as of the Date of the Subscription Agreement to Which These Joint Escrow Instructions Are Attached Law Offices of Brian W Pusch, as Escrow Agent Penthouse Suite 29 West 57th Street New York, New York 10019 Attention: Brian W. Pusch, Esq. Dear Sir or Madam: As Escrow Agent for both Rocky Mountain Internet, Inc., a Delaware corporation (the "Company"), and the purchaser of shares (the "Preferred Shares") of Preferred Stock of the Company (the "Buyer"), who is named in the Subscription Agreement between the Company and the Buyer to which a copy of these Joint Escrow Instructions is attached as ANNEX III (the "Agreement"), the Escrow Agent is hereby authorized and directed to hold the funds (the "Escrow Funds"), any interest on the Escrow Funds (the "Escrow Interest") and the documents delivered to the Escrow Agent pursuant to the terms of the Agreement, in accordance with the following instructions: 1. After receipt of written or oral notice from the Company and the Buyer to the Escrow Agent that their respective conditions precedent to the purchase and sale of the Preferred Shares and the acquisition and issuance of the Warrants have been satisfied or waived by the Company and the Buyer, the Escrow Agent shall release the Escrow Funds (less the amount referred to in the next sentence) to or upon the order of the Company and shall release the certificates for the Preferred Shares and the Warrants and the Escrow Interest to the Buyer. After receipt of such notices, a portion of the Escrow Funds shall be released to or upon the order of the Buyer in payment of the expenses of the Buyer payable by the Company in accordance with Section 4(h) of the Agreement in such amount as shall be specified in writing by or on behalf of the Buyer to the Escrow Agent prior to release of the Escrow Funds. If Escrow Funds are released to or upon the order of the Company, the amount thereof shall be reduced by all wire transfer fees in respect of release of the Escrow Funds. If the Company or the Buyer notifies the Escrow III-1 Agent that on the Closing Date, the conditions precedent to the obligations of the Company or the Buyer, as the case may be, under the Agreement were not satisfied or waived, then the Escrow Agent shall release the Escrow Funds and the Escrow Interest to the Buyer and shall release the certificates for the Preferred Shares and the Warrants to the Company. Prior to release of the Escrow Funds and the Escrow Interest to the Buyer, the Buyer shall furnish such tax reporting or other information as shall be appropriate for the Escrow Agent to comply with applicable United States laws. The Escrow Agent shall deposit all funds received hereunder in the Escrow Agent's attorney escrow account at Citibank, N.A. and as promptly as practicable after receipt of such funds deposit the same in an interest-bearing account. The Escrow Agent shall not be liable for interest on the Escrow Funds (other than such interest as shll be paid to the Escrow Agent by its depository bank for the Escrow Funds, less any tax withholdings) for any reason, including by reason of any delay or mistake in delivery of the Escrow Funds or any other funds held by the Escrow Agent hereunder. 2. The Escrow Agent's duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, the Buyer and the Escrow Agent. 3. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as Escrow Agent while acting in good faith, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law shall be conclusive evidence of such good faith. In no event shall the Escrow Agent incur any liability or be held responsible, if any certificate for Preferred Shares or Warrants, once released from escrow hereunder, shall become lost, stolen, destroyed, mutilated or misplaced while in transit to any person, provided the Escrow Agent shall have dispatched the same by a means customarily used by the Escrow Agent. 4. The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person, firm or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 5. The Escrow Agent shall not be liable in any respect on account of the III-2 identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 6. The Escrow Agent shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents or Escrow Funds deposited with or held by the Escrow Agent. 7. The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent's obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Escrow Agent has acted as legal counsel for Advantage Fund II Ltd. in connection with the transactions contemplated by the Agreement and may continue to act as legal counsel for Advantage Fund II Ltd. notwithstanding its duties as Escrow Agent hereunder. 8. The Escrow Agent's responsibilities as Escrow Agent hereunder shall terminate if the Escrow Agent shall resign by written notice to the Company and the Buyer. In the event of any such resignation, the Buyer shall appoint a successor Escrow Agent. 9. If the Escrow Agent reasonably requires other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 10. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents, Escrow Funds or Escrow Interest held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed, in its sole discretion (a) to retain in the Escrow Agent's possession without liability to anyone all or any part of said documents, Escrow Funds or Escrow Interest until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (b) at any time, to deposit any or all of the documents, Escrow Funds or Escrow Interest with any court of competent jurisdiction in the State of New York, in which event the Escrow Agent shall give notice thereof to the Buyer and the Company and shall thereupon be relieved and discharged from all further obligations hereunder with respect to the documents, Escrow Funds and Escrow Interest so deposited. 11. The Company and the Buyer jointly and severally agree to indemnify and hold harmless the Escrow Agent from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent III-3 hereunder other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Escrow Agent. 12. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given upon personal delivery (including overnight courier service) or transmission by telephone line facsimile transmission or three business days after deposit in the United States Postal Service, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days advance written notice to each of the other parties hereto. COMPANY: At the address set forth in the introductory paragraph of the Agreement Attention: Chief Executive Officer Facsimile No.: (303) 672-0711 with a copy to: Jacobs Chase Frick Kleinkopf & Kelley LLC Independence Plaza 1050 17th Street, Suite 1500 Denver, Colorado 80265 Attention: Matthew R. Perkins, Esq. Facsimile No.: (303) 685-4869 BUYER: At the address and telephone line facsimile number set forth in the Agreement (with a copy as provided therein) ESCROW AGENT: Law Offices of Brian W Pusch, as Escrow Agent Penthouse Suite 29 West 57th Street New York, New York 10019 Facsimile No.: (212) 980-7055 13. By signing these Joint Escrow Instructions, the Escrow Agent becomes a party hereto only for the purpose of these Joint Escrow Instructions; the Escrow Agent does not become a party to the Agreement. The Company and the Buyer have become parties hereto by their execution and delivery of the Agreement, as provided therein. III-4 14. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns and shall be governed by the laws of the State of New York. 15. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided in the Agreement. ACCEPTED BY ESCROW AGENT: - ----------------------------------- Brian W. Pusch, as Escrow Agent III-5 ANNEX V TO SUBSCRIPTION AGREEMENT TRANSFER AGENT AGREEMENT THIS TRANSFER AGENT AGREEMENT, dated as of December 10, 1998, by and among ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"), AMERICAN SECURITIES TRANSFER & TRUST, INC., as Transfer Agent and Registrar (the "Transfer Agent"), and each of the holders of Preferred Stock (as defined below) named on the signature pages hereto (each, an "Original Holder" and collectively, the "Original Holders"). W I T N E S S E T H: WHEREAS, pursuant to the several Subscription Agreements, dated as of December 10, 1998, by and between the Company and each Original Holder (the "Purchase Agreements"), the Company has agreed, upon the terms and subject to the conditions of the Purchase Agreements, to issue to the Original Holders, and the Original Holders have agreed to purchase from the Company, upon the terms and subject to the conditions of the Purchase Agreements, shares (the "Preferred Shares") of Series B Convertible Preferred Stock, $.001 par value per share (the "Preferred Stock"), of the Company and in connection therewith the Company has agreed to issue Common Stock Purchase Warrants (the "Warrants") to the Original Holders; and WHEREAS, as a condition precedent to the several obligations of the Original Holders to purchase the Preferred Shares and acquire the Warrants, the Original Holders require the execution and delivery of this Agreement by the Company and the Transfer Agent to assure that the Original Holders and each other holder of the Preferred Shares and the Warrants (such other holders, together with the Original Holders, the "Holders") will be assured of the timely issuance and receipt of shares of Common Stock, $.001 par value (the "Common Stock"), of the Company upon conversion of Preferred Shares and exercise of the Warrants; 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 hereto agree as follows: 1. DELIVERIES BY THE COMPANY. Contemporaneously with the execution and delivery of this Agreement, the Company is delivering to the Transfer Agent the following: -1- (a) a list showing the name and address of each holder of record of the Preferred Shares and the date of issuance, certificate number and number of Preferred Shares initially issued to each such holder; (b) the form of Notice of Conversion of Series B Convertible Preferred Stock (the "Conversion Notice") relating to the Preferred Stock; (c) a list showing the name and address of each registered holder of Warrants and the date of issuance, Warrant certificate number and number of shares of Common Stock initially issuable upon exercise thereof; (d) the Subscription Form (the "Subscription Form") relating to the Warrants; and (e) an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC, counsel to the Company, as to the due authorization, validity of issuance and fully-paid and non-assessable nature of the shares (the "Common Shares") issuable upon conversion of the Preferred Shares and the shares (the "Warrant Shares") issuable upon exercise of the Warrants; and stating that the Common Shares may be issued to the Original Holders without registration under the Securities Act of 1933, as amended (the "1933 Act"). 2. ISSUANCE OF COMMON SHARES AND WARRANT SHARES. (a) The Company hereby appoints the Transfer Agent, and the Transfer Agent hereby agrees to act, as conversion agent for the Preferred Stock and exercise agent for the Warrants. The Company hereby irrevocably instructs the Transfer Agent to issue Common Shares upon conversion of all or any part of the outstanding Preferred Shares from time to time upon receipt of (i) a Conversion Notice from a Holder and (ii) a notice from the Company confirming the conversion instructions in such Conversion Notice. The Holder shall give a copy of each Conversion Notice to the Company. A Conversion Notice may be given by telephone line facsimile transmission to the Transfer Agent and the Company or otherwise given to the Transfer Agent and the Company, in each such case at the address and in the manner provided in Section 6(g). The certificates for Preferred Shares need not be surrendered in connection with the conversion thereof by a Holder unless all of the outstanding Preferred Shares evidenced by a particular certificate are so converted. The Company may by notice to any Holder from time to time require such Holder to surrender the certificates for such Holder's Preferred Shares in exchange for the issuance by the Company of one or more new certificate or certificates for a number of shares of Preferred Stock equal to the number of outstanding shares of Preferred Stock evidenced by the certificate(s) so surrendered. The Company hereby irrevocably instructs the Transfer Agent to issue Warrant Shares upon exercise of all or any part of the outstanding Warrants from time to time upon receipt from a Holder of (i) a Subscription Form for the Warrant -2- being exercised and (ii) a notice from the Company confirming the exercise instructions in such Subscription Form. The Holder shall give a copy of each Subscription Form to the Company. (b) The certificates for Common Shares and the Warrant Shares issued prior to receipt by the Transfer Agent of an opinion of counsel (who may be counsel to a Holder), which counsel shall be reasonably acceptable to the Transfer Agent, that a registration statement under the 1933 Act relating to the resale of Common Shares has been declared effective by the Securities and Exchange Commission (the "SEC") shall bear the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). 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 Act, or an opinion of counsel reasonably satisfactory in form, scope and substance to the Company that registration is not required under the Act. Once the Transfer Agent receives such opinion of counsel, thereafter (1) upon request of the holder of any such shares of Common Stock, the Transfer Agent will prepare and issue within three Trading Days after such request substitute certificates without any restrictive legend for any certificates for Common Shares or Warrant Shares issued prior to the date the Transfer Agent receives such opinion of counsel and shall immediately remove any stop-transfer restriction against such Common Shares or Warrant Shares and (2) neither the Company nor the Transfer Agent shall place any restrictive legend or stop-transfer restriction against Common Shares or Warrant Shares issued after the Transfer Agent receives such opinion of counsel. As used herein, "Trading Day" means a day on whichever of (x) the national securities exchange, (y) the Nasdaq National Market or (z) the Nasdaq SmallCap Market, which at the time constitutes the principal securities market for the Common Stock, is open for general trading of securities. 