<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10/Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
Commission File Number: 0-22325
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INFORMATION ARCHITECTS CORPORATION
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(Exact name of registrant as specified in its charter)
North Carolina 87-0399301
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4064 Colony Road, Charlotte, NC 28211
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(Address of principal executive offices) (Zip Code)
704-365-2324
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(Registrants telephone number, including are code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of June 30, 1999, there were 19,190,910 shares of Information Architects
Corporation common stock, $0.001 par value, outstanding.
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<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations (Unaudited)
for the Three Months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months ended June 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Supplemental Schedule of Operating Segments (Unaudited) 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview 9
Results of Operations for the Three Months Ended
June 30, 1999, Compared with the Three Months ended June 30, 1998 9 - 10
Results of Operations for the Six Months Ended
June 30, 1999, Compared with the Six Months ended June 30, 1998 10
Financial Condition and Liquidity 11
Year 2000 Compliance 11
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 12 - 13
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 13
ITEM 5: OTHER MATTERS 14
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 15
Signatures 16
Computations of Earnings per Share 17
Financial Data Schedule 18
</TABLE>
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INFORMATION ARCHITECTS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,103,257 $ 2,962,570
Accounts Receivable, Net 3,457,137 5,231,116
Costs and Estimated Earnings
In Excess of Billings 3,860,589 2,213,036
Prepaid Expenses 349,392 304,621
Other Receivables 168,660 --
Deferred Tax Asset 1,800,000 1,800,000
------------ ------------
TOTAL CURRENT ASSETS 10,739,035 12,511,343
PROPERTY AND EQUIPMENT, NET 3,652,108 2,561,253
SOFTWARE COSTS, NET 2,817,060 2,254,429
GOODWILL, NET 5,823,383 6,047,183
OTHER ASSETS 232,545 97,186
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$ 23,264,131 $ 23,471,394
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 4,525,182 $ 2,168,152
Billings in Excess of Costs and Estimated
Earnings on Contracts in Progress 143,812 --
Current Portion of Capital Lease Obligation 29,900 51,063
Note Payable 1,000,000 --
Loans Payable, Stockholders 2,492,434 3,042,029
------------ ------------
TOTAL CURRENT LIABILITIES 8,191,328 5,261,244
------------ ------------
CONVERTIBLE DEBENTURE PAYABLE -- --
------------ ------------
CAPITAL LEASE OBLIGATION 61,798 121,327
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value, 50,000,000
shares authorized, 19,190,910 and 17,505,686 19,191 17,506
Additional Paid-In Capital 34,591,420 31,111,734
Deficit (19,699,966) (12,696,567)
Foreign Currency Translation Adjustment 100,360 (23,100)
------------ ------------
15,011,005 18,409,573
Less Receivable from Warrant Exercise -- (320,750)
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Total Stockholders' Equity 15,011,005 18,088,823
------------ ------------
$ 23,264,131 $ 23,471,394
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</TABLE>
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INFORMATION ARCHITECTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
6/30/99 6/30/98 6/30/99 6/30/98
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
EARNED REVENUES $ 5,030,972 $ 9,560,419 $ 10,740,687 $ 17,968,241
------------ ------------ ------------ ------------
EXPENSES
Payroll and Related Items 5,625,061 3,886,992 12,037,417 8,570,004
Depreciation and Amortization 694,700 368,809 1,291,724 692,454
Rent and Occupancy 503,927 356,345 834,815 686,019
Other Operating Expenses 1,264,962 1,333,769 2,452,726 2,434,683
Bad Debt Expense 200,000 163,750 200,000 248,750
Litigation Cost 41,163 549,050 119,394 673,582
------------ ------------ ------------ ------------
8,329,812 6,658,715 16,936,075 13,305,492
------------ ------------ ------------ ------------
OPERATING (LOSS) INCOME (3,298,840) 2,901,704 (6,195,388) 4,662,749
OTHER INCOME (EXPENSE)
Acquisition Cost (165,883) -- (297,987) --
Interest Expense (382,802) (64,405) (473,260) (96,970)
Interest Income 7,452 5,464 27,121 8,254
Other (10,361) 3,619 (63,542) (28,333)
------------ ------------ ------------ ------------
(551,594) (55,322) (807,668) (117,049)
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (3,850,435) $ 2,846,382 $ (7,003,057) $ 4,545,700
============ ============ ============ ============
EARNINGS PER SHARE:
BASIC $ (0.22) $ 0.16 $ (0.40) $ 0.26
============ ============ ============ ============
DILUTED $ (0.22) $ 0.16 $ (0.40) $ 0.26
============ ============ ============ ============
AVERAGE SHARES
OUTSTANDING:
BASIC 17,779,561 17,420,150 17,657,554 17,406,082
============ ============ ============ ============
DILUTED 17,779,561 17,682,441 17,657,554 17,668,374
============ ============ ============ ============
</TABLE>
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INFORMATION ARCHITECTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
6/30/99 6/30/98
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (Loss) Income $(7,003,057) $ 4,545,700
Adjustments to Reconcile Net (Loss) Income
used in Operating Activities:
Stock based Compensation 55,990 76,500
Allowance for Doubtful Accounts 200,000 248,750
Depreciation and Amortization 1,294,724 692,454
(Increase) Decrease in:
Accounts Receivable 1,697,439 (6,874,165)
Costs and Estimated Earnings in Excess of
Billings (1,647,553) (1,690,502)
Other Current Assets (213,431) (26,416)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 2,258,725 946,271
Billings in Excess of Costs and Estimated
Earnings 143,812 271,976
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Net Cash (used in) Operations (3,213,350) (1,809,432)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (1,973,411) (1,233,858)
Increase in Other Assets (496,358) (6,976)
Decrease in Other Receivables 320,750 435,000
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Net Cash used in Investing Activities (2,149,019) (805,834)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Loans 4,000,000 --
Proceeds from Issuance of Stock 133,344 491,623
Loans from Shareholders (549,595) 1,381,256
Repayment of Capital Lease Obligations (80,692) (11,104)
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Net Cash from Financing Activities 3,503,057 1,861,775
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NET INCREASE (DECREASE) IN CASH (1,859,312) (753,491)
CASH AT BEGINNING OF PERIOD 2,962,569 1,526,924
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CASH AT END OF PERIOD $ 1,103,257 $ 773,433
=========== ===========
SUPPLEMENTAL DISCLOSURES
INTEREST PAID $ 264,470 $ 15,261
=========== ===========
ACQUISITION OF EQUIPMENT UNDER CAPITAL
LEASE OBLIGATIONS $ -- $ 55,786
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UNREALIZED CURRENCY GAINS $ 123,460 $ 23,153
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</TABLE>
We acquired computer software during 1999 for $652,000 of our common stock and a
$98,000 payable. A former officer repaid his debt to us with 66,667 shares of
common stock and real property.
During the second quarter of 1999, we issued 1,442,000 shares of our common
stock in payment of $3,000,000 in principle and $51,000 in accrued interest on a
debenture note.
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INFORMATION ARCHITECTS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1 Except as set forth in Note 5 below, the interim unaudited financial
statements as of June 30, 1999 and 1998 and for the six and three month
periods then ended, reflect all adjustments that, in the opinion of
management, which are necessary for a fair statement of the results for the
interim periods presented. All adjustments were of a normal recurring
nature.
2 No tax benefits were recorded for the six and three-month periods ended
June 30, 1999, due to uncertainty of realization. The Federal and State tax
provision for the six-month period ($1,818,000) and ($1,138,000) for the
three-month period ended June 30, 1998 was offset by an increase in the
estimated deferred tax benefit for the same amount.
3 We have adopted Financial Accounting Standards Board ("FASB") Statement No.
128, "Earnings per Share." Basic earnings per common share is computed by
dividing the net earnings (loss) by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share
gives effect to stock options and warrants which are considered to be
dilutive common stock equivalents. Treasury shares have been excluded from
the weighted average number of shares.
4 We have adopted Financial Accounting Standards Board ("FASB") Statement No.
130, "Reporting Comprehensive Income." This statement requires reporting of
change in owners' equity that does not result directly from transactions
with owners. An analysis of these changes follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
6/30/99 6/30/98 6/30/99 6/30/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss) $(3,850,435) $ 2,846,382 $(7,003,057) $ 4,545,700
Foreign Currency Translation
Adjustments - Net 69,069 (26,977) 123,460 (23,153)
----------- ----------- ----------- -----------
Total $(3,781,366) $ 2,819,405 $(6,879,597) $ 4,522,547
=========== =========== =========== ===========
</TABLE>
5 The 1998 revenue and income numbers set forth in the foregoing tables do
not reflect the adjustments set forth in Note 14 to our 1998 consolidated
financial statements attached to our 1998 Form 10-K. This note stated that
during the fourth quarter of 1998, the Company recorded certain
adjustments, related to revenue recognition and the classification of
demonstration expenses, which reduced overall revenues for fiscal 1998 by
$1,659,000. Of this amount, approximately $1,150,000, $228,000 and $281,000
are allocable to the first, second and third quarters, respectively. The
adjustments also reduced net earnings by $1,000,000, which is allocable to
the first quarter.
6 During the second quarter 1999, we changed our name from Alydaar Software
Corporation to Information Architects Corporation.
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INFORMATION ARCHITECTS CORPORATION
SUPPLEMENTAL SCHEDULE OF OPERATING SEGMENTS
PERIODS ENDED JUNE 30, 1999
(UNAUDITED)
We have two reportable business segments: software services and internet
services. The software services segment has concentrated on correction and
validation of existing mainframe computer software systems' ability to manage
the Year 2000 problem (Y2K). These services also include software conversion
services. The second reportable business segment, internet services (E-commerce)
was established in 1999 to assist customers in transforming their existing
information systems' architecture to support scalable and flexible architecture
for internet, intranet and extranet applications.
<TABLE>
<CAPTION>
THREE MONTHS ENDED 6/30/99 SIX MONTHS ENDED 6/30/99
CONSOLIDATED CONSOLIDATED
Y2K E-COMMERCE TOTALS Y2K E-COMMERCE TOTALS
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $ 4,996,612 $ 34,360 $ 5,030,972 $10,706,327 $ 34,360 $10,740,687
Interest income 7,452 -- 7,452 27,121 -- 27,121
Interest expense 382,802 -- 382,802 473,260 -- 473,260
Depreciation & amortization 634,615 60,085 694,700 1,199,239 92,485 1,291,724
Segment (loss) $(1,793,529) $(2,056,906) $(3,850,435) $(3,822,274) $(3,180,783) $(7,003,057)
Segment assets 26,444,914 1,345,380 27,790,294
Expenditures for segment assets $ 1,574,553 $ 1,228,806 $ 2,803,359
RECONCILIATION OF SEGMENT
INFORMATION TO CONSOLIDATED
AMOUNTS
REVENUES:
Total Earned Revenues $ 5,030,972 $10,740,687
Intersegment Revenues - -
----------- -----------
Total Consolidated Revenues $ 5,030,972 $10,740,687
=========== ===========
PROFIT OR LOSS:
Total Loss for Reportable Segments $(3,850,435) $(7,003,057)
Intersegment Profits - -
----------- -----------
Income before Income Taxes $(3,850,435) $(7,003,057)
=========== ===========
</TABLE>
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INFORMATION ARCHITECTS CORPORATION
SUPPLEMENTAL SCHEDULE OF OPERATING SEGMENTS
PERIODS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS: THREE MONTHS ENDED 6/30/99 SIX MONTHS ENDED 6/30/99
<S> <C> <C> <C>
Total Assets for Reportable Segments $27,790,294
Elimination of Intercompany Receivables (4,526,163)
-----------
$23,264,131
GEOGRAPHIC INFORMATION:
REVENUES REVENUES LONG-LIVED ASSETS
-------- -------- -----------------
United States $ 3,432,894 $ 7,465,094 $12,117,740
Canada 40,099 653,388 -
Europe 1,557,979 2,622,205 407,356
----------- ----------- -----------
Total $ 5,030,972 $10,740,687 $12,525,096
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MAJOR CUSTOMER:
We earned revenues from the following
significant customers: AMOUNT PER CENT AMOUNT PER CENT
------ -------- ------ --------
<S> <C> <C> <C> <C>
City Government $ 903,885 18.0% NA -
Printing Company $ 808,949 16.1% NA -
Banking Institution $ 674,281 13.4% $ 1,249,942 11.6%
Insurance Company $ 592,982 11.8% $ 1,861,373 17.3%
Foreign Governmental Agency $ 574,029 11.4% NA -
State Governmental Unit NA $ 1,766,836 16.4%
</TABLE>
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ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The statements made in this Form 10-Q that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"anticipates," "expects," "projects," "estimates," "believes" or "continue," the
negative thereof, other variations or comparable terminology. Important factors,
including certain risks and uncertainties with respect to such forward-looking
statements that could cause actual results to differ materially from those
reflected in such forward looking statements include, but are not limited to our
ability to manage growth and acquisitions of technology or people,
diversification of our business, the effect of economic and business conditions,
including risks inherent in international operations, the ability to attract and
retain technical personnel and other risks detailed from time to time in our SEC
reports. We assume no obligation to update the information in this Form 10-Q.