3. CONVERSION OBLIGATIONS ABSOLUTE; NO CONTRARY INSTRUCTIONS. (a) If a Holder shall have given a Conversion Notice for conversion of Preferred Shares, the Company shall, or shall cause the Transfer Agent to, issue and deliver as stated in such Conversion Notice the Common Shares issuable upon such conversion within three Trading Days after such Conversion Notice is given and the Holder converting shall be deemed to be the holder of record of the Common Shares issuable upon such conversion, and all rights with respect to that portion of the Preferred Shares so converted shall forthwith terminate except the right to receive the Common Shares or other securities, cash, or other assets as provided in the Certificate of Designations for the Preferred Stock (the "Certificate of Designations"). The Transfer Agent acknowledges and agrees that, if a Holder shall have given a Conversion Notice as provided herein, the Company's obligation to issue and -3- deliver the certificates for Common Shares upon such conversion shall be absolute and unconditional, irrespective of any action or inaction by the converting Holder to enforce the same, any waiver or consent with respect to any provision of the Certificate of Designations, 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 such Holder, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other person of any obligation to the Company, or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with such conversion. In lieu of delivering physical certificates representing the Common Shares issuable upon conversion of shares of Preferred Stock, provided the Transfer Agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of a Holder, the Transfr Agent shall electronically transmit the Common Shares issuable upon such conversion or exercise to such Holder by crediting the account of such Holder or such Holder's broker with DTC through its Deposit Withdrawal Agent Commission system. (b) The Company agrees not to give any instruction to the Transfer Agent which is contrary to this Agreement. The Transfer Agent hereby agrees that it will disregard any request, instruction or other communication from or on behalf of the Company which is contrary to or inconsistent with this Agreement. The Company shall not appoint any transfer agent (other than the Transfer Agent) or registrar for its Common Stock unless at the time of such appointment any such successor enters into an agreement of like tenor with this Agreement. (c) As set forth in Section 10(b)(3) of the Certificate of Designations, the number of Common Shares to be issued in connection with a particular conversion of Preferred Shares is, absent manifest error, conclusively the number of Common Shares stated in the applicable Conversion Notice. Within one Trading Day after receipt of each Conversion Notice, the Company shall send a notice by telephone line facsimile transmission to the Transfer Agent confirming the conversion instructions in such Conversion Notice. If in connection with a particular conversion of Preferred Shares the Company determines that manifest error has been made by virtue of the conversion price or other information set forth in the applicable Conversion Notice, the Company shall, within one Trading Day after a Holder gives such Conversion Notice, notify the Transfer Agent and such Holder of such error, which notice shall state the number of Common Shares in dispute, and, notwithstanding such notice from the Company, the Transfer Agent shall issue and deliver the number of Common Shares not in dispute as and when required by this Agreement. A Conversion Notice shall be deemed for all purposes to be in proper form unless the Company otherwise notifies the Holder giving such Conversion Notice by telephone line facsimile transmission within one Trading Day after a Conversion Notice has been given (which notice from the Company shall specify all defects in the Conversion -4- Notice), and any Conversion Notice containing any such defect shall nonetheless be effective on the date given if such Holder corrects all such defects within two Trading Days after receiving such notice from the Company. If the Company shall have notified the Transfer Agent and such Holder of any such claim of manifest error, and the Company and such Holder do not agree as to a resolution of such claim on or before the date of such notice by the Company of an error in such Conversion Notice the Company shall on the date such notice is given submit the dispute to Ernst & Young LLP oranother firm of independent public accountants of recognized national standing (the "Auditors") for determination and shall instruct the Auditors to resolve such dispute and to notify the Company, the Transfer Agent and such Holder within two Trading Days after such dispute is submitted to the Auditors. Immediately after receipt of timely notice of the Auditors' determination (but in any event within three Trading Days after the applicable Conversion Notice is given to the Transfer Agent), the Transfer Agent shall issue to the converting Holder any additional Common Shares to which such Holder is entitled based on the determination of the Auditors. The Transfer Agent is authorized and directed to rely on the Auditors' determination. Such immediate and prompt action shall be taken by all the parties hereto in order to assure that there shall be full compliance with the Company's unqualified obligation that all Common Shares issuable upon such conversion be issued by the due date therefor as provided herein and in the Certificate of Designations. (d) In order to assist the Transfer Agent in fulfilling its obligations under this Agreement, the Company will, in addition to confirming the instructions given in each Conversion Notice and Subscription Form within one Trading Day of the Company's receipt thereof, use its best efforts to contact the Transfer Agent promptly after the Company learns that a Conversion Notice or Subscription Form has been given and will cooperate with the Transfer Agent in providing such other information as the Transfer Agent may reasonably request, including the Company's receipt of the applicable purchase price due upon exercise of Warrants; PROVIDED, HOWEVER, that the Company's failure to comply with this Section 3(d) shall not limit the obligations of the Company to issue certificates for Common Shares and the Warrant Shares as and when required by this Agreement, the Certificate of Designations and the Warrants. 4. TRANSFER AGENT DUTIES. (a) The obligations and duties of the Transfer Agent under this Agreement are at all times and in all respects subject to the requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations of the SEC thereunder applicable to transfer agents registered with the SEC. This Agreement relates only to the Transfer Agent's duties as exercise agent for the Warrants and conversion agent for the Preferred Stock and does not otherwise limit or affect the Transfer Agent's other duties, obligations and agreements relating to its service as transfer agent and registrar for the Common Stock. (b) The Transfer Agent shall not, and is not being requested to, serve as -5- transfer agent for the Preferred Stock or the Warrants. The Transfer Agent shall not be required to maintain records of the names of the holders of record of the Preferred Stock and Warrants and the amounts of such securities so held from time to time or to effect or record any transfers thereof. The Transfer Agent shall be entitled to rely solely on lists and other written information provided by the Company from time to time with respect to the holders of Preferred Stock and Warrants and the respective amounts of such securities so held. 5. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Transfer Agent, each officer, director, employee and agent of the Transfer Agent, and each person, if any, who controls the Transfer Agent within the meaning of the 1933 Act or the 1934 Act against any losses, claims, damages or liabilities, joint or several, to which it, they or any of them, or such controlling person, may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the performance by the Transfer Agent of its duties pursuant to this Agreement; and will reimburse the Transfer Agent, and each officer, director, employee and agent of the Transfer Agent, and each such controlling person for any legal or other expenses reasonably incurred by it or any of them in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not be liable in any case if such loss, claim, damage or liability arises out of or is based upon any action not taken in good faith, or any act or omission that constitutes gross negligence or willful misconduct. Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the Company under this Section 5, notify in writing the Company of the commencement thereof, and failure so to notify the Company will relieve the Company from any liability under this Section 5 as to the particular item for which indemnification is then being sought if such failure shall have materially prejudiced the Company's right to defend or contest such action, but not from any other liability which it may have to any indemnified party. In case any such action is brought against any indemnified party, and it notifies the Company of the commencement thereof, the Company will be entitled to participate with any other indemnifying party, similarly notified, to assume the defense thereof, with counsel who shall be to the reasonable satisfaction of such indemnified party, and after notice from such indemnifying party to such indemnified party under this Section 5, shall be liable for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The Company shall not be liable to any such indemnified party on account of any settlement of any claim or action effected without the consent of the Company. 6. MISCELLANEOUS. (a) This Agreement shall be governed by and interpreted in accordance -6- with the laws of the State of Colorado. (b) 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 legally binding on such party. (c) The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) 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) No failure or delay by any party in exercising any right or remedy under or in connection with this Agreement or otherwise, and no course of dealing between the parties, shall operate as a waiver thereof or amendment of this Agreement, 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. (f) Neither this Agreement nor any term hereof (including this paragraph) may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing signed by the Company, the Transfer Agent, and, with respect to the Holders, the Majority Holders (as defined in the Certificate of Designations). (g) Any notices required or permitted to be given under the terms of this Agreement shall be in writing and shall be sent by mail or delivered personally (which shall include telephone line facsimile transmission) or by courier and shall be effective five days after being placed in the mail, if mailed, or upon receipt, if delivered personally or by courier, in each case addressed to a party as follows: if to the Company: Rocky Mountain Internet, Inc. 1099 18th Street Suite 3000 Denver, Colorado 80202 Attention: Chief Executive Officer -7- Facsimile No.: (303) 672-0711 if to the Transfer Agent: American Securities Transfer & Trust, Inc., as Conversion Agent and Exercise Agent 938 Quail Street Suite 101 Lakewood, Colorado 80215-5513 Facsimile No.: (303) 234-5340 if to any Original Holder: at the address and facsimile number set forth below its signature on the signature pages hereto or, in the case of any Holder who is not an Original Holder, to such address as such Holder shall have provided in writing to the Company and the Transfer Agent for such purpose or, in each such case, such other address as a party shall have provided by notice to the other parties in accordance with this provision. -8- IN WITNESS WHEREOF, this Transfer Agent Agreement has been duly executed by the parties hereto by their respective officers or other representatives thereunto duly authorized as of the date first set forth above. ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: AMERICAN SECURITIES TRANSFER & TRUST, INC., as Transfer Agent, Registrar, Conversion Agent And Exercise Agent By: Name: Title: ADVANTAGE FUND II LTD. By: W. R. Weber President Address: c/o CITCO Kaya Flamboyan 9 Curacao Netherlands Antilles Facsimile No.: 011-599-9732-2008 -9- with a copy to: Genesee International, Inc. 10500 N.E. 8th Street Suite 1920 Bellevue, Washington 98004-4332 Facsimile No.: (425) 462-4645 KOCH INDUSTRIES, INC. By: Name: Title: Address: 4111 East 37th Street North Wichita, Kansas 67220 Facsimile No.: (316) 828-7947 -10- EX-4.16 3 EXHIBIT 4.16 SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 10, 1998 BY AND BETWEEN ROCKY MOUNTAIN INTERNET, INC. AND ADVANTAGE FUND II LTD. -------------------- SERIES B CONVERTIBLE PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANTS SUBSCRIPTION AGREEMENT SERIES B CONVERTIBLE PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANTS ROCKY MOUNTAIN INTERNET, 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 3 (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 5 (e) Non-contravention 5 (f) Approvals 5 (g) Information Provided 6 (h) Absence of Certain Changes 6 (i) Absence of Certain Proceedings 6 (j) Properties 6 (k) Labor Relations 7 (l) SEC Filings 7 (m) Absence of Brokers, Finders, Etc. 7 (n) No Solicitation 8 (o) Certain Issuances of Securities 8 (p) Absence of Rights Agreement 8 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS 8 (a) Transfer Restrictions 8 (b) Restrictive Legend 8 (c) Registration Rights Agreement 10 (d) Form D 10 (e) Authorization for Trading 10 (f) Use of Proceeds 10 (g) Blue Sky Laws 10 (h) Certain Expenses 10 (i) Certain Issuances of Securities 11 (j) Stockholder Approval 12 -2- (k) Certain Trading Restrictions 12 (l) Restriction on Conversions 12 (m) Restriction on Beneficial Ownership 13 (n) Best Efforts 13 5. TRANSFER AGENT AGREEMENT 13 (a) Transfer Agent Agreement 13 (b) Conversion Procedure 13 6. CLOSING DATE 14 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE 14 8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE 14 9. MISCELLANEOUS 15 (a) Governing Law 15 -3- (b) Counterparts 15 (c) Headings, etc. 15 (d) Severability 15 (e) Amendments 15 (f) Waivers 15 (g) Notices 16 (h) Assignment 16 (i) Survival of Representations and Warranties 16 (j) Entire Agreement 16 (k) Termination 16 (l) Further Assurances 17 (m) Public Statements, Press Releases, Etc. 17 (n) Construction 17
SCHEDULES Schedule 3(a)-1 Subsidiaries Schedule 3(b)-1 Antidilution Adjustments Schedule 3(b)-2 Registration Rights Schedule 3(c)-1 Nasdaq Notification Schedule 3(i)-1 Confidential Treatment Requests Schedule 3(j)-1 Company Proprietary Rights ANNEXES Annex I Form of Certificate of Designations Annex II Form of Common Stock Purchase Warrant Annex III Joint Escrow Instructions Annex IV Form of Registration Rights Agreement Annex V Form of Transfer Agent Agreement Annex VI Form of Notice of Conversion of Series B Convertible Preferred Stock Annex VII Form of Opinion of Counsel to Be Delivered on Closing Date -4- SUBSCRIPTION AGREEMENT THIS SUBSCRIPTION AGREEMENT, dated as of December 10, 1998, by and between ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"), with headquarters located at 1099 18th Street, Suite 3000, Denver, Colorado 80202, and ADVANTAGE FUND II LTD., a British Virgin Islands corporation (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 non-voting, convertible preferred stock of the Company which will be convertible into 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 "Preferred Shares") of Series B Convertible Preferred Stock, $.001 par value (the "Preferred Stock"), of the Company set forth on the signature page of this Agreement, having the terms and conditions as set forth in the form of the Certificate of Designations of the Series B Convertible Preferred Stock attached hereto as ANNEX I (the "Certificate of Designations") 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 Preferred Shares by the Buyer, the Company shall issue to the Buyer, at the closing on the Closing Date (as defined herein), Common Stock Purchase Warrants in the form attached hereto as ANNEX II (the "Warrants") to purchase the number of shares -5- of Common Stock set forth therein (subject to adjustment as provided in the Warrants). The shares of Preferred Stock issuable pursuant to Section 5 of the Certificate of Designations as dividends on the Preferred Shares are referred to herein as the "Dividend Shares." The shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "Warrant Shares." The Warrant Shares and the shares of Common Stock issuable upon conversion of the Preferred Shares and upon conversion of the Dividend Shares are referred to herein collectively as the "Common Shares." The Common Shares, the Preferred Shares and the Dividend 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 Preferred 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 Preferred 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, the Company shall deliver certificates for the Preferred Shares and the Warrants, registered in the name of the Buyer or its nominee, to the Escrow Agent. The certificates for the Preferred 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 Preferred Shares shall be made by wire transfer of funds to: Citibank, N.A. 153 East 53rd Street New York, New York 10043 ABA#021000089 For credit to A/C#37179446 For credit to the account of Brian W. Pusch Attorney Escrow Account Reference: Advantage/Rocky Not later than 4:00 p.m., New York City time, on the date which is one Business Day after -6- 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 Preferred Shares and acquiring the Warrants, and will acquire all other Securities, 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 Preferred Shares are being offered and sold, the Warrants are being issued, and the Common 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 Preferred Shares and the Warrants and to receive an offer of the Common Shares; (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 Preferred Shares and the issuance of the Warrants and the offer of the Common 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; -7- 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-KSB for the fiscal year ended December 31, 1997 (the "1997 10-K"), (2) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998 (as amended on Form 10-QSB/A), June 30, 1998 and September 30, 1998, (3) definitive proxy statement for the Company's 1998 Annual Meeting of Shareholders held on March 12, 1998 and (4) Current Reports on Form 8-K and 8-K/A filed June 11, 1998, July 14, 1998, August 19, 1998, August 24, 1998 and December 7, 1998, 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 Certificate of Designations, the Warrants, the Registration Rights Agreement, the form of which is attached hereto as ANNEX IV (the "Registration Rights Agreement"), the Transfer Agent Agreement, the form of which is attached hereto as ANNEX V (the "Transfer Agent 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 -8- 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) 25,000,000 shares of Common Stock of which 9,193,649 shares were outstanding on December 9, 1998, all of which are fully paid and nonassessable; and (b) 750,000 shares of Preferred Stock, $.001 par value, none of which are outstanding, and 9,600 shares of which will be designated as Series B Convertible Preferred Stock, of which 8,000 shares will be issued pursuant to this Agreement and the other subscription agreement for the purchase of shares of Preferred Stock and the acquisition of common stock purchase warrants being entered into in connection herewith (the "Other Subscription Agreement"); and on the Closing Date there will be (x) no material increase from December 9, 1998 in the number of shares of Common Stock outstanding and (y) no issuances of preferred stock except as issued pursuant to this Agreement and the Other Subscription Agreement. 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 December 9, 1998, the Company had outstanding options, warrants and similar rights entitling the holders to purchase 8,193,026 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. Each outstanding class or series of securities for which any antidilution or similar adjustment arising by reason of the issuance or conversion of the Preferred Shares and the Dividend Shares or the issuance or exercise of the Warrants or the issuance or conversion of the shares of Preferred Stock and the issuance or exercise of the warrants to be issued pursuant to the Other Subscription Agreement will occur is identified on SCHEDULE 3(b)-1 attached hereto, together with the amount of such antidilution adjustment. 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. -9- 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. Except as set forth on SCHEDULE 3(b)-2 hereto, 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 Preferred Shares, when issued and paid for in accordance with this Agreement, the Dividend Shares, when issued as dividends on the outstanding shares of Preferred Stock, and the Common Shares, when issued upon conversion of the Preferred Shares or the Dividend Shares or upon exercise of the Warrants, as the case may be, 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 1,838,700 shares of Common Stock for conversion of the shares of Preferred Stock and exercise of the Warrants and the warrants issuable in connection with the Other Subscription Agreement, and such shares shall remain so reserved (subject to reduction from time to time for shares of Common Stock issued upon conversion of shares of Preferred Stock or redemption or other permitted retirement of shares of Preferred Stock), 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 Certificate of Designations, as long as the Preferred Stock is convertible, and pursuant to the Warrants, as long as the Warrants are exercisable. The Common Stock is listed for trading on the Nasdaq SmallCap Market ("Nasdaq") and (1) the Company and the Common Stock meet the criteria for continued listing and trading on Nasdaq; (2) except as set forth on SCHEDULE 3(c)-1 attached hereto, the Company has not been notified since January 1, 1996 by Nasdaq of any failure or potential failure to meet the criteria for continued listing and trading on Nasdaq and (3) no suspension of trading in the Common Stock is in effect. The Company knows of no reason that the Common Shares will not be eligible for listing on Nasdaq. (d) SUBSCRIPTION AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This Agreement, the Certificate of Designations, the Registration Rights Agreement, the Warrants and the Transfer Agent Agreement 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, the Warrants and the Transfer Agent Agreement -10- 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 Preferred Shares and the Warrants as contemplated by this Agreement, and the other transactions contemplated by this Agreement, the Certificate of Designations, the Registration Rights Agreement, the Warrants and the Transfer Agent Agreement 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, the Transfer Agent Agreement and the other agreements and instruments contemplated hereby and thereby, (2) the execution, filing and performance by the Company of the Certificate of Designations, (3) the issuance and sale of the Preferred Shares and the Dividend Shares -11- and the issuance of the Warrants as contemplated by this Agreement and (4) the issuance of Common Shares on conversion of the Preferred Shares or the Dividend Shares or upon the exercise of the Warrants or the issuance of Dividend Shares as dividends on shares of Preferred Stock, other than (w) the filing of the Certificate of Designations with the Secretary of State of the State of Delaware, (x) registration of the resale of the Common 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 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, 1997 other than the SEC Reports. (h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, 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, 1997, 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 -12- would 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 would 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; except as set forth on SCHEDULE 3(i)-1 attached hereto, 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 Common 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. Except as set forth on SCHEDULE 3(j)-1 attached hereto, the 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 -13- 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. Except as set forth on SCHEDULE 3(j)-1 attached hereto, 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 -14- transactions contemplated by this Agreement other than as disclosed in writing by the Company to the Buyer with respect to certain persons prior to the date of execution and delivery of this Agreement by the Buyer, and the Company shall pay, and indemnify and hold harmless the Buyer from, any claim made against the Buyer by such persons or 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 Preferred 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 Preferred Stock or 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 4310(c)(25)(H) of the 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 "Stockholder Approval Rule") and which would be integrated with the sale of the Preferred Shares to the Buyer or the issuance of Common Shares upon conversion thereof or upon exercise of the Warrants or the Dividend Shares in payment of dividends thereon for purposes of the Stockholder 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. The Company and the Buyer acknowledge and agree that (1) the Preferred 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 -15- Rights Agreement with respect to the resale of the Common Shares, the Common Shares have not been and are not being registered for resale under the 1933 Act, and the Securities may not be transferred unless (A) subsequently registered for resale thereunder or (B) 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; (2) any resale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act may be made only in accordance with the terms of said Rule and further, if said Rule 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 (3) 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). (b) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees that the Preferred Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the Preferred 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 sold, 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. The number of shares constituting the portion of the Maximum Share Amount, as defined in the Certificate of Designations of the Series B Convertible Preferred Stock (the "Certificate of Designations"), allocated to the shares represented by this certificate for purposes of conversion thereof is 1,149,188. Section 10(b)(3)(A) of the Certificate of Designations permits a holder of the securities represented by this certificate to convert such securities in accordance with the Certificate of Designations without being required to surrender this certificate to the Company unless all of the securities represented hereby are so converted. Consequently, following conversion of any of the securities represented by this certificate, the number of shares represented by this certificate may be less -16- than the number of shares stated hereon. Upon request of any proposed transferee of this certificate, the Company will provide confirmation of the number of shares evidenced by this certificate. (2) The Buyer further 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. (3) The Buyer further