OVERVIEW
Information Architects Corporation provides content aggregation and syndication
solutions for the internet. Our Web-based solutions provide the bridge that
businesses need to protect their existing investment in legacy and PC-based data
and still capitalize on the internet revolution. Our software architecture
provides customers with an efficient, low cost, low maintenance framework for
the internet that will position them with state-of-the-art internet technology
for the new millennium. These Web-based solutions also enable our customers to
make timely decisions, transact business, disseminate information and
collaborate among co-workers, customers, suppliers and partners by transforming
any type of electronic information, regardless of platform or application, into
real-time, web browser presentations. In addition, we continue to offer our Y2K
validation and remediation services for legacy systems.
Our flagship offering, the Metaphoria(TM) Virtual Web Server is a patented, JAVA
based, open internet technology that addresses the market need for the
convergence of multiple data management strategies including: content
management, knowledge management, document management, data management and data
warehousing. Without moving the original data, the Metaphoria Virtual Web Server
provides a personalized view of the information that is independent from the
software application. The "digital content" from multiple sources can be
delivered to the end user in a real-time Web browser presentation providing
interaction and update capability, as well.
We have seen an excellent response to our initial contacts for our Metaphoria
offering. However, the launching of our Internet and E-commerce offering is
still in its early stages. We anticipate a continued favorable response but the
potential must be evaluated from the perspective of a start-up Internet
opportunity in its early stages of development. Some of these risks include the
impact of start-up and acquisition costs, the volatility of the emerging
internet marketplace, the ability to gain an edge on our competition, proper
visibility and the risk of government regulation in the internet sector. Other
risks that we face include, but are not limited to, the ability to restructure
our people and strategies to effectively penetrate the E-commerce marketplace,
successfully implement our marketing strategies, and develop ongoing
technologies ahead of our competitors. There are no assurances that we will
succeed in addressing any or all of these risks.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1998
As noted in the 1998 audited, consolidated financial statements in our annual
report on Form 10-K, the second quarter 1998 revenue does not reflect
adjustments taken during the fourth quarter of 1998, relating to a reduction of
approximately $228,000 in revenue, which was allocated to the second quarter of
1998.
Revenue for the three months ended June 30, 1999 decreased $4.5 million (47.4%)
to $5.0 million compared to the same three-month period in 1998. This decrease
was the result of a decline in demand for Y2K service. In addition, the market
initiated a shift in services mix resulting in a higher percentage of validation
services in 1999 that yielded a substantially lower price per unit versus 1998,
which saw a larger percentage of the higher priced remediation services. Our new
internet service business has not yet generated measurable revenue to offset
this decrease.
Total Operating Expenses increased $1.7 million or 25.1% to a total of $8.3
million for the second quarter 1999 as
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compared to the same three-month period of 1998. When comparing expenses between
the two years, it should be noted that the 1998 expenses were 100% for support
of the Y2K business. For the first six months of 1999, our expenses to support
the Y2K business were only 55% of our total operating expenses. The remaining
45% was invested in the start-up of our content aggregation and syndication
services for the Internet. The percentage of investment in our Internet service
offering is expected to continue to increase and the percentage of Y2K expense
is expected to decrease as we continue to restructure for our new Internet
business.
Payroll and Related Costs comprised the majority of the increase in operating
expenses. For the three months ended June 30,1999, these expenses increased $1.7
million to $5.6 million or 43.6% over the same three month period of 1998. In
1998, the Y2K business potential looked robust and we began increasing staff as
the year progressed. By early 1999, we had more staff than we did in 1998.
Therefore, our 1999 expenses exceeded our 1998 expenses. During this period, we
began retooling our staff to transition to the Internet business and began
streamlining our Y2K operations to reflect market conditions. However, the Y2K
reductions required some severance costs included in the second quarter 1999
increase. The effect of the Y2K reductions will be realized in the second half
of 1999 and the percentage of payroll and related costs associated with our new
Internet offering will continue to increase as the percentage of Y2K expenses
decline.
Depreciation Expense increased by $300,000 (75%) to $700,000 for the 3 months
ended June 30, 1999 versus the same three-month period for 1998. This reflects
the proportionate full year impact of half-year convention for assets placed in
service in 1998.
Litigation Costs decreased by $500,000 (93%) to $40,000 for the 3 months ended
June 30, 1999 as compared to the same three-month period of 1998. This resulted
from the wind-down and successful settlement of the litigation noted in our 1998
Form 10-K.
Interest expense increased by $300,000 (300%) to $400,000 for the second quarter
as compared to the same three month period of 1998. This resulted from the
increased borrowing in 1999 in anticipation of the Internet start-up expense.
Acquisition costs were $200,000 for the second quarter 1999 versus zero in 1998.
These were related to our new Metaphoria Internet product.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SIX
MONTHS ENDED JUNE 30, 1998
As noted in the 1998 audited, consolidated financial statements in our annual
report on Form 10-K, the first six months of 1998 revenue and income numbers do
not reflect adjustments taken during the fourth quarter of 1998, relating to a
reduction of approximately $1,378,000 in revenue, which was allocated to the
first six months of 1998 and $1,000,000 in net earnings, which was allocated to
the first quarter of 1998.
Revenue for the six-month period ended June 30, 1999 decreased $7.2 million
(40%) to $10.7 million from the same six-month period in 1998. This decrease was
the result of a decline in demand for Y2K services. In addition, the market
initiated a shift in services mix resulting in a higher percentage of validation
services in 1999 that yielded a substantially lower price per unit versus 1998,
which saw a larger percentage of the higher priced remediation service. Our new
internet service business has not yet generated measurable revenue to impact
this decrease.
Total Operating Expenses increased $3.6 million (27%) to $16.9 million for the
six months ended June 30, 1999 as compared to the same six-month period of 1998.
When comparing expenses between the two years, it should be noted that the 1998
expenses were 100% for support of the Y2K business. For the first six months of
1999, our expenses to support the Y2K business were only 55% of our total
operating expense. The remaining 45% was invested in the start-up of our content
aggregation and syndication services for the Internet. The percentage of
investment in our Internet service offering is expected to continue to increase
and the percentage of Y2K expenses is expected to decrease as we continue to
restructure for our new Internet business.
Payroll and Related Costs comprised the majority of the increase in operating
expenses. For the six-month period ended June 30, 1999 these expenses increased
$3.5 million to $12.0 million or 40.7% over the same six-month period of 1998.
In 1998, the Y2K business potential looked robust and we began increasing staff
as the year
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<PAGE> 11
progressed. By early 1999, we had more staff than the first half of 1998.
Therefore, our 1999 expenses exceeded our 1998 expenses. During this period, we
began retooling our staff to transition to the Internet business and began
streamlining our Y2K operations to reflect market conditions. However, the Y2K
reductions required some severance costs included in the second quarter
increase. The effect of the Y2K reductions will be realized in the second half
of 1999 and the percentage of payroll and related costs associated with our new
Internet offering will continue to increase as the percentage of Y2K expenses
decline.
Depreciation Expense increased by $600,000 (86%) to $1.3 million for the 6
months ended June 30, 1999 versus the same six-month period for 1998. This
reflects the proportionate full year impact of half-year convention for assets
placed in service in 1998.
Litigation Costs decreased by $600,000 (82%) to $100,000 for the 6 months ended
June 30, 1999 as compared to the same six-month period of 1998. This resulted
from the wind-down and successful settlement of the litigation noted in our 1998
10K.
Interest expense increased by $400,000 (388%) to $500,000 for the 6 months ended
June 30, 1999 as compared to the same six-month period of 1998. This resulted
from the increased borrowing in 1999 in anticipation of the Internet start-up
expense.
Acquisition costs were $300,000 for the 6 months ended June 30, 1999 versus zero
in 1998. These were related to our new Metaphoria Internet product.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1999, we had working capital of $2,548,000, as compared to working
capital of $7,250,000 at June 30, 1998, a decrease of $(4,702,000) (or 65%). We
had cash and cash equivalents of $1,103,000 at June 30, 1999, compared to cash
and cash equivalents of $2,652,000 at June 30, 1998, a decrease of $1,549,000
(or 58%). As a result of the more rapid than anticipated decline in our Year
2000 revenues and expansion costs associated with our new internet business
offering, we have been, and expect to continue, operating at a loss for at least
the remainder of 1999.
We have also recently received financing from a number of sources. On June 1,
1999, we received a short-term loan from Rodney S. Schoemann that has been
repaid in full from the proceeds of our convertible debenture. On July 30, 1999,
we received $5,000,000 of financing in the form of convertible debentures. In
addition, we entered into a letter with the same financier under which we would
establish a $5 million equity line to meet our possible future capital needs. We
have also entered into a lease for a portion of the costs associated with the
furniture and equipment for our new facility. We are continuing to seek
financing for the full amount of these funds and are in discussions with several
financial institutions. The proceeds from any additional financing of the
furniture and equipment could be used for general working capital purposes.
However, there can be no assurances that we will be successful in our efforts.
In addition to the financing set forth above, we have taken and will continue to
reduce the existing levels of operating expenses commensurate with the level of
current and anticipated revenues. Our management believes that these changes
will assist us in reducing overhead as we make the transition from mainly being
a provider of Year 2000 services to mainly internet related products and
services. We plan to continue to closely monitor our expenses and overhead and
to take additional actions as appropriate.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four to identify the applicable year. Any of our computer
equipment, software and devices with embedded technology that are time-sensitive
may mistakenly identify a date field using "00" as the year 1900, rather than
the year 2000.
STATE OF READINESS. We provide Y2K remediation and validation services to
Fortune 500 companies and government agencies and intend to employ the same
methods and processes to complete our own internal Y2K
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<PAGE> 12
project. We established a Y2K task force, comprised of members representing our
various areas of business operation, to assess, remediate and test the impact of
Y2K on our IT and non-IT systems, material third party relationships, and
services. As identified by the task force, our Y2K issues that may have a
material impact on our ability to continue our normal business practices
include: internal business systems; internet and intranet service;
telecommunications; power; and the compliance and readiness of our third party
suppliers, vendors, and customers. The task force has divided our Y2K project
into three major phases: (1) identification, assessment and planning; (2)
remediation; and (3) verification and contingency planning. We have
substantially completed the first phase and are beginning the remediation phase.
To date, our progress has not revealed any information which indicates that the
magnitude of our Y2K problem is material. During the remediation phase of the
project, we will replace obsolete systems and update (or repair) the hardware,
embedded systems or applications both internally developed and those purchased
from third party vendors so they are Y2K compliant. During the verification and
contingency planning phase of the project, we will perform acceptance testing
and review the results to determine that the updated applications or internally
remediated systems are ready to return to production as well as remove any
unused and outdated hardware and software, and migrate the various systems to
production status. Based on information compiled to date, we continue to expect
to substantially complete our compliance project, as outlined above, by the end
of the third quarter 1999. In addition to our own compliance efforts, we are
conducting an assessment of the third parties with which we have material
relationships to determine if they are Y2K compliant. We have contacted our key
vendors and suppliers and to date, we have not received sufficient responses to
make a definitive statement; however, the responses received indicate that these
key vendors and suppliers are addressing their Y2K issues. We have received
responses from most of the vendors and suppliers that are supplying either IT or
non-IT systems for the new headquarters and they have indicated that they have
or are addressing the Y2K issue. Finally, we have replaced our voice mail
systems with new, Y2K-compliant systems to better provide for the expanding
communication needs of the organization.
COSTS TO ADDRESS Y2K ISSUES. At this stage of the project, we project the total
estimated cost to be no more than $200,000. These costs consist primarily of the
cost of labor needed to complete our compliance project. The approximate labor
cost prior to the end of the second quarter 1999 was $80,000, as a result of a
temporary freeze during most of the second quarter as we moved into our new
headquarters building. The remainder of the fees will be incurred in 1999 as the
more labor intensive portions of the project are completed. The move to the new
headquarters building, replacement of IT and non-IT systems and the timing
thereof, arose in the ordinary course of our growth, and are not considered a
cost associated with the Y2K issue. This treatment reduced our overall estimated
costs from those set forth before.
RISK OF YEAR 2000 ISSUES. The failure to correct a material Y2K problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. If such failures occur, our results of operations,
liquidity, and financial condition could be materially and adversely affected
and we may be required to incur unanticipated expenses to remedy any problems
not addressed by our compliance efforts. Additionally, if any of our material
suppliers or vendors is not fully Y2K compliant, it is possible that a system
failure or miscalculations causing disruptions in our operations or potential
problems with our product and service offerings could result.
CONTINGENCY PLANS. Part of our Y2K project includes the preparation of
contingency plans. We anticipate completion of our contingency plans by
beginning portion of the fourth quarter of 1999.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Between May 14, 1999 and July 13, 1999, Information Architects Corporation,
formerly known as Alydaar Software Corporation, and certain current and former
officers and directors were named as defendants in four purported class action
lawsuits styled as (1) William C. Morrow v. Alydaar Software Corporation, Robert
F. Gruder, Frank G. Milligan and V. Hollis Scott, Case Number 3:99CV196-MCK, (2)
Carlos Alves v. Alydaar Software Corporation, Robert F. Gruder, Frank G.
Milligan and V. Hollis Scott, Case Number 3:99CV217-MCK, (3) Charlotte J.
Wagoner v. Alydaar Software Corporation, Robert F. Gruder, Frank G. Milligan and
V. Hollis Scott, Case Number 3:99CV242-H, and (4) Norman Drucker v. Alydaar
Software Corporation, Robert F. Gruder, Frank G. Milligan and V. Hollis Scott,
Case Number 3:99CV249-H ("suits"). The suits are filed in the United States
District Court for the Western District of North Carolina. The suits purport to
be brought on behalf of a class of persons that purchased
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<PAGE> 13
our common stock between November 14, 1997 and April 1, 1999 and allege
violations of the federal securities laws. Specifically, the suits allege that
the defendants made material omissions and misrepresentations in public
filings, press releases and other public statements during the purported class
period. The suits seek class action status and an unspecified amount of damages,
including compensatory damages, interest, attorney's and expert's fees and
reasonable costs and expenses. The suits have been consolidated by court order
dated June 29, 1999. On July 12, 1999, the plaintiffs filed a motion to appoint
a lead plaintiffs' group and lead plaintiffs' counsel. While we deny any
wrongdoing and intend to vigorously defend ourselves, we expresses no opinion as
to the likely outcome of the suits.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with a Promissory Note, dated June 1, 1999, with Rodney R.
Schoemann, Sr., we issued Mr. Schoemann 100,000 shares of our common stock with
demand registration rights.
On June 21, 1999, we entered into an agreement with Pencom Systems Incorporated
under which Pencom agreed not to sell 198,344 shares of our common stock until
after July 1, 1999. In return for Pencom's agreement not to sell such shares
until July 1, 1999, we issued Pencom 117,446 additional shares of common stock
with piggyback registration rights.
On May 10, 1999, we issued 30,000 shares of our common stock to Global Financial
Services, SA. in conjunction with a settlement agreement arising out of
representative services provided to us by Global Financial Services, SA.
As a result of conversion notices provided to us by Marshall Capital Management,
Inc. under the convertible debenture between Marshall and ourselves we issued
1,442,388 shares of common stock to Marshall Capital Management, Inc. in
satisfaction in full of all principal and interest due under the convertible
debenture.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 4, 1999, our stockholders (at the annual meeting) approved the
following:
1. Election of directors.
For Withheld
--- --------
a. Robert F. Gruder 13,350,543 71,163
b. Frank G. Milligan 13,354,195 67,511
c. Thomas J. Dudchik 13,353,950 67,756
d. Richard J. Blumberg 13,353,895 67,811
e. James McLaughlin 13,353,895 67,811
2. Amendment of our Articles of Incorporation to the change our name to
Information Architects Corporation.
For Against Abstain
--- ------- -------
13,389,423 31,507 775
3. Authorization to amend our Articles of Incorporation to provide for the
issuance of 1,000,000 shares of preferred stock and to authorize our
board of directors to fix the preferred limitations and relative rights
of any series of preferred stock.
For Against Abstain
--- ------- -------
7,702,662 479,272 34,254
4. Amendment to our Omnibus Stock Plan and 1997 Employee Stock Purchase
Plan to include officers and employees of our subsidiaries.
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<PAGE> 14
For Against Abstain
--- ------- -------
13,366,662 53,700 1,616
5. Ratification of the appointment of Holtz Rubenstein & Co., LLP, as our
independent public accountants for the year 1999.
For Against Abstain
--- ------- -------
13,420,053 1,578 75
ITEM 5: OTHER INFORMATION
On June 29, 1999, Alydaar Software Corporation announced that it had amended its
Articles of Incorporation to change its name to Information Architects
Corporation and would begin trading on the NASDAQ National Market System under
the trading symbol "IARC".
On July 30, 1999, we completed a private placement of $5 million in original
principal amount of convertible debentures ("Debentures") to King LLC (the
"Purchaser"). In addition to the issuance of the Debentures, we issued warrants
(the "Warrants") to the Purchaser to purchase 287,843 shares of Common Stock for
an exercise price of $2.70. The Debentures are convertible into shares of our
common stock, par value $0.001 per share. The conversion price for the
Debentures will be equal to the lower of (i) 125% of the average closing bid
price for the Common Stock for the trading day prior to the closing date ($2.70)
or (ii) 85% of the average of the five lowest closing bid prices of our common
stock for the twenty day trading period prior to the conversion date. The
Debentures accrue interest at the rate of 6% per annum. The proceeds from the
sale of the debentures will be used for internal working capital purposes and to
reduce certain short term debts.
We are obligated to file with the Securities and Exchange Commission a
registration statement on Form S-3 covering the resale of all shares of Common
Stock issuable upon conversion of the Debentures and upon exercise of the
Warrants.
We and the Purchaser have also entered into a letter to meet our possible future
capital needs. Under the terms of the letter, the parties contemplate
establishing a $5 million equity line, subject to certain conditions as well as
mutually agreed to documentation. The equity line would be structured so that we
could draw down funds, from time to time as needed, by selling shares of our
common stock at a price equal to 85% of the two closing bid prices of the Common
Stock for the ten (10) trading days prior to each closing date.
The foregoing description is only a summary and is qualified in its entirety by
reference to the Securities Purchase Agreement, between us and the Purchaser,
Registration Rights Agreement, between us and the Purchaser, Debenture, issued
by us to the Purchaser, Warrant to purchase shares of Common Stock, issued by us
to the Purchaser, and Letter, all dated as of July 30, 1999, between us and the
Purchaser, all as attached to this Form 10-Q as Exhibits 10.14, 10.15, 10.16,
10.17 and 10.18, respectively.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
10.14 Securities Purchase Agreement, dated as of July 30,
1999, between us and the Purchaser
10.15 Registration Rights Agreement, dated as of July 30,
1999, between us and the Purchaser
10.16 Debenture, dated as of July 30, 1999, issued by us to
the Purchaser
10.17 Warrant to purchase shares of Common Stock, dated as
of July 30, 1999, issued by us to the Purchaser
10.18 Letter, dated as of July 30, 1999, between us and the
Purchaser
10.19 Letter of Modification, dated as of July 30, 1999
between us and Marshall Capital Management, Inc.
10.20 Promissory Note, dated June 1, 1999, between us and
Rodney S. Shoemann, Sr.
11. Computation of Earnings Per Share...Unaudited
27. Financial Data Schedule
99.2 Press Release dated August 4, 1999
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<PAGE> 15
Reports on Form 8-K
Current report on Form 8-K filed with the Securities and
Exchange Commission on March 12, 1999.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on our behalf by
the undersigned thereunto duly authorized.
INFORMATION ARCHITECTS CORPORATION
- ----------------------------------
(Registrant)
Date: August 16,1999 /s/Robert F. Gruder
-------------- Robert F. Gruder,
Chief Executive Officer
Date: August 16, 1999 /s/J. Wayne Thomas
--------------- J. Wayne Thomas,
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.14
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, (the, "Agreement") dated as of the
date of acceptance set forth below, is entered into by and between INFORMATION
ARCHITECTS CORP., F/K/A ALYDAAR SOFTWARE CORP., a North Carolina corporation,
with headquarters located at 4064 Colony Road, Charlotte, North Carolina 28211
(the "Company"), and each entity named on a signature page hereto and permitted
assigns (each, a "Buyer") (each agreement with a Buyer being deemed a separate
and independent agreement between the Company and such Buyer, except that each
Buyer acknowledges and consents to the rights granted to each other Buyer under
such agreement and the Transaction Agreements (as defined below).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, 6% Convertible Debentures of the Company (the
"Convertible Debentures"), which will be convertible into shares of Common
Stock, $.001 par value per share, of the Company (the "Common Stock"), upon the
terms and subject to the conditions of such Convertible Debentures, together
with the Warrants (as defined below) exercisable for the purchase of shares of
Common Stock, and subject to acceptance of this Agreement by the Company;
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 PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) The undersigned hereby agrees to purchase from the Company
Convertible Debentures in the principal amount set forth on the signature page
of this Agreement (the "Debentures") having the terms and conditions and being
in the form attached hereto as ANNEX I(a). The aggregate Debentures purchased
by all Buyers shall be $5,000,000.
<PAGE> 2
(ii) Subject to the terms and conditions of this Agreement and
the other Transaction Agreements, the Buyer will purchase the Debentures on the
Closing Date (as defined below).
(iii) The purchase price to be paid by the Purchaser shall be
equal to the face amount of the Debentures, as the case may be, being purchased
on the Closing Date (as defined below) and shall be payable in United States
Dollars.
b. Certain Definitions. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
(i) "Debentures" means all or any portion of the Debentures.
(ii) "Securities" means the Debentures, the Warrants and the
Common Stock issuable upon conversion of the Debentures or the exercise of the
Warrants.
(iii) "Purchase Price" means the purchase price for the
Debentures.
(iv) "Closing Date" means the date of the closing of the
purchase and sale of the Debentures, as provided herein.
(v) "Buyer's Allocable Share" means the fraction of which the
numerator is the Purchase Price of the Buyer's Debentures and the denominator
is the aggregate Purchase Price of the Debentures of all Buyers.
(vi) "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as those terms are
defined in the Registration Rights Agreement defined below) for the Debentures
and Warrants issued on the Closing Date.
(vii) "Market Price of the Common Stock" means (x) the average
closing bid price of the Common Stock for the five (5) trading days ending on
the trading day immediately before the relevant date indicated in the relevant
provision hereof (unless a different relevant period is specified in the
relevant provision), as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market or (y) if the Common Stock is listed on
a stock exchange, the average closing price of the Common Stock on such
exchange for the five (5) trading days ending on the trading day immediately
before the relevant date indicated in the relevant provision hereof (unless a
different relevant period is specified in the relevant provision), as reported
in The Wall Street Journal.
(viii) "Converted Shares" means the shares of Common Stock
issuable upon conversion of the Debentures.
(ix) "Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
<PAGE> 3
(x) "Shares" means the shares of Common Stock representing any
or all of the Converted Shares and the Warrant Shares.
(xi) "Certificates" means the relevant Debentures and the
relevant Warrants, each duly executed on behalf of the Company and issued in
the name of the Buyer.
(xii) "Person" means any living person or any entity, such as,
but not necessarily limited to, a corporation, partnership or trust.
(xiii) "Affiliate" means, with respect to a specific Person
referred to in the relevant provision, another Person who or which controls or
is controlled by or is under common control with such specified Person.