acknowledges and agrees that until such time as the Common Shares have been registered for resale under the 1933 Act as contemplated by the Registration Rights Agreement, the certificates for the Common 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 Common 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. (4) 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 any Common 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 (as defined in the Certificate of Designations) after surrender of such certificates by the Buyer and (2) the Company shall not place any restrictive legend on certificates for Common Shares issued on conversion of or as dividends on the Preferred Shares or upon exercise of the Warrants or impose any stop-transfer restriction thereon. -17- (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 Common Shares and shall provide evidence of such filing to the Buyer. So long as the Buyer beneficially owns any of the Preferred Shares, the Dividend Shares, the Warrants or the Common Shares, 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 Preferred 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 -18- take such action as shall be necessary to qualify, or to obtain an exemption for, the Preferred Shares for sale to the Buyer and the Warrants for issuance to the Buyer pursuant to this Agreement and the Common Shares for issuance to the Buyer on conversion of the Preferred Shares under such of the securities or "blue sky" laws of jurisdictions as shall be applicable to the sale of the Preferred Shares and the issuance of the Warrants pursuant to this Agreement and the issuance to the Buyer of Common Shares on conversion of the Preferred Shares and 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. (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 Certificate of Designations, the Registration Rights Agreement, the Warrants, the Transfer Agent Agreement 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 Stockholder Approval (as defined in the Certificate of Designations) or a waiver thereof from the Nasdaq, the Company will not issue any shares of Common Stock or shares of any other 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 Stockholder Approval Rule and which would be integrated with the sale of the Preferred Shares and issuance of the Warrants to the Buyer or the issuance of Common Shares upon conversion of the Preferred Shares or Dividend Shares or upon exercise of the Warrants for purposes of the Stockholder Approval Rule. (2) During the period from the date of this Agreement to the date on -19- which the Registration Statement (as defined in the Registration Rights Agreement) 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) with conversion or exchange terms similar in nature to the conversion rights of the Preferred Stock 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 (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 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 Preferred Shares, the Dividend Shares, if any, 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. The Buyer may, by notice to the Company, exercise such right of first refusal at any time until the later of (x) 15 Business Days after such notice from the Company to the Buyer -20- and (y) five Business Days after the Company provides such additional information as shall have been requested by the Buyer. (j) STOCKHOLDER APPROVAL. The Company shall seek and use its best efforts to obtain at the Company's next regularly scheduled Annual Meeting of Stockholders, Stockholder Approval of the issuance of all shares of Preferred Stock issuable pursuant to the Certificate of Designations and all shares of Common Stock issuable upon conversion of the Preferred Stock. The Company shall prepare and file with the SEC within 30 days prior to the scheduled mailing of notice of such Annual Meeting preliminary proxy materials which set forth a proposal to seek such Stockholder Approval. The Company shall provide the Buyer an opportunity to consult with the Company regarding the content of such proxy materials insofar as it relates to the Stockholder Approval by providing copies of such preliminary proxy materials and any revised preliminary proxy materials to the Buyer a reasonable period of time prior to their filing with the SEC. Such consultation shall occur within five Business Days after the Buyer's receipt of each proposed draft of such materials. The Company shall furnish to the Buyer and its counsel a copy of its definitive proxy materials for such Annual Meeting and any amendments or supplements thereto promptly after the same are mailed to stockholders or filed with the SEC. (k) CERTAIN TRADING RESTRICTIONS. The Buyer agrees that on the Closing Date it will have no short position in the Common Stock. So long as (i) the Company is in compliance in all material respects with its obligations to the Buyer under this Agreement, the Certificate of Designations, the Warrants and the Registration Rights Agreement or (ii) any noncompliance with such obligations is cured within ten Business Days of the Company's receipt of notice thereof from the Buyer, the Buyer agrees on its behalf and on behalf of its Affiliates (as defined in the Certificate of Designations) that it will not engage in any short sales or other hedging transactions relating to the Common Stock; PROVIDED, HOWEVER, that for purposes of this Agreement any such transaction involving a number of shares of Common Stock which does not exceed the number of shares for which a Conversion Notice (as defined in Section 5(b)) has been submitted to the Transfer Agent (as defined in Section 5(a)) and the Company shall not be deemed to be a short sale or hedging transaction. (l) RESTRICTION ON CONVERSIONS. So long as the Company is in compliance in all material respects with its obligations to the Buyer under this Agreement, the Certificate of Designations, the Warrants and the Registration Rights Agreement, the aggregate number of Limitation Shares (as defined below) in any period of 30 consecutive days through November 30, 1999 shall not exceed 20% of the number of Preferred Shares purchased by the Buyer on the Closing Date. For purposes of this Agreement, "Limitation -21- Shares" means, for each conversion of Preferred Shares pursuant to the Certificate of Designations, the number of Preferred Shares converted into Common Stock when the Volume-Weighted Trading Price (as defined below) of the Common Stock on the Conversion Date for such conversion is less than 110% of the Conversion Price (as defined in the Certificate of Designations) applicable to such conversion; and "Volume-Weighted Trading Price" for any security for any period means the quotient obtained by dividing (A) the sum for all trades (regular way) of such security between 9:15 a.m. and 4:30 p.m., Eastern Time, on each Trading Day during such period on the principal securities market for such security of the product of (x) the number of shares of such security traded in each trade TIMES (y) the price at which such security was traded in such trade BY (B) the sum of the number of shares of such security traded in all such trades, as reported by Bloomberg, L.P. in its AQR function for such security. (m) RESTRICTION ON BENEFICIAL OWNERSHIP. So long as the Company is in compliance in all material respects with its obligations to the Buyer under this Agreement, the Certificate of Designations, the Warrants and the Registration Rights Agreement, the Buyer agrees to (i) comply with the restrictions on beneficial ownership of Common Stock set forth in the proviso to the second sentence of Section 10(a) of the Certificate of Designations as if the reference to "4.9%" therein were reduced to 3.0625% and (ii) require any transferee of the Preferred Shares or the Warrants to agree in writing with the Company to be bound by this Section 4(m). (n) 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 Preferred Shares set forth in Section 7 or 8, as the case may be, of this Agreement on or before the Closing Date. 5. TRANSFER AGENT AGREEMENT; CONVERSION PROCEDURE. (a) TRANSFER AGENT AGREEMENT. Prior to the Closing Date, the Company will (1) execute and deliver the Transfer Agent Agreement in the form attached hereto as ANNEX V and thereby irrevocably instruct, American Securities Transfer & Trust, Inc., as Transfer Agent and Registrar (the "Transfer Agent"), to issue certificates for the Common Shares from time to time upon conversion of the Preferred Shares and the Dividend Shares and exercise of the Warrants in such amounts as specified from time to time to the Transfer Agent in the Notices of Conversion surrendered in connection with such conversions and referred to in Section 5(b) of this Agreement and the Form of Subscription in the form attached to the Warrants and (2) appoint the Transfer Agent the conversion agent for the Preferred Stock and the exercise agent for the Warrants. The certificates for the Common Shares may bear the restrictive legend specified in Section -22- 4(b) of this Agreement prior to registration of the resale of the Common Shares under the 1933 Act. The certificates for the Common Shares shall be registered in the name of the Buyer or its designee and in such denominations to be specified by the Buyer in connection with each conversion of Preferred Shares or Dividend Shares or exercise of the Warrants. The Company warrants that no instruction other than (x) such instructions referred to in this Section 5, (y) stop transfer instructions to give effect to Section 4(a) prior to registration of the resale of the Common Shares under the 1933 Act and (z) the instructions required by Section 3(n) of the Registration Rights Agreement will be given by the Company to the Transfer Agent and that the Common Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. Nothing in this Section 5(a) shall limit in any way the Buyer's obligations and agreement to comply with the registration requirements of the 1933 Act upon resale of the Common Shares. If the Buyer provides the Company with an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company and its legal counsel, that registration of a resale by the Buyer of ny of the Securities is not required under the 1933 Act, the Company shall permit the transfer of such Securities and, in the case of the Common Shares, in accordance with clause (1)(B) of Section 4(a) of this Agreement, promptly instruct the Transfer Agent to issue upon transfer one or more share certificates in such name and in such denominations as specified by the Buyer within three Business Days after receipt of such opinion. Nothing in this Section 5(a) shall limit the obligations of the Company under Section 3(n) of the Registration Rights Agreement. (b) CONVERSION PROCEDURE. In connection with the exercise of conversion rights relating to the Preferred Shares and the Dividend Shares, the Buyer or any subsequent holder of the Preferred Shares shall complete, sign and furnish to the Transfer Agent and the Company a Notice of Conversion of Series B Convertible Preferred Stock in the form attached hereto as ANNEX VI (a "Conversion Notice"), which shall be deemed to satisfy all requirements of the Certificate of Designations. 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 Preferred 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 Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New York 10019. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND -23- ISSUE. The Buyer understands that the Company's obligation to sell the Preferred 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 Preferred 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 Preferred 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 Preferred Shares and the 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; (c) The receipt by the Buyer of confirmation of the filing with the Secretary of State of the State of Delaware of the Certificate of Designations; -24- (d) 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; (e) The Transfer Agent shall have executed and delivered the Transfer Agent Agreement in the form attached hereto as ANNEX V; and (f) Receipt by the Buyer on the Closing Date of an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC, counsel for the Company, dated the Closing Date, in form, scope and substance reasonably satisfactory to the Buyer, to the effect set forth in ANNEX VII 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 -25- 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 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 Genesee International, Inc., 10500 N.E. 8th Street, Suite 1920, Bellevue, Washington 98004-4332 (telephone line facsimile transmission number (425) 462-4645) 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. The Buyer hereby designates as its address for any notice required or permitted to be given to the Buyer pursuant to the Certificate of Designations the address shown on the signature page of this Agreement, with a copy to: Advantage Fund II Ltd., c/o Genesee International, Inc., 10500 N.E. 8th Street, Suite 1920, Bellevue, Washington 98004-4332 (facsimile number (425) 462-4645), until the Buyer shall designate another address for such purpose. (h) ASSIGNMENT. Prior to the Closing Date, the Buyer may not assign its rights and obligations under this Agreement. Any transfer of the Preferred 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 -26- 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 and Section 4(m) of this 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 Preferred 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. The Buyer shall have the right to terminate this Agreement by giving notice to the Company at any time at or prior to the Closing Date if: (1) the Company 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 Buyer's obligations hereunder is not fulfilled; or (3) the closing shall not have occurred on a Closing Date on or before December 15, 1998, other than solely by reason of a breach of this Agreement by the Buyer. Any such termination shall be effective upon the giving of notice thereof by the Buyer. Upon such termination, the Buyer shall have no further obligation to the Company hereunder and the Company shall remain liable for any breach of this Agreement or the other documents contemplated hereby which occurred on or prior to the date of such termination. (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. -27- (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. -28- 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: $1,000.00 AGGREGATE PURCHASE PRICE: ADVANTAGE FUND II LTD. By: W.R. Weber President Date: Address: c/o CITCO Kaya Flamboyan 9 Curacao, Netherlands Antilles Facsimile No.: 011-599-9732-2008 ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: Date: -29- EX-4.17 4 EXHIBIT 4.17 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 58,125 Shares of Common Stock of Rocky Mountain Internet, Inc. ROCKY MOUNTAIN INTERNET, INC. COMMON STOCK PURCHASE WARRANT NO. B-2 ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"), hereby certifies that, for value received, Koch Industries, Inc. 