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price for the relevant
Debentures by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions") on
the date prior to the relevant Closing Date.
(ii) No later than the relevant Closing Date, but in any
event promptly following payment by the Buyer to the Escrow Agent of the
relevant Purchase Price, the Company shall deliver the relevant Certificates to
the Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, 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.
d. Method of Payment. Payment into escrow of the Purchase
Price shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided by Krieger & Prager]
Re: Information Architects Corp.
Not later than 5:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Buyer by
facsimile, the Buyer shall deposit with the Escrow Agent the Purchase Price for
the Debentures in currently available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment, shall
allow the Company to cancel this Agreement.
<PAGE> 4
e. Escrow Property. The Purchase Price and the Certificates
delivered to the Escrow Agent as contemplated by Sections 1(c) and (d) hereof
are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement, the Buyer is purchasing the Debentures
and the Warrants and will be acquiring the Shares for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
b. The Buyer is (i) 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), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its
investment in the Securities.
c. All subsequent offers and sales of the Debentures and the
Shares by the Buyer shall be made pursuant to registration of the Shares under
the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Debentures are being offered
and sold 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
Debentures.
e. 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 Debentures and the
offer of the Shares which have been requested by the Buyer, including Annex V
hereto. The Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of the
foregoing, the Buyer has also had the opportunity to obtain and to review the
Company's (1) Annual Report on Form 10-K for the fiscal year ended December 31,
1998, (2) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998, (3) Forms 8-K, dated March 12, 1999 and April 8, 1999, and (4) Form
10-12G/A dated July 1, 1999 (the "Company's SEC Documents").
<PAGE> 5
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. 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 Securities.
h. The Buyer is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. This Agreement
and the Transaction Agreements have been duly and validly authorized, executed
and delivered on behalf of the Buyer and create 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, ETC. The Company represents and
warrants to the Buyer that, except as provided in Annex V hereto:
a. Concerning the Debentures and the Shares. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Debentures, the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina and has the requisite corporate power to own its properties and
to carry on its business as now being conducted. The Company is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a material adverse effect on the business,
operations or condition (financial or otherwise) or results of operation of the
Company and its subsidiaries taken as a whole (a "Material Adverse Effect").
The Company has registered its Common Stock pursuant to Section 12 of the 1934
Act, and the Common Stock is listed and traded on The NASDAQ/National Market
System. The Company has received no notice, either oral or written, with
respect to the continued eligibility of the Common Stock for such listing, and
the Company has maintained all requirements for the continuation of such
listing.
c. Authorized Shares. The authorized capital stock of the
Company consists of (i)50,000,000 shares of Common Stock, $.001 par value per
share, of which approximately 19,393,809 shares had been issued as of July 21,
1999 and (ii) 1,000,000 shares of Preferred Stock $.001 par value, of which -0-
shares are outstanding. All issued and outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
The Company has sufficient authorized and unissued shares of Common Stock as
may be necessary to effect the issuance of the Shares. The Shares have been
duly authorized and, when issued upon conversion of, or as interest on, the
Debentures or upon exercise of the Warrants, each in accordance with its
respective terms, 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.
<PAGE> 6
d. Securities Purchase Agreement; Registration Rights
Agreement. This Agreement and the Registration Rights Agreement, the form of
which is attached hereto as Annex IV (the "Registration Rights Agreement"), and
the transactions contemplated 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 Debentures, the Warrants and the Registration
Rights Agreement, when executed and delivered by the Company, will be, valid
and binding agreements 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 of this
Agreement and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Debentures do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a party or by which it or any
of its properties or assets are bound, including any listing agreement for the
Common Stock, except as herein set forth, (iii) to its knowledge, any existing
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 of its properties or assets, or (iv) the Company's listing
agreement for its Common Stock, except such conflict, breach or default which
would not have a Material Adverse Effect.
f. Approvals. No authorization, approval or consent of 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 by the Company for the issuance and sale of the Securities to the
Buyer as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained.
g. SEC Filings. None of the Company's SEC Documents contained,
at the time they were filed, any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since March 1, 1998 timely filed all
requisite forms, reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1998, there
has been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or
results of operations of the Company, except as disclosed in the Company's SEC
Documents. Since December 31, 1998, except as provided in the Company's SEC
Documents, the Company has not (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the
ordinary course of business consistent with past practices; (ii) discharged or
satisfied any material lien or encumbrance or paid any material obligation or
liability (absolute or contingent), other than current liabilities paid in the
ordinary course of business consistent with past practices; (iii)
<PAGE> 7
declared or made any payment or distribution of cash or other property to
stockholders with respect to its capital stock, or purchased or redeemed, or
made any agreements to purchase or redeem, any shares of its capital stock;
(iv) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business consistent with past
practices; (v) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of existing business; (vi) made any changes in employee
compensation, except in the ordinary course of business consistent with past
practices; or (vii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally or as
disclosed in the Company's SEC Documents) that has not been disclosed in
writing to the Buyer that (i) would reasonably be expected to have a Material
Adverse Effect, (ii) would reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement or any of the agreements contemplated hereby (collectively, including
this Agreement, the "Transaction Agreements"), or (iii) would reasonably be
expected to materially and adversely affect the value of the rights granted to
the Buyer in the Transaction Agreements.
j. Absence of Litigation. Except as set forth in the Company's
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of
the Company, threatened against or affecting the Company, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect or
which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any of
the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in
Section 3(e) hereof, no Event of Default (or its equivalent term), as defined
in the respective agreement to which the Company is a party, and no event
which, with the giving of notice or the passage of time or both, would become
an Event of Default (or its equivalent term) (as so defined in such agreement),
has occurred and is continuing, which would have a Material Adverse Effect.
l. Prior Issues. During the twelve (12) months preceding the
date hereof, the Company has not issued any convertible securities or any
shares of the Common Stock or Preferred Stock.
m. No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Company's SEC
Documents or those incurred in the ordinary course of the Company's business
since December 31, 1998, and which individually or in the aggregate, do not or
would not have a Material Adverse Effect. No event or circumstances has
occurred or exists with respect to the Company or its properties, business,
condition (financial or otherwise), or results of operations, which, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed. There are no proposals currently under consideration or
currently anticipated to be under consideration by the Board of Directors or
the executive officers of the Company which proposal would (x) change the
certificate of incorporation or other charter document or by-laws of the
Company, each as currently in effect,
<PAGE> 8
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of
the Company, including its interests in subsidiaries.
n. No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or its
property is bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since March 1, 1998, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of
the Debentures and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
the conversion of the Debentures. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Debentures and upon exercise of the Warrants is binding upon
the Company and enforceable regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Debentures have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered 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 sale 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 resale of such 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; (3) the Buyer may not sell or transfer the Debentures unless the
amount sold or transferred exceeds 20% of the Debentures; and (4) 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.
<PAGE> 9
b. Restrictive Legend. The Buyer acknowledges and agrees that
the Debentures and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to
enter into the Registration Rights Agreement on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Securities to the Buyer
required under any United States laws and regulations applicable to the
Company, or by any domestic securities exchange or trading market, and to
provide a copy thereof to the Buyer promptly after such filing.
e. Reporting Status. So long as the Buyer beneficially owns
any of the Securities, 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. Except as otherwise set forth in this Agreement and
the Transaction Agreements, the Company will take all reasonable action under
its control to obtain and to continue the listing and trading of its Common
Stock (including, without limitation, all Registrable Securities) on The
NASDAQ/National Market System and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ/National Market System.
f. Use of Proceeds. The Company will use the proceeds from the
sale of the Debentures (excluding amounts paid by the Company for legal fees,
finder's fees and escrow fees in connection with the sale of the Debentures)
for internal working capital purposes, and, unless specifically consented to in
advance in each instance by the Buyer, the Company shall not, (i) directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership enterprise or other person except such loans to or
investments in Data Systems Network Corporation, not to exceed $250,000, as may
be required to consummate the Company's proposed acquisition thereof (ii)or for
the repayment of any outstanding loan by the Company to any other party.
<PAGE> 10
g. Certain Agreements. (i) The Company covenants and agrees
that it will not, without the prior written consent of the Buyer, enter into
any subsequent or further offer or sale of Common Stock or securities
convertible into Common Stock (collectively, "New Common Stock") with any third
party pursuant to a transaction which in any manner permits the sale of the New
Common Stock on any date which is earlier than ninety (90) days from the last
day of the calendar month in which the Effective Date occurs. The limitations
described in this section shall not apply to (w) any underwritten offering of
securities made pursuant to a written underwriting agreement with a nationally-
or regionally-recognized investment bank, (x) any issuance of securities or
assumption of debt made in connection with a merger, acquisition of or purchase
of the assets of another entity where the purpose of such issuance is not to
raise equity capital, or (y) any issuance of warrants made to a bank or other
commercial lending institution in connection with a loan made to the Company by
such bank or institution, or (z) any issuance of securities or stock when the
price of the Company's common stock is trading above ten dollars ($10) per
share, provided that the number of shares of Common Stock into which such
warrants are exercisable shall not exceed, individually or in the aggregate, 5%
of the number of shares of Common Stock issued and outstanding as of the date
of such issuance.
(ii) By the Closing Date, the Company shall obtain the agreement
(each, a "Principal's Agreement") of each of its Principals (as defined below)
that, without the prior written consent of the Buyer in each instance, such
Principal will not sell or otherwise transfer or offer to sell or otherwise
transfer, except for (a) sales or transfers made pursuant to a pledge or margin
account agreement or (b) sales or transfers made at a sales price in excess of
ten dollars ($10) per share, any shares of Common Stock directly or indirectly
held by such Principal prior to ninety (90) days after the Effective Date. Each
such Principal's Agreement shall (w) specify that it is entered into as an
inducement to the Buyer's execution, delivery and performance of this
Agreement, (x) name the Buyer as a third party beneficiary thereof, (y)
acknowledge that the Company's transfer agent will be provided with
instructions that transfers by a Principal require the consent of the Company
and the Buyer, and (z) contemplate that, in addition to any other damages or
remedies that may be appropriate, the Principal's Agreement shall be
enforceable by injunction sought by the Company and the Buyer or any one or
more of them. A "Corporate Principal" is a person who meets any one or more of
the following criteria: (A) a person who is the Chief Executive Officer of the
Company (the a "Company Principal") and who, directly or indirectly, holds any
shares of Common Stock of the Company; (B) a spouse of the Company Principal (a
"Principal's Spouse") who, directly or indirectly, holds any shares of Common
Stock of the Company, (C) a parent, sibling or child of a Company Principal who
resides in the household of a Company Principal or of a Principal's Spouse
(each, a "Principal's Relative") and who, directly or indirectly, holds any
shares of Common Stock, (D) any other person or entity, including, without
limitation, for profit or non-profit corporations, partnerships and trusts,
whose voting rights regarding Common Stock of the Company is subject to the
direction, control or other influence of any Company Principal, Principal's
Spouse, or Principal's Relative.
(iii) In the event the Company breaches the provisions of this
Section 4(g), the Conversion Rate (as defined in the Debentures) shall be
amended to be equal to (x) 90% of (y) the amount determined in accordance with
the provisions of the Debenture without regard to this provision, and the
Purchaser may require the Company to immediately redeem all outstanding
Debentures in accordance Section 15 of the Debenture.
<PAGE> 11
h. Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield two hundred percent (200%) of the number of
shares of Common Stock issuable (i) at conversion as may be required to satisfy
the conversion rights of the Buyer pursuant to the terms and conditions of the
Debentures which have been issued and not yet converted and (ii) upon exercise
as may be required to satisfy the exercise rights of the Buyer pursuant to the
terms and conditions of the Warrants which have been issued and not yet
exercised.
i. Warrants. The Company agrees to issue to the Buyer on
Closing Date transferable, divisible warrants with cashless exercise rights
(the "Warrants") for the purchase of Two Hundred Eighty-Seven Thousand Eight
Hundred Forty-Three (287,843) shares of Common Stock. The Warrants shall bear
an exercise price equal to one hundred twenty percent (125%) of the Market
Price of the Common Stock on the relevant Closing Date. The Warrants will
expire on the last day of the month in which the fifth anniversary of the
Closing Date occurs. The Warrants shall be in the form annexed hereto as Annex
VI, together with registration rights as provided in the Registration Rights
Agreement and piggy-back registration after the expiration of the effectiveness
of the Registration Statement contemplated by the Registration Rights
Agreement.
j. Limitation on Issuance of Shares. If the Common Stock is
then listed for trading on the NASDAQ or the Nasdaq SmallCap Market and the
Company has not obtained the Shareholder Approval (as defined below), then the
Company may not issue in excess of 3,878,000 shares of Common Stock upon
conversions of the Debentures or exercise of the Warrants, which number of
shares of Common Stock shall be subject to adjustment pursuant to Section 6.2
of the Warrant (such number of shares, the "Issuable Maximum"). The Issuable
Maximum equals 19.999% of the number of shares of Common Stock outstanding
immediately prior to the closing of transactions set forth in the Purchase
Agreement. If on any Conversion Date (A) the shares of Common Stock are listed
for trading on the NASDAQ or the Nasdaq SmallCap Market, (B) the Conversion
Price (as defined herein) then in effect is such that the aggregate number of
shares of Common Stock that would then be issuable upon conversion in full of
all then outstanding Debentures, together with any shares of Common Stock
previously issued upon conversion of the Debentures, would exceed the Issuable
Maximum, and (C) the Company shall not have previously obtained the vote of
shareholders (the "Shareholder Approval"), if any, as may be required by the
applicable rules and regulations of the Nasdaq Stock Market (or any successor
entity) applicable to approve the issuance of shares of Common Stock in excess
of the Issuable Maximum pursuant to the terms hereof, then the Company shall
issue to the Holder requesting a conversion, a number of shares of Common Stock
equal to the Issuable Maximum and, with respect to the remainder of the
aggregate previous amount of Debentures then held by such Holder for which a
conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of the issuable Maximum (the "Excess Stated
Value"), the Company shall use its best efforts to obtain the Shareholder
Approval applicable to such issuance as soon as possible, but in any event not
later than the 75th day after such request (such 75th day, the "Target Date"),
provided, that in the event the Company does not obtain the Shareholder
Approval on or prior to the Target Date, then, as soon as possible
<PAGE> 12
after the Target Date but, in any event no later than ten (10) days following
the Target Date (such 10th day following the Target Date, the "OTC Date"), the
Company shall (i) initiate all steps necessary pursuant to the applicable rules
and regulations of the Nasdaq Stock Market (or any successor entity) in order
to delist the Common Stock from trading on the NASDAQ or the Nasdaq SmallCap
Market, as the case may be, and (ii) quote the Common Stock on the OTC Bulletin
Board (the obligations indicate in (i)-(ii), are collectively referred to as
the "OTC Obligations"). Within three (3) days of the Common Stock being quoted
on the OTC Bulletin Board, the Company shall issue shares of Common Stock to
the converting Holder in an amount equal to the Excess Stated Value divided by
the Conversion Price on (x) the Target Date or (y) the date of delivery of the
shares of Common Stock being acquired upon the conversion of the Excess Stated
Value by the Company, whichever is lower. It is understood that in connection
with the issuance of the shares of Common Stock being acquired upon the
conversion of the Excess Stated Value, the Holder shall be entitled to the
rights and benefits conferred to it pursuant to the Registration Rights
Agreement. Mr. Gruder, the Holder of approximately 35% of the outstanding
Common Stock shall simultaneous with closing, deliver a Irrevocable Proxy with
respect to matters requiring Shareholder Approval.
k. Right of First Refusal. (i) Except as set forth below, the
Company covenants and agrees that if during the period from the date hereof
through and including the date which is seven (7) months after the Effective
Date of the Registration Statement, the Company offers to enter into any
transaction (a "New Transaction") for the sale of New Common Stock, the Company
shall notify the Buyer in writing of all of the terms of such offer (a "New
Transaction Offer"). Except as set forth below, the Buyer shall have the right
(the "Right of First Refusal"), exercisable by written notice given to the
Company by the close of business on the fifth (5th) business day after the
Buyer's receipt of the New Transaction Offer (the "Right of First Refusal
Expiration Date"), to enter into the New Transaction Offer on the terms so
specified. The limitations described in this section shall not apply to (x) any
underwritten offering of securities made pursuant to a written underwriting
agreement with a nationally- or regionally-recognized investment bank, (y) any
issuance of securities or assumption of debt made in connection with a merger,
acquisition of or purchase of the assets of another entity where the purpose of
such issuance is not to raise equity capital or (z) any issuance of warrants
made to a bank or other commercial lending institution in connection with a
loan made to the Company by such bank or institution, provided that the number
of shares of Common Stock into which such warrants are exercisable shall not
exceed, individually or in the aggregate, 5% of the number of shares of Common
Stock issued and outstanding as of the date of such issuance.
(ii) If the Buyer does not exercise the Right of First Refusal,
the Company may consummate the New Transaction with any other party (the "New
Investor") on the terms specified in the New Transaction Offer within thirty
(30) days of the Right of First Refusal Expiration Date.
(iii) If the terms of the New Transaction to be consummated with
such other party differ from the terms specified in the New Transaction Offer
so that the terms are materially more beneficial to the New Investor, the
Company shall give the Buyer a New Transaction Offer relating to the terms of
the New Transaction, as so changed, and the Buyer's Right of First
<PAGE> 13
Refusal and the preceding terms of this paragraph (k) shall apply with respect
to such changed terms.
(iv) If there is more than one Buyer signatory to this
Agreement, the preceding provisions of this paragraph (k) shall apply pro rata
among them (based on their relative Buyer's Allocable Shares), except that, to
the extent any such Buyer does not exercise its Right of First Refusal in full
(a "Declining Buyer"), the remaining Buyer or Buyers who or which have
exercised their own Right of First Refusal, shall (pro rata among them based on
their relative Buyer's Allocable Shares, if more than one) exercise such
Declining Buyer's unexercised Right of Refusal. Nothing in this paragraph (k)
shall be deemed to permit a transaction not otherwise permitted by subparagraph
(g)(i), as modified by the provisions of subparagraph (g)(ii).
(v) In the event the New Transaction is consummated with other
third party on terms providing for (x) either a sale price equal to or computed
based on, or a determination of a conversion price based on, a lower percentage
of the then current market price (howsoever defined or computed) than provided
in the Debentures for determining the Conversion Rate or a lower Base Price
(howsoever defined or computed) and/or (y) the issuance of warrants at an
exercise price lower than that provided in the Warrants, the terms of any
unissued or unconverted Debentures or any unissued or unexercised Warrants
shall be modified to reduce the relevant Conversion Rate, Base Price or Warrant
exercise price to be equal to that provided in the New Transaction as so
consumated.
(vi) The restrictions contained in this Section 4(k) shall
terminate once the Buyer has converted at least ninety percent (90%) of the
original principal amount of the Debentures and sold at least 90% of the shares
issued on such conversion.
l. Reimbursement. If (i) any Buyer, other than by reason of
its gross negligence, willful misconduct or breach of law, becomes involved in
any capacity in any action, proceeding or investigation brought by any
stockholder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Agreements, or
if such Buyer is impleaded in any such action, proceeding or investigation by
any Person, or (ii) any Buyer, other than by reason of its gross negligence,
willful misconduct or breach of law, becomes involved in any capacity in any
action, proceeding or investigation brought by the SEC against or involving the
Company or in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Agreements, or if such Buyer is
impleaded in any such action, proceeding or investigation by any Person, then
in any such case, the Company will reimburse such Buyer for its reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliates of the Buyers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Buyers and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives
of the Company, the Buyers and any such Affiliate and any such Person. Except
as otherwise set forth in the Transaction
<PAGE> 14
Agreements, the Company also agrees that neither any Buyer nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of
or in right of the Company in connection with or as a result of the
consummation of the Transaction Agreements except to the extent that any
losses, claims, damages, liabilities or expenses incurred by the Company result
from the gross negligence or willful misconduct of such Buyer or from a breach
of the representations, covenants and conditions contained herein or from a
breach of law.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
Purchase Price for the Debentures in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to issue Common Stock from
time to time upon conversion of the Debentures in such amounts as specified
from time to time by the Company to the transfer agent, bearing the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its permitted
assigns and in such denominations to be specified by the Buyer in connection
with each conversion of the Debentures. The Company warrants that if the Buyer
is not in breach of the representations and warranties contained in this
Agreement, no instruction other than such instructions referred to in this
Section 5 and stop transfer instructions to give effect to Section 4(a) hereof
prior to registration and sale of the Shares under the 1933 Act will be given
by the Company to the transfer agent and that the Shares shall otherwise be
freely transferable on the books and records of the Company as and to the
extent provided in this Agreement, the Registration Rights Agreement, and
applicable law. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities. If the Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of a resale by
the Buyer of any of the Securities in accordance with clause (1)(B) of Section
4(a) of this Agreement is not required under the 1933 Act, the Company shall
(except as provided in clause (2) of Section 4(a) of this Agreement) permit the
transfer of the Securities and, in the case of the Converted Shares or the
Warrant Shares, as the case may be, promptly instruct the Company's transfer
agent to issue one or more certificates for Common Stock without legend in such
name and in such denominations as specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its
right to convert the Debentures by telecopying or delivering an executed and
completed Notice of Conversion to the Company and delivering, within five (5)
business days thereafter, the original Debentures being converted to the
Company by express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to
any conversion elected by the holder of the Debentures, the date specified in
the Notice of Conversion, provided the copy of the Notice of Conversion is
telecopied to or otherwise delivered to the Company in accordance with the
provisions hereof so that it is received by the Company on or before such
specified date.
<PAGE> 15
(iii) The Company will transmit the certificates
representing the Converted Shares issuable upon conversion of any Debentures
(together, unless otherwise instructed by the Buyer, with Debentures not being
so converted) to the Buyer at the address specified in the Notice of Conversion
(which may be the Buyer's address for notices as contemplated by Section 11
hereof or a different address) via express courier, by electronic transfer or
otherwise, within five (5) business days if the address for delivery is in the
United States and within seven (7) business days if the address for delivery is
outside the United States (such fifth business day or seventh business day, as
the case may be, the "Delivery Date") after (A) the business day on which the
Company has received both of the Notice of Conversion (by facsimile or other
delivery) and the original Debentures being converted (and if the same are not
delivered to the Company on the same date, the date of delivery of the second
of such items) or (B) the date an interest payment on the Debenture, which the
Company has elected to pay by the issuance of Common Stock, as contemplated by
the Debentures, was due.
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss
to the Buyer. As compensation to the Buyer for such loss, the Company agrees to
pay late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond two (2) business days from the
Delivery Date):
<TABLE>
<CAPTION>
Late Payment For Each $10,000
of Debenture Principal or Interest
No. Business Days Late Amount Being Converted
---------------------- ----------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within two (2)
<PAGE> 16
business days after the Delivery Date, the Buyer will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Buyer shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion.
d. If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Shares to be issued upon conversion of a Debenture
and after such Delivery Date, the holder of the Debentures being converted (a
"Converting Holder") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder (the "Sold
Shares"), which delivery such Converting Holder anticipated to make using the
Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to
the Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering
Shares over (y) the net proceeds (after brokerage commissions, if any) received
by the Converting Holder from the sale of the Sold Shares. The Company shall
pay the Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and
not in limitation of the foregoing, if the Converting Holder purchases shares
of Common Stock having a total purchase price (including brokerage commissions)
of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for
net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be
required to pay to the Converting Holder will be $1,000.
e. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates
therefor do not bear a legend and the Buyer thereof is not obligated to return
such certificate for the placement of a legend thereon, the Company shall use
its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Buyer by crediting the account of
Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
f. The Company will authorize its transfer agent to give
information to the Buyer or the Buyer's representative relating to the transfer
of the Company's shares of Common Stock to the Buyer, upon the request of the
Buyer or any such representative. The Company will provide the Buyer with a
copy of the authorization so given to the transfer agent.
g. If, at any time the Company challenges, disputes or denies
the right of a Buyer to effect a conversion of the Debentures into Common Stock
or otherwise dishonors or rejects any Conversion Notice delivered in accordance
with the terms of this Agreement or the Certificate of Designations or any
exercise of any Warrant in accordance with its terms ("Warrant Exercise"), then
such Buyer shall have the right, by written notice to the Company, to
<PAGE> 17
require the Company to promptly redeem the Debentures for cash at a redemption
price (the "Mandatory Purchase Amount") equal to (x) one hundred twenty-two
percent (122%) of the liquidation preference of the unconverted Debentures held
by such Buyer plus (y) all accrued but unpaid dividends on the Debentures
through the date of payment of the Mandatory Purchase Amount. Under any of the
circumstances set forth above, the Company shall be responsible for the payment
of all costs and expenses of such Buyer, including, but not necessarily limited
to, reasonable legal fees and expenses, as and when incurred in connection with
such Buyer's disputing any such action or pursuing such Buyer's rights
hereunder (in addition to any other rights such Buyer may have hereunder or
otherwise). The Mandatory Purchase Amount will be payable to such Buyer in cash
within five (5) business days from the date such Buyer gives the Company
written notice that it is exercising its rights under this paragraph. In
addition, the Company will not solicit any third party to commence any lawsuit
or proceeding or otherwise assert any claim before any court or public or
governmental authority, which lawsuit, proceeding or claim would seek to
challenge, deny, enjoin, limit, modify, delay or dispute the right of such
holder to effect the conversion of the Debentures into Common Stock.
h. The Buyer shall be entitled to exercise its conversion
privilege with respect to the Debentures notwithstanding the commencement of any
case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"). In the event
the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to
the fullest extent permitted, any rights to relief it may have under 11 U.S.C.