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 (as hereinafter defined), 58,125 fully paid and nonassessable shares of Common Stock (as hereinafter defined) at a purchase price per share equal to the Purchase Price (as hereinafter defined). 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: "Common Stock" includes 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 Rocky Mountain Internet, Inc. and any corporation -1- that shall succeed to or assume the obligation of Rocky Mountain Internet, Inc. hereunder in accordance with the terms hereof. "Expiration Date" means December 10, 2003. "Issuance Date" means the first date of original issuance of this Warrant. "1934 Act" means the Securities Exchange Act of 1934, as amended. "1933 Act" means the Securities Act of 1933, as amended. "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. "Purchase Price" shall mean $13.21125 per share, subject to adjustment as provided in this Warrant. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 10, 1998, by and between the Company and the original Holder of this Warrant, as amended from time to time in accordance with its terms. "Subscription Agreement" means the Subscription Agreement, dated as of December 10, 1998, 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. 1. EXERCISE OF WARRANT. 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 annexed hereto (duly executed by the Holder) to the Company's transfer agent and registrar for the Common Stock, 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 -2- subscription form by (b) the Purchase Price then in effect. 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. 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 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 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 Company's transfer agent and registrar for the Common Stock 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 -3- 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 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. -4- 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 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 -5- (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 share 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 -6- 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) issuances pursuant to options, warrants and convertible securities outstanding on the Issuance Date (including securities issued pursuant to the Subscription Agreement) and (iii) issuances pursuant to employee stock option plans (other than in connection with any corporate financing or acquisition transaction), 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, -7- 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 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. -8- 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 (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 -9- 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. 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, -10- 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. In accordance with the Transfer Agent Agreement, dated as of December 10, 1998, by and among the Company, American Securities Transfer & Trust, Inc., as Transfer Agent and Registrar (the "Transfer Agent"), and the original Holder of this Warrant and the other common stock purchase warrants of like tenor issued by the Company in connection with the issuance of this Warrant, the Company has appointed the Transfer Agent as the exercise agent for purposes of issuing shares of Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1. 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 -11- 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 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 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. 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. MISCELLANEOUS. This Warrant and any terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the -12- party against which enforcement of such change, waiver, discharge or termination is sought. 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- 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 , 1998 ROCKY MOUNTAIN INTERNET, INC. By: Title: -14- FORM OF SUBSCRIPTION ROCKY MOUNTAIN INTERNET, INC. (To be signed only on exercise of Warrant) TO: American Securities Transfer & Trust, CC: Rocky Mountain Internet, Inc. Inc., as Exercise Agent 1099 18th Street 938 Quail Street Suite 3000 Suite 101 Denver, Colorado 80202 Lakewood, Colorado 80215-5513 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 Rocky Mountain Internet, Inc., a Delaware corporation (the "Company"). 2. The undersigned Holder (check one): / / (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 / / (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 S-15 as is specified below: Name: ------------------- Address: ---------------- ---------------- S-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: , ------------ --- ---- (Signature must conform to name of Holder as specified on the face of the Warrant) --------------------------------- --------------------------------- (Address) S-17 EX-4.18 5 EXHIBIT 4.18 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 45,000 Shares of Common Stock of Rocky Mountain Internet, Inc. ROCKY MOUNTAIN INTERNET, INC. COMMON STOCK PURCHASE WARRANT NO. B-3 ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"), hereby certifies that, for value received, Wharton Capital Partners Ltd. 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 (as hereinafter defined), 45,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined) at a purchase price per share equal to the Purchase Price (as hereinafter defined). 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: "Common Stock" includes 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 Rocky Mountain Internet, Inc. and any corporation -1- that shall succeed to or assume the obligation of Rocky Mountain Internet, Inc. hereunder in accordance with the terms hereof. "Expiration Date" means December 10, 2003. "Issuance Date" means the first date of original issuance of this Warrant. "1934 Act" means the Securities Exchange Act of 1934, as amended. "1933 Act" means the Securities Act of 1933, as amended. "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. "Purchase Price" shall mean $12.195 per share, subject to adjustment as provided in this Warrant. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 10, 1998, 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. 1. EXERCISE OF WARRANT. 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 annexed hereto (duly executed by the Holder) to the Company's transfer agent and registrar for the Common Stock, 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. 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. On any partial exercise the -2- 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 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 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 Company's transfer agent and registrar for the Common Stock 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 -3- 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 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. 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, -4- 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 ompany 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 (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, -5- 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 share 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 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 -6- 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) issuances pursuant to options, warrants and convertible securities outstanding on the Issuance Date and (iii) issuances pursuant to employee stock option plans (other than in connection with any corporate financing or acquisition transaction), 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 considration, 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 shares of Common Stock purchasable upon exercise of this Warrant in full immediately after such adjustment -7- 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 -8- 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 (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. -9- 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. 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 -10- Warrant of like tenor. 14. WARRANT AGENT. The Company has appointed American Securities Transfer & Trust, Inc., as Transfer Agent and Registrar, as the exercise agent for purposes of issuing shares of Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1. 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 Registration Rights 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 -11- 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 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. 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. MISCELLANEOUS. 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. 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. -12- 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 , 1998 ROCKY MOUNTAIN INTERNET, INC. By: Title: -13- FORM OF SUBSCRIPTION ROCKY MOUNTAIN INTERNET, INC. (To be signed only on exercise of Warrant) TO: American Securities Transfer & Trust, Inc., CC: Rocky Mountain as Exercise Agent Internet, Inc. 938 Quail Street 1099 18th Street Suite 101 Suite 3000 Lakewood, Colorado 80215-5513 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 Rocky Mountain Internet, Inc., a Delaware corporation (the "Company"). 2. The undersigned Holder (check one): / / (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 / /(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: S-14 Name: -------------------------- Address: -------------------------- -------------------------- S-15 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: (Signature must conform to name of ------------ ---, ---- Holder as specified on the face of the Warrant) ----------------------------------- ----------------------------------- (Address) S-16 EX-4.19 6 EXHIBIT 4.19 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 10, 1998 (this "Agreement"), is made by and between ROCKY MOUNTAIN INTERNET, 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 10, 1998, 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 "Preferred Shares") of Series B Convertible Preferred Stock, $.001 par value (the "Series B Preferred Stock"), of the Company as provided in the Subscription Agreement, which Preferred Shares are convertible into shares (the "Conversion Shares") of Common Stock, $.001 par value (the "Common Stock"), of the Company, and to issue common stock purchase warrants (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 "Securities Act"), and applicable state securities laws with respect to the Conversion Shares, the Warrant Shares and the shares of Common Stock issuable upon conversion of shares (the "Dividend Shares") of Series B Preferred Stock which are issuable in payment of dividends on the Preferred 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 -1- following meanings: "Certificate of Designations" means the Certificate of Designations of the Series B Convertible Preferred Stock establishing and designating the Series B Preferred Stock and fixing the rights and preferences of such series as filed by the Company with the Secretary of State of the State of Delaware. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "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 persons who hold a majority of the shares of Series B Preferred Stock which are then outstanding, including such shares originally issued pursuant to the Subscription Agreement and the Other Subscription Agreement. "Nasdaq" means the Nasdaq SmallCap Market. "Permitted Transferee" means any person (1) who is an "accredited investor" as defined in Regulation D under the Securities Act and (2) who, immediately following the assignment of rights under this Agreement holds (x) at least 500 shares of Preferred Stock or (y) shares of Preferred Stock which at the time of such transfer are convertible into, or shares of Common Stock issued upon conversion of shares of Preferred Stock which are equal to, at least 50,000 (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) shares of Common Stock, or any combination thereof. "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). "Registrable Securities" means the Conversion Shares, the Warrant Shares and any shares of Common Stock issued by the Company to any Investor upon conversion of any Dividend Shares. As to any particular securities, such securities shall cease to be -2- 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 earliest of (i) the date which is three years after the SEC Effective Date, (ii) the date on which each Investor may sell all of its Registrable Securities without registration under the Securities 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 Securities Act, including any amendment thereto. "Rule 144" means Rule 144 promulgated under the Securities 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 Securities Act. "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. REGISTRATION. (a) MANDATORY REGISTRATION. (1) The Company shall prepare, and on or prior to January 29, 1999, 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) a number of shares of Common Stock equal to 175% of the number of shares of Common Stock issuable upon conversion of the Preferred Shares, determined as if the Preferred Shares, together with accrued and unpaid dividends thereon, were converted in full on the SEC Filing Date assuming a Conversion Percentage (as defined in the Certificate of Designations) of 92% (and -3- determined without regard to the limitations on conversion contained in the Subscription Agreement and the Certificate of Designations) PLUS (y) the number of Warrant Shares (in each case determined without regard to the limitations on beneficial ownership contained in Section 4(m) of the Subscription Agreement, the proviso to the second sentence of Section 10(a) of the Certificate of Designations, and Section 1.1(b) of the Warrants) and the resale of such additional number of shares of Common Stock as the Company shall in its discretion determine to register to permit the issuance of Dividend Shares and the resale of the shares of Common Stock issuable upon conversion thereof. 