Section 362 in respect of such Buyer's conversion privilege. The Company hereby
waives, to the fullest extent permitted, any rights to relief it may have under
11 U.S.C. Section 362 in respect of the conversion of the Debentures. The
Company agrees, without cost or expense to such Buyer, to take or to consent to
any and all action necessary to effectuate relief under 11 U.S.C. Section 362.
6. CLOSING DATE.
a. The Closing Date shall occur on the date which is the first
NYSE trading day after each of the conditions contemplated by Sections 7 and 8
hereof shall have either been satisfied or been waived by the party in whose
favor such conditions run.
b. The closing of the purchase and issuance of Debentures
shall occur on the Closing Date at the offices of the Escrow Agent and shall
take place no later than 3:00 P.M., New York time, on such day or such other
time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein,
the Escrow Agent will be authorized to release the Escrow Funds to the Company
and to others and to release the other Escrow Property on the Closing Date upon
satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
<PAGE> 18
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Debentures to the Buyer pursuant to this Agreement on the Closing Date is
conditioned upon:
a. The execution and delivery of this Agreement by the Buyer;
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 Debentures in
accordance with this Agreement;
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date;
and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Debentures on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the
Certificates in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained in this
Agreement, each as if made on such date, and the performance by the Company on
or before such date of all covenants and agreements of the Company required to
be performed on or before such date;
d. On the Closing Date, the Registration Rights Agreement
shall be in full force and effect and the Company shall not be in default
thereunder;
e. On the Closing Date, the Buyer shall have received an
opinion of counsel for the Company, dated as of the Closing Date, in form,
scope and substance reasonably satisfactory to the Buyer, substantially to the
effect set forth in Annex III attached hereto;
f. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained;
<PAGE> 19
g. From and after the date hereof to and including the
Closing Date, the trading of the Common Stock shall not have been suspended by
the SEC or the NASD and trading in securities generally on the New York Stock
Exchange or The NASDAQ/National Market System shall not have been suspended or
limited, nor shall minimum prices been established for securities traded on The
NASDAQ/National Market System, nor shall there be any outbreak or escalation of
hostilities involving the United States or any material adverse change in any
financial market that in either case in the reasonable judgment of the Buyer
makes it impracticable or inadvisable to purchase the Debentures; and
9. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. To the extent determined by such court,
the Company shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of any of
its rights under any of the Transaction Agreements.
b. 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.
c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
h. 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.
<PAGE> 20
i. This Agreement may be amended only by the written consent
of a majority in interest of the holders of the Debentures and an instrument in
writing signed by the Company.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
10. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
(c) the third business day after mailing by next-day express courier,
with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: INFORMATION ARCHITECTS CORP.
4064 Colony Road
Charlotte, North Carolina 28211
ATTN: Chief Executive Officer
Telephone No.: (704) 365-2324
Telecopier No.: (704) -
with a copy to:
Jeffrey S. Hay, Esq.
McGuire, Woods, Battle & Boothe LLP
Bank of America Corporate Center
100 North Tryon Street - Suite 2900
Charlotte, NC 28202-4011
Telephone No.: (704) 373-8999
Telecopier No.: (704) 373-8935
<PAGE> 21
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
and the Buyer's representations and warranties herein shall survive for a
period of twelve (12) months after the execution and delivery of this Agreement
and shall inure to the benefit of the Buyer and the Company and their
respective successors and assigns.
12. EXPENSES. The Company and the Purchaser each shall pay all
costs and expenses that it incurs in connection with the negotiation,
execution, delivery and performance of this Agreement, except as otherwise set
forth in this Agreement and the Transaction Agreements.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 22
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer by one of its officers thereunto duly authorized as of the date set
forth below.
AMOUNT AND PURCHASE PRICE OF DEBENTURES: $_________________________
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this _____ day of __________, 1999.
- ------------------------------------ --------------------------------------
Address Printed Name of Subscriber
- ------------------------------------
By:
-----------------------------------
Telecopier No. (Signature of Authorized Person)
----------------------
--------------------------------------
Printed Name and Title
- ------------------------------------
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its
behalf.
INFORMATION ARCHITECTS CORP.
By:
-------------------------------
Title:
-------------------------------
Date: ,1999
-------------------------------
<PAGE> 23
<TABLE>
<S> <C>
ANNEX I(a) FORM OF INITIAL DEBENTURE
ANNEX I(b) FORM OF ADDITIONAL DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
</TABLE>
<PAGE> 1
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July , 1999 (this
"Agreement"), is made by and between INFORMATION ARCHITECTS CORPORATION, F/K/A
ALYDAAR SOFTWARE CORP., a North Carolina corporation, with headquarters located
at 4064 Colony Road, Charlotte, North Carolina 28211 (the "Company"), and each
entity named on a signature page hereto (each, an "Investor") (each agreement
with an Investor being deemed a separate and independent agreement between the
Company and such Investor, except that each Investor acknowledges and consents
to the rights granted to each other Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of July 30, 1999, between the Investor
and the Company (the "Securities Purchase Agreement"; terms not otherwise
defined herein shall have the meanings ascribed to them in the Securities
Purchase Agreement), the Company has agreed to issue and sell to the Investor
one or more 6% Convertible Debentures of the Company, in an aggregate principal
amount not exceeding $5,000,000 (the "Debentures"); and
WHEREAS, the Company has agreed to issue the Warrants to the Investor
in connection with the issuance of the Debentures; and
WHEREAS, the Debentures are convertible into shares of Common Stock
(the "Conversion Shares"; which term, for purposes of this Agreement, shall
include shares of Common Stock of the Company issuable in lieu of accrued
interest on conversion as contemplated by the Debentures) upon the terms and
subject to the conditions contained in the Debentures, and the Warrants may be
exercised for the purchase of shares of Common Stock (the "Warrant Shares")
upon the terms and conditions of the Warrants; and
WHEREAS, to induce the Investor to execute and deliver the Securities
Purchase 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"), with respect to the Conversion Shares and the Warrant
Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Investor" means the Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof and who holds Debentures, Warrants or
Registrable Securities.
(b) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for disclosure
in a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the
<PAGE> 2
registration statement would be detrimental to the business and affairs of the
Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the
Company, be adversely affected by disclosure in a registration statement at
such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information.
(c) "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").
(d) "Registrable Securities" means the Conversion Shares and
the Warrant Shares applicable to the Debentures and Warrants issued on the
Closing Date or the relevant Additional Closing Date, as the case may be.
(e) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. REGISTRATION.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as
possible after the Closing Date and no later than thirty (30) days following
the Closing Date (the "Required Filing Date"), either a Registration Statement
or an amendment to an existing Registration Statement, in either event
registering for resale by the Investor a sufficient number of shares of Common
Stock for the Investors to sell the Registrable Securities (or such lesser
number as may be required by the SEC, but in no event less than one hundred
fifty percent (150%) of the aggregate number of shares (A) into which the
relevant Debentures and all interest thereon through their respective Maturity
Dates would be convertible at the time of filing of such Registration Statement
(assuming for such purposes that all such Debentures had been eligible to be
converted, and had been converted, into Conversion Shares in accordance with
their terms, whether or not such accrual of interest, eligibility or conversion
had in fact occurred as of such date) and (B) which would be issued upon
exercise of all of the relevant Warrants at the time of filing of the
Registration Statement (assuming for such purposes that such Warrants had been
eligible to be exercised and had been exercised in accordance with their terms,
whether or not such eligibility or exercise had in fact occurred as of such
date). The Registration Statement (W) shall include only the Registrable
Securities and (X) shall also state that, in accordance with Rule 416 and 457
under the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Debentures and the exercise of the Warrants to prevent dilution resulting from
stock splits or stock dividends. The Company will use its reasonable best
efforts to cause such Registration Statement to be declared effective on a date
(a "Required Effective Date") no later than the earlier of (Y) five (5) days
after notice by the SEC that it may be declared effective or (Z) one hundred
twenty (120) days after the Closing Date.
(ii) If at any time (an "Increased Registered Shares Date"), the
number of shares of Common Stock represented by the Registrable Shares, issued
or to be issued as contemplated by the Transaction Agreements, exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of a written notice from any
Investor, either (X) amend the relevant Registration Statement filed by the
Company pursuant to the preceding provisions of this Section 2, if such
Registration Statement has not been declared effective by the SEC at that time,
to register one hundred ten percent (110%) of such Registrable Shares, computed
as contemplated by the immediately preceding subparagraph (i), or (Y) if such
Registration Statement has been declared effective by the SEC at that time,
file with the SEC an additional Registration Statement (an "Additional
Registration Statement") to register one hundred ten percent (110%) of the
shares of Common Stock represented by the Registrable Shares, computed as
contemplated by the immediately preceding subparagraph (i), that exceed the
aggregate number of shares of Common Stock already registered. The
<PAGE> 3
Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (a "Required Effective Date")
which is no later than (Q) with respect to a Registration Statement under
clause (X) of this subparagraph (ii), the Required Effective Date contemplated
by the immediately preceding subparagraph (i) and (R) with respect to an
Additional Registration Statement, the earlier of (I) five (5) days after
notice by the SEC that it may be declared effective or (II) ninety (90) days
after the Increased Registered Shares Date.
(b) Payments by the Company.
(i) If the Registration Statement covering the
Registrable Securities is not filed with the SEC by the Required Filing Date,
the Company will make payment to the Investor in such amounts and at such times
as shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the
Registrable Securities is not effective by the relevant Required Effective Date
or if the Investor is restricted from making sales of Registrable Securities
covered by a previously effective Registration Statement at any time (the date
such restriction commences, a "Restricted Sale Date") after the Effective Date
other than during a Suspension Period (as defined below), then the Company will
make payments to the Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by
the Company to the Investor shall be determined as of each Computation Date (as
defined below) and such amount shall be equal to the Periodic Amount Percentage
(as defined below) of the Purchase Price for all Debentures for the period from
the date following the relevant Required Filing Date, Required Effective Date
or Restricted Sale Date, as the case may be, to the first relevant Computation
Date, and thereafter to each subsequent Computation Date. The "Periodic Amount
Percentage" means (A) two percent (2%) of the Purchase Price for all the
Debentures previously purchased for the period from the date following the
relevant Required Filing Date, Required Effective Date or Restricted Sale Date,
as the case may be, to the first relevant Computation Date (prorated on a daily
basis if such period is less than thirty [30] days), and (B) two percent (2%)
of the Purchase Price of all Debentures to each Computation Date thereafter
(prorated on a daily basis if such period is less than thirty [30] days).