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 125% of the number of shares of Common Stock issuable on conversion in full of the unconverted Preferred Shares and Dividend Shares plus 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 conversion and 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 (i) the Investors and the investors contemplated by the registration rights agreement entered into by the Company in connection with the Other Subscription Agreement, (ii) 60,000 shares of Common Stock to be issued in connection with a certain software license agreement and (iii) 100,000 shares of Common Stock issuable upon the exercise of warrants to be issued to certain placement agents, investment banking firms and/or financial consultants in connection with the transactions contemplated by the Subscription 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 of 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 on Form S-4 or Form S-8. (b) CERTAIN OFFERINGS. If any offering pursuant to a Registration -4- Statement pursuant to Section 2(a) 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 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) ADJUSTMENTS OF CONVERSION TERMS. The Certificate of Designations provides, among other things, that, if a Registration Event (as defined in the Certificate of Designations) occurs, then the Conversion Percentage and the Ceiling Price (as such terms are defined in the Certificate of Designations) shall be adjusted as provided in the Certificate of Designations. (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 Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each Investor who is entitled to registration rights under this Section 2(d) written notice of such determination and, if within ten (10) 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 -5- 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 Company under this Section 2(d) may be waived by Investors holding a majority in interest of the Registrable Securities 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 January 29, 1999, 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 -6- 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 Securities 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 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 -7- 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; -8- (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 Securities 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. -9- 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 han 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 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 National 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); -10- (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 Exchange 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; (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 -11- 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 Securities 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 registration rights agreement contemplated by the Other Subscription Agreement (in addition to the payment of the Initial Investor's expenses to the extent -12- 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 registration rights agreement contemplated by the Other Subscription Agreement pursuant to Section 2(b) hereof and thereof. 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 Securities Act or the Exchange Act, any underwriter (as defined in the Securities 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 Securities Act or the Exchange 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 Securities Act, the Exchange 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, omissions or violations in 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 Companyof the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange 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 -13- 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 Securities Act or the Exchange Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the Securities Act or the Exchange Act (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim to which any of them may become subject, under the Securities Act, the Exchange 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 -14- 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 -15- party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that (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 Securities 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 EXCHANGE 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 Securities Act and the Exchange 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 Exchange 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) 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 Securities 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 such Permitted Transferee agrees in writing -16- with the Company to be bound by all of the provisions contained herein. In connection with any such transfer the Company shall, at its sole cost and expense, 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. 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 1099 18th Street, Suite 3000, Denver, Colorado 80202, Attention: Chief Executive Officer, telephone line facsimile transmission number (303) 672-0711, (ii) if to the Initial Investor, at 4111 East 37th Street North, Wichita, Kansas 67220, Attention: Josh Taylor, telephone line facsimile transmission number (316) 828-7947 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 -17- 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 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 delay, the Company shall be liable for all direct and consequential damages caused by any such failure or delay. (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 -18- 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. -19- 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. ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: KOCH INDUSTRIES, INC. By: Name: Title: -20- EXHIBIT 1 TO REGISTRATION RIGHTS AGREEMENT [Company Letterhead] [Date] American Securities Transfer & Trust, Inc., as Transfer Agent, Warrant 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 Rocky Mountain Internet, 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 (a) shares (the "Conversion Shares") of Common Stock to or upon the order of the holder from time to time on conversion of the shares (the "Preferred Shares") of Series B Convertible Preferred Stock, $.001 par value, of the Company upon receipt by you of a Notice of Conversion of Series B Convertible Preferred Stock in the form enclosed herewith, and (b) 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 (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 - ----------------------------- (1) Omit if no conversions of Preferred Stock or exercises of Warrants have occurred before SEC registration is declared effective. 1-21 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 Conversion Shares and 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 an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC as to registration of the resale of [the Outstanding Shares and]* the Conversion Shares and Warrant Shares under the Securities Act of 1933, as amended. - -------------------- 1-22 Should you have any questions concerning this matter, please contact me. Very truly yours, ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: Enclosures cc: [Names of Investors] 1-23 EXHIBIT 2 TO REGISTRATION RIGHTS AGREEMENT ______________ ___, 1998 [Names and Addresses of Investors] ROCKY MOUNTAIN INTERNET, INC. SHARES OF COMMON STOCK Ladies and Gentlemen: We are counsel to Rocky Mountain Internet, Inc., a Delaware corporation (the "Company"), and we understand that the Company has sold to [Names of Investors] (the "Holders") an aggregate of 8,000 shares (the "Preferred Shares") of the Company's Series B Convertible Preferred Stock, $.001 par value (the "Preferred Stock"), and issued to the Holders Common Stock Purchase Warrants (the "Warrants"). The Preferred Shares were sold, and the Warrants were issued, to the Holders pursuant to several Subscription Agreements, dated as of December 10, 1998, by and between the Holders and the Company (the "Subscription Agreements"). Pursuant to the several Registration Rights Agreements, dated as of December 10, 1998, by and between the Company and each Holder (the "Registration Rights Agreements") entered into in connection with the purchase by the Holders of the Preferred Shares, the Company agreed with each Holder, among other things, to register for resale (1) the shares (the "Conversion Shares") of Common Stock issuable upon conversion of the Preferred Shares and conversion of the shares of Preferred Stock issuable as dividends on the Preferred 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 Conversion Shares and the Warrant Shares are referred to herein collectively as the "Shares". Pursuant to the Registration Rights Agreements, on __________ ___, 1998 the Company filed a Registration Statement on Form S-3 2-24 (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, we are 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 Exchange 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 we have not been requested to and do 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 our 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. We 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 we are 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 our attention that leads us 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 2-25 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 we 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, Warrant 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, Warrant Agent and Registrar 2-26 EX-4.20 7 EXHIBIT 4.20 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 10, 1998 (this "Agreement"), is made by and between ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation (the "Company"), and the person named on the signature page hereto (the "Initial Investor"). W I T N E S E T H: WHEREAS, in connection with the letter agreement, dated as of October 28, 1998, between Wharton Capital Partners Ltd. and the Company (the "Letter Agreement"), the Company has agreed to issue to the Initial Investor common stock purchase warrants (the "Warrants") to purchase shares (the "Warrant Shares") of Common Stock, $.001 par value (the "Common Stock"), of the Company; and WHEREAS, in accordance with the Letter 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 "Securities Act"), and applicable state securities laws with respect to 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: "Exchange Act" means the Securities Exchange Act of 1934, as amended. "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 persons who hold a majority of the shares of Series B Convertible Preferred Stock of the Company which are then outstanding, including such shares originally issued pursuant to the Subscription Agreements, or, if no such shares are outstanding, those persons who hold or have the right to acquire a -1- majority of the Registrable Securities issued or issuable upon exercise of the Warrants. "Nasdaq" means the Nasdaq SmallCap Market. "Permitted Transferee" means any person (1) who is an "accredited investor" as defined in Regulation D under the Securities Act and (2) who, immediately following the assignment of rights under this Agreement holds (x) Warrants to purchase at least 10,000 shares of Common Stock or (y) shares of Common Stock issued upon exercise of Warrants which are equal to, at least 10,000 (subject to equitable adjustment from time to time on terms reasonably acceptable to the Investors 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) shares of Common Stock, or any combination thereof. "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). "Registrable Securities" means 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 earliest of (i) the date which is three years after the SEC Effective Date, (ii) the date on which each Investor may sell all of its Registrable Securities without registration under the Securities 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 Securities Act, including any amendment thereto. "Rule 144" means Rule 144 promulgated under the Securities 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 -2- Securities Act. "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). "Subscription Agreements" means the respective Subscription Agreements, dated as of the date hereof, between the Company and Advantage Fund II Ltd. and Koch Industries, Inc. (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 Agreements. 2. REGISTRATION. (a) MANDATORY REGISTRATION. (1) The Company shall prepare, and on or prior to January 29, 1999, 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 number of Warrant Shares (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 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 conversion and 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 (i) the Investors and the holder of the other Warrants issued pursuant to the Letter Agreement, (ii) holders of warrants to purchase 10,000 shares of Common Stock to be -3- initially issued to an investment banking firm or its designees, (iii) the investors contemplated by the registration rights agreements entered ino by the Company in connection with the Subscription Agreements and (iv) 60,000 shares of Common Stock to be issued in connection with a software license 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 of 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 on Form S-4 or Form S-8. (b) CERTAIN OFFERINGS. If any offering pursuant to a Registration Statement pursuant to Section 2(a) 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 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) 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 Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each Investor who is entitled to registration rights under this Section 2(c) written notice of such determination and, if within ten (10) 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 -4- 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(c) shall be construed to limit any registration required under Section 2(a) hereof. The obligations of the Company under this Section 2(c) may be waived by Investors holding a majority in interest of the Registrable Securities and shall expire after the Company has afforded the opportunity for the Investors to exercise registration rights under this Section 2(c) 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(c) 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(c). (d) 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 January 29, -5- 1999, 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 Securities 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 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 -6- 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 -7- 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; (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 Securities 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 -8- 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 han 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 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 National 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 -9- 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 Exchange 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; (b) Each Investor by such Investor's acceptance of the Registrable -10- 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 Securities Act applicable to its sales of Registrable Securities. -11- 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 under the registration rights agreements contemplated by the Subscription Agreements, 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 pursuant to Section 2(b) hereof. 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 Securities Act or the Exchange Act, any underwriter (as defined in the Securities 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 Securities Act or the Exchange 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 Securities Act, the Exchange 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, omissions or violations in 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 Companyof the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange 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 -12- 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 Securities Act or the Exchange Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the Securities Act or the Exchange Act (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim to which any of them may become subject, under the Securities Act, the Exchange 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 -13- 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 -14- 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 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 Securities 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 EXCHANGE 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 Securities Act and the Exchange 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 Exchange 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) 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 -15- 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 Securities 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 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 its sole cost and expense, 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. 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. INITIAL INVESTOR REPRESENTATIONS, WARRANTIES, ETC. The Initial Investor represents and warrants to, and covenants and agrees with, the Company as follows: (a) INVESTMENT PURPOSE. The Initial Investor is acquiring the Warrants, and 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 this Agreement. (b) ACCREDITED INVESTOR. The Initial Investor is an "accredited investor" as that term is defined in Rule 501 of the General Rules and Regulations under the Securities Act by reason of Rule 501(a)(3). (c) REOFFERS AND RESALES. All subsequent offers and sales of the Warrants and the Warrant Shares by the Initial Investor shall be made pursuant to registration of the Warrants and the Warrant Shares being offered and sold under the Securities Act or pursuant to an exemption from registration. (d) COMPANY RELIANCE. The Initial Investor understands that 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, -16- and the Initial Investor's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Initial Investor set forth herein in order to determine the availability of such exemptions and the eligibility of the Initial Investor to acquire the Warrants and to receive an offer of the Warrant Shares. (e) INFORMATION PROVIDED. The Initial Investor 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 issuance of the Warrants and the offer of the Warrant Shares which have been requested by the Initial Investor; the Initial Investor 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 Initial Investor has had the opportunity to obtain and to review the Company's (1) Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997, (2) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998 (as amended on Form 10-QSB/A), June 30, 1998 and September 30, 1998, (3) definitive proxy statement for the Company's 1998 Annual Meeting of Shareholders held on March 12, 1998 and (4) Current Reports on Form 8-K and 8-K/A filed June 11, 1998, July 14, 1998, August 19, 1998, August 24, 1998 and December 7, 1998, in each case as filed with the SEC; and the Initial Investor understands that its investment in the Warrants and the Warrant Shares involves a high degree of risk. (f) ABSENCE OF APPROVALS. The Initial Investor 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 Warrants and the Warrant Shares. (g) REGISTRATION RIGHTS AGREEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Initial Investor and is a valid and binding agreement of the Initial Investor 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. (h) CERTAIN TRADING RESTRICTIONS. The Initial Investor represents that on the date hereof it has no short position in the Common Stock. So long as (i) the Company is in compliance in all material respects with its obligations to the Investors under this Agreement and the Warrants or (ii) any noncompliance with such obligations is cured within ten Business Days of the Company's receipt of notice thereof from an Investor, each Investor agrees on its behalf and on behalf of its affiliates that it will not engage in any short sales or other hedging transactions relating to the Common Stock; PROVIDED, HOWEVER, that for purposes of this Agreement any such transaction involving a number of -17- shares of Common Stock which does not exceed the number of shares for which a subscription form for exercise of a Warrant has been submitted to the Company's transfer agent and to the Company shall not be deemed to be a short sale or hedging transaction. 12. 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 1099 18th Street, Suite 3000, Denver, Colorado 80202, Attention: Chief Executive Officer, telephone line facsimile transmission number (303) 672-0711, (ii) if to the Initial Investor, at 545 Madison Avenue, New York, New York 10022, telephone line facsimile transmission number (212) 888-7054, 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 12(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 -18- 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 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 delay, the Company shall be liable for all direct and consequential damages caused by any such failure or delay. (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. -19- 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. ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: WHARTON CAPITAL PARTNERS LTD. By: Name: Title: -20- EXHIBIT 1 TO REGISTRATION RIGHTS AGREEMENT [Company Letterhead] [Date] American Securities Transfer & Trust, Inc., as Transfer Agent, Warrant 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 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 (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. 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 an opinion of Jacobs Chase Frick Kleinkopf & Kelley, LLC as to registration of the resale of the Warrant Shares under the Securities Act of 1933, as amended. Should you have any questions concerning this matter, please contact me. Very truly yours, ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: Enclosures cc: [Names of Investors] 1-21 EXHIBIT 2 TO REGISTRATION RIGHTS AGREEMENT ______________ ___, 1998 [Names and Addresses of Investors] ROCKY MOUNTAIN INTERNET, INC. SHARES OF COMMON STOCK Ladies and Gentlemen: We are counsel to Rocky Mountain Internet, Inc., a Delaware corporation (the "Company"), and we understand that the Company has issued to [Names of Investors] (the "Holders") Common Stock Purchase Warrants (the "Warrants"). The Warrants were issued to the Holders pursuant to a Letter Agreement, dated as of October 28, 1998, by and between Wharton Capital Partners Ltd. and the Company (the "Letter Agreement"). Pursuant to the several Registration Rights Agreements, dated as of December 10, 1998, by and between the Company and each Holder (the "Registration Rights Agreements") entered into in connection with the acquisition by the Holders of the Warrants, the Company agreed with each Holder, among other things, to register for resale 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. Pursuant to the Registration Rights Agreements, on _________ ___, 1998 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 Warrant Shares, which names the Holders as selling stockholders thereunder. [Other introductory and scope of examination language to be inserted] 2-22 Based on the foregoing, we are 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 Exchange 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 we have not been requested to and do 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 our knowledge after due inquiry, no stop order proceedings with respect thereto have been instituted or threatened by the SEC. The Warrant Shares have been registered under the 1933 Act and may be resold by the respective Holders pursuant to the Registration Statement. We 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 we are 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 our attention that leads us 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 we 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 2-23 therein). Paragraph (3) of this opinion may be relied upon by American Securities Transfer & Trust, Inc., as Transfer Agent, Warrant 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, Warrant Agent and Registrar 2-24 EX-10.22 8 EXHIBIT 10.22 ADVANTAGE FUND II LTD. C/O CITCO KAYA FLAMBOYAN 9 CURACAO, NETHERLANDS ANTILLES December 10, 1998 Rocky Mountain Internet, Inc. 1099 18th Street Suite 3000 Denver, Colorado 80202 COMMITMENT LETTER Dear Sirs: Advantage Fund II Ltd., a British Virgin Islands corporation ("Advantage"), is pleased to provide Rocky Mountain Internet, Inc., a Delaware corporation (the "Company"), with this commitment letter in respect of an additional investment of $5,000,000 in preferred stock of the Company upon and subject to the terms and conditions set forth below. Capitalized terms used herein without definition shall have the meanings given them in the Subscription Agreement, dated as of December 10, 1998 (the "Series B Subscription Agreement"), between the Company and Advantage, or in the Certificate of Designations referred to in the Subscription Agreement. 