Anything in the preceding provisions of this paragraph (iii) to the contrary
notwithstanding, after the Effective Date the Purchase Price shall be deemed to
refer to the sum of (X) the principal amount of all Debentures previously
purchased but not yet converted and (Y) the Held Shares Value (as defined
below). The "Held Shares Value" means, for shares acquired by the Investor upon
a conversion within the thirty (30) days preceding the Restricted Sale Date,
but not yet sold by the Investor, the principal amount of the Debentures
converted into such Conversion Shares; provided, however, that if the Investor
effected more than one conversion during such thirty (30) day period and sold
less than all of such shares, the sold shares shall be deemed to be derived
first from the conversions in the sequence of such conversions (that is, for
example, until the number of shares from the first of such conversions have
been sold, all shares shall be deemed to be from the first conversion;
thereafter, from the second conversion until all such shares are sold). By way
of illustration and not in limitation of the foregoing, if the Registration
Statement for the Registrable Securities relating to the Debentures and
Warrants issued on the Closing Date is timely filed but is not declared
effective until one hundred fifty (150) days after the Closing Date, the
Periodic Amount will aggregate four percent (4%) of the Purchase Price of the
Initial Debentures (2% for days 90-120 and 2% for days 120-150).
(iv) Each Periodic Amount will be payable by the Company
in cash or other immediately available funds to the Investor monthly, without
requiring demand therefor by the Investor.
(v) The parties acknowledge that the damages which may
be incurred by the Investor if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the Periodic
Amounts represent a reasonable estimate on the part of the parties, as of the
date of this Agreement, of the amount of such damages, and shall be the
exclusive remedy.
<PAGE> 4
(vi) Notwithstanding the foregoing, the amounts payable
by the Company pursuant to this provision shall not be payable to the extent
any delay in the effectiveness of the Registration Statement occurs because of
an act of, or a failure to act or to act timely by the Investor or its counsel,
or in the event all of the Registrable Securities may be sold pursuant to Rule
144 or another available exemption under the Act.
(vii) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Filing Date, any relevant
Required Effective Date or a Restricted Sale Date, as the case may be, or (2)
the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation
Date or (2) the date after the previous Computation Date on which the
Registration Statement is filed (with respect to payments due as contemplated
by Section 2(b)(i) hereof) or is declared effective or has its restrictions
removed (with respect to payments due as contemplated by Section 2(b)(ii)
hereof), as the case may be.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following:
(a) Prepare promptly, and file with the SEC by the Required
Filing Date a Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a) above, and thereafter use
its reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is
four (4) years after the last day of the calendar month following the month in
which the Effective Date occurs, (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own any of the Registrable Securities, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) 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) The Company shall permit a single firm of counsel
designated by the Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not less
than three (3) business days) prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects. If such
counsel objects, the Required Filing Date shall be extended by the number of
days from the date the Registration Statement was delivered to such counsel to
the date such counsel no longer objects;
(d) Notify each Investor, such Investor's legal counsel
identified to the Company (which, until further notice, shall be deemed to be
Krieger & Prager, ATTN: Samuel Krieger, Esq.; (the "Investor's Counsel"), and
any managing underwriters immediately (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) business day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC notifies the Company whether there will be a "review" of
such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC relating to a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished
by the Company to the
<PAGE> 5
Investors); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that to the best knowledge of the Company makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. In addition, the Company shall furnish the Investors
with copies of all intended written responses to the comments contemplated in
clause (C) of this Section 3(d) not later than one (1) business day in advance
of the filing of such responses with the SEC so that the Investors shall have
the opportunity to comment thereon;
(e) Furnish to each Investor and such Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a 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;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event 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 or other appropriate
filing with the SEC to correct such untrue statement or omission, 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 thereof,
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 a Notice of Effectiveness or any notice of effectiveness or any
stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Investor receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided, however,
that the Company may not so suspend the right to such holders of Registrable
Securities for more than two twenty (20) business day periods in the aggregate
during any 12-month period ("Suspension Period") with at least a ten (10)
business day interval between such periods, during the periods the Registration
Statement is required to be in effect;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the NASDAQ/National Market System or the "OTC Bulletin Board
Market" of the National Association of Securities Dealers Automated Quotations
System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the
<PAGE> 6
"Exchange Act"), and the quotation of the Registrable Securities on The NASDAQ
National Market System; and further use its best efforts to arrange for at
least two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;
(j) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than three (3) days
after the effective date of the Registration Statement;
(k) Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts as the case
may be, as the Investors may reasonably request, and, within three (3) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor 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 ten (10) 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 such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If at least two
(2) 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;
(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; and
(c) 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(e)
or 3(f), above, 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(e) or 3(f) 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.
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses
(other than underwriting discounts and commissions of the Investor) incurred in
connection with registrations, filings or qualifications pursuant to Section 3,
but including, without limitation, all registration, listing, and
qualifications fees, printers and accounting fees, the fees and disbursements
of counsel for the Company and a fee for a single counsel for the Investors (as
a group and not individually) not exceeding $3,500 for the Registration
Statement covering the Registrable Securities applicable to the Debentures and
Warrants issued on the Closing Date shall be borne by the Company.
<PAGE> 7
(b) Except as set forth in Annex 5 of the Securities Purchase
Agreement, neither the Company nor any of its subsidiaries has, as of the date
hereof, nor shall the Company nor any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Investors in this Agreement or
otherwise conflicts with the provisions hereof. Except as set forth in Annex 5
of the Securities Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person.
Without limiting the generality of the foregoing, without the written consent
of the Investors holding a majority of the Registrable Securities, the Company
shall not grant to any person the right to request the Company to register any
securities of the Company under the Securities Act unless the rights so granted
are subject in all respects to the prior rights in full of the Investors set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement and the other Transaction Agreements.
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 (each, an "Indemnified Person" or
"Indemnified Party"), 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 the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the 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 clause (b) of this
Section 6, the Company shall reimburse the Investors, 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) shall not (I) 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 or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement 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) be available to the extent such Claim is
based on a failure of the Investor to deliver or cause to be delivered the
prospectus made available by the Company; (III) 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; or (IV) any violation or alleged violation by an Indemnified Person
of the Securities Act, the Exchange Act, any state securities laws or any rule
or regulation under the Securities Act, the Exchange Act, or any state
securities laws. Each Investor will indemnify the Company and its officers,
directors and agents (each, an "Indemnified Person" or "Indemnified Party")
against any claims 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 or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. 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.
<PAGE> 8
(b) 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 mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such Indemnified
Person or Indemnified Party of its election so to assume the defense thereof,
the indemnifying party will not be liable to such Indemnified Person or
Indemnified Party under this Section 6 for any legal or other reasonable
out-of-pocket expenses subsequently incurred by such Indemnified Person or
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The Indemnified Person or Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and reasonable out-of-pocket
expenses of such counsel shall not be at the expense of the indemnifying party
if the indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the Indemnified Person or Indemnified Party. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under
this Section 6, except to the extent that the indemnifying party is prejudiced
in its ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with 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 net amount of proceeds received by such
seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("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, the
Securities Act 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.
<PAGE> 9
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 transferee of the Registrable
Securities (or all or any portion of any unconverted Debenture or unexercised
Warrant) only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (b) the Investor
transfers or assign to such transferee or assignee Registrable Securities which
have a market value as defined in the Securities Purchase Agreement upon
conversion in excess of $1,000,000, (c) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i)
the name and address of such transferee or assignee and (ii) the securities
with respect to which such registration rights are being transferred or
assigned, (d) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted
under the Securities Act and applicable state securities laws, and (e) at or
before the time the Company received the written notice contemplated by clause
(c) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein. In the event of
any delay in filing or effectiveness of the Registration Statement as a result
of such assignment, the Company shall not be liable for any damages arising
from such delay, or the payments set forth in Section 2(c) hereof arising from
such delay.
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 Company and Investors who
hold a fifty (50%) percent interest of the Registrable Securities. 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 given in the manner contemplated by the Securities Purchase Agreement, (i)
if to the Company or to the Investor, to their respective address contemplated
by the Securities Purchase Agreement, 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).
(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 governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing of any
such proceeding in such jurisdictions. To the extent determined by such court,
the Company shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of any of
its rights under this Agreement.
(e) 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.
<PAGE> 10
(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 thereof.
(i) This Agreement may be executed in one 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.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) 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. This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
INFORMATION ARCHITECTS CORPORATION
By:
------------------------------------
Name:
Title:
KING LLC
By:
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.16
DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD,
PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
No. 99-1 US $5,000,000
INFORMATION ARCHITECTS CORP.
6% CONVERTIBLE DEBENTURE DUE JULY 30, 2004
THIS DEBENTURE is one of a duly authorized issue of up to $5,000,000
in Debentures of INFORMATION ARCHITECTS CORP., a corporation organized and
existing under the laws of the State of North Carolina (the "Company")
designated as its 6% Convertible Debentures.
FOR VALUE RECEIVED, the Company promises to pay to KING, LLC,
organized under the laws of the Cayman Islands, the registered holder hereof
(the "Holder"), the principal sum of Five Million and 00/100 Dollars (US
$5,000,000.00) on July 30, 2004 (the "Maturity Date") and to pay interest on
the principal sum outstanding from time to time in arrears (i) prior to the
Maturity Date, quarterly, on the last day of March, June, September and
December of each year, (ii) upon conversion as provided herein or (iii) on the
Maturity Date, at the rate of 6% per annum accruing from July 30, 1999, less
any interest paid, the date of initial issuance of this Debenture. Accrual of
interest shall commence on the first such business day to occur after the date
hereof and shall continue to accrue on a daily basis until payment in full of
the principal sum has been made or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration or transfer or exchange.
<PAGE> 2
2. The Company shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments, and Holder shall execute
and deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. In the event of
any proposed transfer of this Debenture, the Company may require, prior to
issuance of a new Debenture in the name of such other person, that it receive
reasonable transfer documentation including legal opinions that the issuance of
the Debenture in such other name does not and will not cause a violation of the
Act or any applicable state or foreign securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. A. The Holder of this Debenture is entitled, at its
option, subject to the following provisions of this Section 4, to convert all
or a portion of this Debenture into shares of Common Stock of the Company,
$.001 par value per share ("Common Stock") of the Company at any time until the
Maturity Date, at a conversion price for each share of Common Stock (the
"Conversion Rate") equal to the lower of (x) the Initial Market Price ( as
defined below, which amount is subject to adjustment as hereinafter provided;
the "Base Price") multiplied by one hundred twenty-five percent (125%) or (y)
the Current Market Price (as defined below) multiplied by eighty-five percent
(85%); provided that the principal amount being converted is the lower of (x)
at least US $10,000 (unless if at the time of such election to convert the
aggregate principal amount of all Debentures registered to the Holder is less
than Ten Thousand Dollars (US $10,000), then the whole amount thereof) or (y)
the maximum amount which the Holder can then convert pursuant to the terms of
Section 4(D) hereof.
B. For purposes of this Debenture, the following
terms have the meanings indicated below:
(i) "Market Price of the Common Stock" means (x) the
closing bid price of the Common Stock for the period indicated in the relevant
provision hereof (unless a different relevant period is specified in the
relevant provision), as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market or (y) if the Common Stock is listed on
a stock exchange, the closing price on such exchange, as reported in The Wall
Street Journal.
(ii) "Initial Market Price" means the average Market
Price of the Common Stock on the trading day immediately before the Closing
Date (as that term is defined in the Securities Purchase Agreement defined
below).
<PAGE> 3
(iii) "Current Market Price" means the average Market
Price of the Common Stock for the five (5) trading days (which need not be
consecutive) selected by the Holder from the twenty (20) trading days ending on
the trading day immediately before the relevant Conversion Date (as defined
below).
C. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company's transfer agent, First Union
National Bank, accompanied by or preceded by facsimile or other delivery to the
Company of the form of conversion notice attached hereto as Exhibit A, executed
by the Holder of the Debenture evidencing such Holder's intention to convert
this Debenture or a specified portion hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. Subject to the provisions of
Section 4(E) hereof, interest accrued or accruing from the date of issuance to
the date of conversion shall, at the option of the Company, be paid in cash or
Common Stock upon conversion at the Conversion Rate applicable to such
conversion. No fractional shares of Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given (the "Conversion Date") shall be deemed to be the date
on which the Holder faxes or otherwise delivers the conversion notice ("Notice
of Conversion"), substantially in the form annexed hereto as Exhibit A, duly
executed, to the Company, provided that the Holder shall deliver to the
Company's transfer agent or the Company the original Debentures being converted
within five (5) business days thereafter (and if not so delivered within such
time, the Conversion Date shall be the date on which the later of the Notice of
Conversion and the original Debentures being converted is received by the
Company). Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (704) 365-5175; ATTN: Corporate Secretary.