1. THE TRANSACTION. Following the closing on the Closing Date of the issuance and sale to Advantage or its designee of 5,000 shares (the "Series B Preferred Shares") of Series B Convertible Preferred Stock, $.001 par value (the "Series B Preferred Stock"), of the Company for an aggregate purchase price of $5,000,000 pursuant to the Series B Subscription Agreement and the issuance to Advantage of Warrants (the "Series B Warrants") in connection therewith, Advantage and/or one or more of its designees are prepared to purchase shares of a new series of preferred stock of the Company for an aggregate purchase price of $5,000,000 on the same terms and conditions as set forth in the Series B Subscription Agreement, the Certificate of Designations, the Series B Warrants and the other agreements, documents and transactions contemplated thereby (the "Transaction"). The warrants issued in the Transaction shall be exercisable for five years for an aggregate of 89,286 shares of Common Stock at an exercise price equal to 120% of the average closing bid price of the Common Stock for the five Trading Days prior to the closing of the Transaction. -1- 2. EFFECTIVE PERIOD; TERMINATION. (a) This commitment shall become effective 90 days after the Registration Statement with respect to the Common Shares shall have been declared effective by the SEC (the "SEC Effective Date") and shall expire on the earlier of (x) 365 days after the SEC Effective Date or (y) 470 days after the date hereof, subject to earlier termination (1) by the Company at any time upon ten days' prior written notice to Advantage or (2) by Advantage as follows: (i) at any time (before or after the SEC Effective Date) upon the Company's failure to satisfy the conditions set forth in Sections 3(b), 3(d) or 3(e) or the Company's failure to comply with or perform, as and when required, any of its material obligations set forth in this letter, in each case upon two Business Days' prior written notice given by Advantage to the Company; or (ii) if on any of the Specified Dates (as defined in Section 4) the Company fails to satisfy any of the conditions set forth in Section 4, in each case upon two Business Days' prior written notice given by Advantage to the Company. In addition, this commitment shall terminate automatically, without any action by any party hereto, upon the commencement of any voluntary or involuntary case or other proceeding against the Company seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official of it or a substantial part of its property, or the Company shall consent to any such relief or appointment, or the Company shall make a general assignment for the benefit of creditors, or the Company shall fail generally to pay its debts as they become due. (b) To exercise its rights hereunder, the Company shall give written notice thereof (the "Notice") to Advantage. Upon receipt of the Notice, Advantage (or its designees) and the Company shall use their best efforts to document and complete the Transaction. 3. GENERAL CONDITIONS. The obligation of Advantage (or its designees) to proceed with and complete the Transaction shall be subject to the following general conditions: (a) Since the date hereof, there shall have been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and its Subsidiaries, taken as a whole. (b) (1) The Company shall not have failed or defaulted in the timely performance of any material obligation to Advantage or any holder of the Series B Preferred Stock under the Series B Subscription Agreement, the Certificate of -2- Designations, the Registration Rights Agreement or the other agreements or documents entered into with Advantage and the other holders of the Series B Preferred Stock (collectively, the "Series B Transaction Documents"), (2) the representations and warranties of the Company made in the Series B Transaction Documents continue at all times to be true and correct in all material respects (except for representations and warranties given as of a specific date which representations shall continue to be true and correct as of such date), and (3) the Registration Statement shall be available for use by the selling stockholders named therein. (c) At the annual meeting referred to in Section 4(j) of the Series B Subscription Agreement, the Company shall have obtained Stockholder Approval with respect to the issuance of the Series B Preferred Stock and the new shares of preferred stock to be issued in the Transaction. (d) Since the date hereof, there shall not have occurred any Optional Redemption Event (as defined in the Certificate of Designations) as to which a holder of Series B Preferred Shares is entitled to exercise its redemption rights with respect thereto or has exercised such rights and the Company has not redeemed such holder's shares of Series B Preferred Stock as required by the Certificate of Designations. (e) Since the date hereof, there shall not have occurred a change in the membership or size of the Company's Board of Directors such that directors in office on the date hereof no longer constitute a majority of the full Board. (f) The parties shall negotiate, and, within 30 days after the date the Notice is received by Advantage (the "Notice Date"), execute and deliver definitive agreements and documents in forms substantially similar to those delivered in connection with the purchase of the Series B Preferred Shares, PROVIDED, HOWEVER, that Advantage (or its designees) shall not be obligated to execute such definitive agreements if upon the execution thereof Advantage (or its designees) would be entitled to terminate any of such agreements in accordance with their respective terms. 4. ADDITIONAL CONDITIONS. The obligation of Advantage (or its designees) to proceed with and complete the Transaction shall be subject to the following additional conditions which must be satisfied on each of the Notice Date, the date of execution of the subscription agreement for the Transaction and the date of the closing of the Transaction (such dates, together with the Notice Date are referred to herein as the -3- "Specified Dates"): (a) Determined on the basis of (i) the most recent financial statements of the Company filed with the SEC under the 1934 Act or (ii) financial statements of the Company more recent than those last filed with the SEC which the Company certifies as being prepared on the same basis as those filed with the SEC, (1) total stockholders' equity, including the Series B Preferred Stock ("Total Stockholders' Equity"), of the Company is at least $10,000,000; and (2) the ratio of the Company's total liabilities to Total Stockholders' Equity is not greater than 1:1; PROVIDED, HOWEVER, that Advantage (or its designees) shall not be obligated to close the Transaction unless such financial statements are as of a date no more than 60 days prior to the closing date of the Transaction. (b) The average closing bid price of the Common Stock on Nasdaq for the five Trading Days prior to each of the Specified Dates (the "Closing Bid Price") is at least $9.00 per share. (c) The average daily trading volume of the Common Stock on Nasdaq for the 30 Trading Days prior to each of the Specified Dates is at least 100,000 shares. The price and number of shares referred to in Sections 4(b) and 4(c) above shall be subject to equitable adjustment from time to time on terms reasonably acceptable to Advantage 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 at a price per share less than the Current Price which would otherwise be applicable, (vi) the distribution by the Company to all holders of Common Stock of evidences of indebtedness of the Company or cash (other than regular quarterly cash dividends), (vii) tender offers by the Company or any subsidiary of the Company or other repurchases of shares of Common Stock in one or more transactions which, individually or in the aggregate, result in the purchase of more than 10% of the Common Stock outstanding and (viii) similar events relating to the Common Stock. (d) On each of the Specified Dates, (1) the sum of (i) $5,000,000 and (ii) the aggregate Conversion Amount of the outstanding shares of Series B Preferred -4- Stock is less than (2) 10% of the product obtained by multiplying (i) the Closing Bid Price by (ii) the number of shares of Common Stock outstanding. 5. INDEMNITY. The Company hereby agrees to indemnify and hold harmless Advantage, any designee of Advantage who participates in the Transaction and their respective directors, officers, employees, agents, advisors, successors and assigns, and each person, if any, who controls any such person within the meaning of the 1933 Act or the 1934 Act (collectively, the "Indemnified Persons"), against any losses, claims, damages, or liabilities asserted by or due to a person other than the Company or another Indemnified Person or any expenses (including reasonable attorneys' fees) incurred by the Indemnified Persons in connection therewith arising out of, or in connection with, or as a result of: (i) the execution and delivery of this commitment letter or any agreement or document relating to the Transaction contemplated hereby or the performance by the Company or the Indemnified Persons of their respective obligations hereunder or thereunder, except to the extent such execution and delivery or performance by the Indemnified Persons constitute a breach by an Indemnified Person of an agreement between such Indemnified Person and a third party unaffiliated with the Company which breach directly causes such losses, claims, damages, liabilities and expenses, (ii) the use of any proceeds from the Transaction or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not the Indemnified Person is a party hereto. The provisions of this Section 5 shall survive any termination of this letter. 6. MISCELLANEOUS. All notices hereunder to the Company and Advantage shall be given to the addresses and in the manner provided in the Series B Subscription Agreement. All notices to the designees, if any, of Advantage hereunder shall be given to such address as such designees shall advise the Company in writing and in the manner provided in the Series B Subscription Agreement. This commitment letter is solely for the benefit of the parties hereto and, with respect to Section 5, the Indemnified Persons and nothing contained herein shall be deemed to confer upon anyone other than the Company, Advantage, and, with respect to Section 5, the Indemnified Persons any right to insist on or enforce the performance of any of the obligations contained herein. Except as otherwise provided in Section 4(i)(3) of the Series B Subscription Agreement, this letter supersedes any prior agreements, commitments, communications or letters with respect to the subject matter hereof. This letter shall be governed by the internal laws of the State of New York. This letter may be executed in counterparts, and a facsimile transmission hereof bearing a signature on behalf of a party hereto shall be binding on such party. -5- Very truly yours, ADVANTAGE FUND II LTD. By: W. R. Weber President Accepted and agreed as of the date first written above: ROCKY MOUNTAIN INTERNET, INC. By: Name: Title: -6- EX-99.7 9 EXHIBIT 99.7 [LOGO] ROCKY MOUNTAIN INTERNET FOR IMMEDIATE RELEASE CONTACTS: Barbara Archer or Robyn Phipps Shiloh Kelly Metzger Associates Director of Communications archer@metzger.com Rocky Mountain Internet Inc. robyn@metzger.com shiloh.kelly@corp.rmi.net (303) 786-7000 (303) 672-0732 ROCKY MOUNTAIN INTERNET COMPLETES $13 MILLION EQUITY FINANCING, INCLUDING OPTION FOR $5 MILLION DENVER - December 14, 1998 - Rocky Mountain Internet Inc. (NASDAQ SmallCap Market-RMII, RMIIW) announced today the completion of a private placement of Series B Convertible Preferred Stock raising gross proceeds of $8 million. Additionally, RMI obtained a commitment for an additional $5 million, subject to the satisfaction of certain conditions. "This equity infusion will allow RMI to take the next step in our strategic development," commented Douglas H. Hanson, chairman, president and CEO of Rocky Mountain Internet (http://www.rmi.net). "I am pleased with the deal we made with our new equity partners and look forward to continuing our growth plans." Shares of the Series B Preferred Stock were issued to two institutional investors in a private transaction under the Securities Act of 1933 and such securities may not be offered or sold, without registration or an applicable exemption from registration. The Series B Preferred Stock is convertible, subject to certain restrictions, into shares of common stock of the Company. The terms include restrictions on conversion depending on certain market conditions and restrictions against short sales and other hedging transactions. (more) Page 2 of 2 As part of the transaction, the Company issued warrants to purchase 155,000 shares of common stock with an exercise price equal to 130% of the closing day market price to the purchasers of the Series B Preferred Stock and warrants to purchase 100,000 shares of common stock with an exercise price equal to 120% of the closing day market price to the brokers involved with the transaction. The Company has agreed to register the related common stock in connection with this transaction and the warrants pursuant to registration rights agreements. "This funding along with the recent acquisitions of Internet Now, Unicom Communications, Stonehenge and DataXchange Network positions RMI as a nationwide Tier 1 Internet provider," said Hanson. ABOUT ROCKY MOUNTAIN INTERNET Rocky Mountain Internet (http://www.rmi.net) is a national Web Solutions and e-commerce company providing a wide range of Internet and data communication services to businesses and consumers with an emphasis on e-commerce solutions. Services include: a comprehensive browser-based electronic commerce software package (www.e-sell.com); a leading-edge portal site (www.infohiway.com); and a browser-based banner advertising management software package (www.infohiway.com/adcafe/). Other RMI services consist of dedicated, DSL, dial-up and wireless Internet access, network management, system integration and co-location. Rocky Mountain Broadband, a subsidiary and communications division of RMI, offers a wide range of services; including, paging, voice mail, local and long distance phone service, 800 service and IP Telephony (www.ic-ephone.net). (This press release contains forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from such forward-looking statements as a result of risks and uncertainties which are described in the cautionary statements section of the company's 10K dated December 31, 1997, and include the need for additional financing, the ICC litigation, ability to successfully integrate acquisitions, changing technology, competition, possible future government regulation, competition for talented employees, the Company's ability to fund future operations and the Company's need to refinance debt.) # # # -----END PRIVACY-ENHANCED MESSAGE-----