Except as otherwise provided, certificates representing Common Stock upon
conversion will be delivered within five (5) business days from the date of
delivery of the Notice of Conversion if the address for delivery is in the
United States or Canada and within seven (7) business days from the date of
delivery of the Notice of Conversion if the address for delivery is outside the
United States or Canada.
D. Except as otherwise provided herein or in the Transaction
Agreements (as those terms are defined in the Securities Purchase Agreement),
in no event (except (i) with respect to an automatic conversion, if any, of a
Debenture as provided in the Debentures, (ii) as specifically provided in this
Debenture as an exception to this provision, or (iii) while there is
outstanding a tender offer for any or all of the shares of the Company's Common
Stock) shall the Holder be entitled to convert any Debenture or shall the
Company have the obligation, to convert all or any portion of this Debenture
(and the Company shall not have the right to pay interest on this Debenture) to
the extent that, after such conversion, the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debentures or unexercised portion
of the Warrants), and (2) the number of shares of Common Stock issuable upon
the conversion of the Debentures or exercise of the Warrants with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 9.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Holder upon such
<PAGE> 4
conversion or exercise). For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (1) of such sentence. The Holder,
by its acceptance of this Debenture, further agrees that if the Holder
transfers or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the provisions of
this Section 4(E) as if such transferee or assignee were the original Holder
hereof.
E. Anything herein to the contrary notwithstanding, in the
event the Company breaches the provisions of Section 4(g) of the Securities
Purchase Agreement, the Conversion Rate shall be amended to be equal to (i) 90%
of (ii) the Conversion Rate determined in accordance with the other provisions
of this Debenture without regard to this Section 4(E), and the Holder may
require the Company to immediately redeem the outstanding portion of this
Debenture in accordance with Section 15 hereof.
5. Any Debentures not previously converted as of the Maturity
Date and all accrued interest thereon, shall be deemed to be automatically
converted, without further action of any kind by the Company or any of its
agents, employees or representatives, as of the Maturity Date at the Conversion
Rate applicable on the Maturity Date ("Mandatory Conversion").
6. Notwithstanding any other provision hereof to the contrary,
the Company shall have the right at any time to redeem all or any portion of
the then outstanding Debentures then held by the holder in cash for an amount
(the "Redemption Amount") equal to:
V x Y
where:
"V" means the Original Issue Price of the
relevant Debentures plus accrued and unpaid interest
through the Redemption Date (as defined below).
"Y" means 110% if the Redemption Date is less
than 60 days from issuance; 115% if the Redemption
Date is 60 to 120 days from issuance; 120% if the
Redemption Date is 121 to 180 days from issuance,
and 125% if the Redemption Date is in excess of 180
days from issuance.
The Company shall give at least ten (10) business days' written notice
of such redemption to the holder of the Debentures to be redeemed, (the "Notice
of Redemption"). Anything in the preceding provisions of this Section 5 to the
contrary, notwithstanding, the Redemption Amount shall, unless otherwise agreed
to in writing by the holder after receiving the Notice of Redemption, be paid
on the date for redemption set forth in the Notice of Redemption ("Redemption
Date"), except that, with respect to any Debentures for which a Notice of
<PAGE> 5
Redemption is given, the holder shall have the right, exercisable by submitting
a Notice of Conversion to the Company within five (5) business days of the
Holder's receipt of the Company's Notice of Redemption to convert any or all of
the Debentures sought to be redeemed (a "Redemption Notice Conversion") and the
Redemption Notice Conversion shall take precedence over the redemption
contemplated by the Notice of Redemption. Furthermore, in the event such
Redemption Amount is not timely paid, any rights of the Company to redeem
outstanding Debentures shall terminate, and the Notice of Redemption shall be
null and void. Any redemption contemplated by this Section 6 shall be made only
in cash by the payment of immediately available good funds to the Holder.
7. Subject to the terms of the Securities Purchase Agreement,
dated July 30, 1999 (the "Securities Purchase Agreement"), between the Company
and the Holder (or the Holder's predecessor in interest), no provision of this
Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company.
8. No recourse shall be had for the payment of the principal
of, or the interest on, this Debenture, or for any claim based hereon, or
otherwise in respect hereof, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
9. If the Company (a) merges or consolidates with another
corporation and the Company is not the surviving entity or (b) sells or
transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which
shall be as nearly equivalent as may be practicable. In the event of any (i)
proposed merger or consolidation where the Company is not the surviving entity
or (ii) sale or transfer of all or substantially all of the assets of the
Company (a "Sale"), the Holder hereof shall have the right to convert by
delivering a Notice of Conversion to the Company within fifteen (15) days of
receipt of notice of such Sale from the Company. In the event the Holder hereof
shall elect not to convert, the Company may prepay all outstanding principal
and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 4(A) hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
10. If, for any reason, prior to the Conversion Date, the
Company spins off or otherwise divests itself of a part of its business or
operations or disposes all of or a part of its
<PAGE> 6
assets in a transaction (the "Spin Off") in which the Company does not receive
compensation for such business, operations or assets, but causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to the
Holder had all of the Holder's Debentures outstanding on the record date (the
"Record Date") for determining the amount and number of Spin Off Securities to
be issued to security holders of the Company (the "Outstanding Debentures")
been converted as of the close of business on the trading day immediately
before the Record Date (the "Reserved Spin Off Shares"), and (ii) to be issued
to the Holder on the conversion of all or any of the Outstanding Debentures,
such amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off
Shares multiplied by (y) a fraction, of which (I) the numerator is the
principal amount of the Outstanding Debentures then being converted, and (II)
the denominator is the principal amount of the Outstanding Debentures.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of
its Common Stock or issues a dividend on its Common Stock consisting of shares
of Common Stock, the Base Price shall be equitably adjusted to reflect such
action. By way of illustration, and not in limitation, of the foregoing (i) if
the Company effectuates a 2:1 split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such split, the Base Price shall be deemed to be one-half of
what it had been calculated to be immediately prior to such split; (ii) if the
Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such reverse split, the Base Price shall be deemed to be the
amount of such Base Price calculated immediately prior to the record date
multiplied by 10; and (iii) if the Company declares a stock dividend of one
share of Common Stock for every 10 shares outstanding, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such dividend, the Base Price shall be deemed to be the amount of such Base
Price calculated immediately prior to such record date multiplied by a
fraction, of which the numerator is the number of shares (10) for which a
dividend share will be issued and the denominator is such number of shares plus
the dividend share(s) issuable or issued thereon (11).
12. All payments contemplated hereby to be made "in cash" shall
be made in immediately available good funds in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts. All payments of cash and each delivery of shares
of Common Stock issuable to the Holder as contemplated hereby shall be made to
the Holder at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder from time to time; except that
the Holder can designate, by notice to the Company, a different delivery
address for any one or more specific payments or deliveries.
13. The Holder of the Debenture, by acceptance hereof, agrees
that this Debenture is being acquired for investment and that such Holder will
not offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except in compliance with the terms of
the Securities Purchase Agreement and the Registration Rights
<PAGE> 7
Agreement and under circumstances which will not result in a violation of the
Act or any applicable state Blue Sky or foreign laws or similar laws relating
to the sale of securities.
14. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in
the City of New York in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non coveniens, to the
bringing of any such proceeding in such jurisdictions. To the extent determined
by such court, the Company shall reimburse the Holder for any reasonable legal
fees and disbursements incurred by the Holder in enforcement of or protection
of any of its rights under any of this Debenture.
15. The following shall constitute an "Event of Default":
a The Company fails in the payment of principal or
interest on this Debenture as required pursuant to
the Debenture and same shall continue for a period
of three (3) business days; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase
Agreement, the Registration Rights Agreement or in
any certificate or financial or other written
statements heretofore or hereafter furnished by the
Company in connection with the execution and
delivery of this Debenture or the Securities
Purchase Agreement shall be false or misleading in
any material respect at the time made; or
c. The Company fails to issue shares of Common Stock
to the Holder or to cause its Transfer Agent to
issue shares of Common Stock upon exercise by the
Holder of the conversion rights of the Holder in
accordance with the terms of this Debenture, fails
to transfer or to cause its Transfer Agent to
transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this
Debenture and when required by this Debenture or the
Registration Rights Agreement, and such transfer is
otherwise lawful, or fails to remove any restrictive
legend or to cause its Transfer Agent to transfer
any certificate or any shares of Common Stock issued
to the Holder upon conversion of this Debenture as
and when required by this Debenture, the Agreement
or the Registration Rights Agreement and such legend
removal is otherwise lawful, and any such failure
shall continue uncured for five (5) business days
after written notice from the Holder of such
failure; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Debenture and such failure shall continue uncured
for a period of thirty (30) days after written
notice from the Holder of such failure; or
<PAGE> 8
e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision,
condition, agreement or obligation of the Company
under the Securities Purchase Agreement or the
Registration Rights Agreement and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such; or
f. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within sixty (60) days after such
appointment; or
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
i. Any final money judgment, writ or warrant of
attachment, or similar process, not subject to
appeal, in excess of Five Hundred Thousand
($500,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its
properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of
sixty (60) days or in any event later than five (5)
days prior to the date of any proposed sale
thereunder; or
j. Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against
the Company and, if instituted against the Company,
shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action
or answer approve of, consent to, or acquiesce in
any such proceedings or admit the material
allegations of, or default in answering a petition
filed in any such proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange for in excess of five (5)
trading days and fail to initiate all steps to quote
the Common Stock on the OTC Bulletin Board.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by a majority in interest of
the Holders of the Debentures
<PAGE> 9
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of a majority in interest of the Holders and in the discretion of a
majority in interest of the Holders, the Holder may consider this Debenture
immediately due and payable, without presentment, demand, protest or notice of
any kinds, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and a
majority in interest of the Holders may immediately enforce any and all of the
Holder's rights and remedies provided herein or any other rights or remedies
afforded by law.
16. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the
Company or the Holder shall result in payment of interest which would exceed
the limit authorized by or be in violation of the law of the jurisdiction
applicable to this Debenture, ipso facto the obligation of the Company to pay
interest or perform such act or requirement shall be reduced to the limit
authorized under such law, so that in no event shall the Company be obligated
to pay any such interest, perform any such act or be bound by any requirement
which would result in the payment of interest in excess of the limit so
authorized. In the event any payment by or act of the Company shall result in
the extraction of a rate of interest in excess of a sum which is lawfully
collectible as interest, then such amount (to the extent of such excess not
returned to the Company) shall, without further agreement or notice between or
by the Company or the Holder, be deemed applied to the payment of principal, if
any, hereunder immediately upon receipt of such excess funds by the Holder,
with the same force and effect as though the Company had specifically
designated such sums to be so applied to principal and the Holder had agreed to
accept such sums as an interest-free prepayment of this Debenture. If any part
of such excess remains after the principal has been paid in full, whether by
the provisions of the preceding sentences of this Section 17 or otherwise, such
excess shall be deemed to be an interest-free loan from the Company to the
Holder, which loan shall be payable immediately upon demand by the Company. The
provisions of this Section 17 shall control every other provision of this
Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: July ___, 1999
INFORMATION ARCHITECTS CORP.
By:
----------------------------------
-------------------------------------
(Print Name)
-------------------------------------
(Title)
<PAGE> 10
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ______________
of the principal amount of the above Debenture No. ___ into Shares of Common
Stock of INFORMATION ARCHITECTS CORP. (the "Company") according to the
conditions hereof, as of the date written below.
Conversion Date*
- -----------------------------------------------------------
Applicable Conversion Price
- -----------------------------------------------------------
Signature
- -----------------------------------------------------------
[Name]
Address:
- -----------------------------------------------------------
- -----------------------------------------------------------
* This original Debenture must be received by the Company or its transfer agent
by the fifth business date following the Conversion Date.
<PAGE> 1
EXHIBIT 10.17
WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
INFORMATION ARCHITECTS CORP.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. For value received and other
consideration, the receipt of which is hereby acknowledged by INFORMATION
ARCHITECTS CORP., f/k/a ALYDAAR SOFTWARE CORP., a North Carolina corporation
(the "Company"), KING, LLC, organized under the laws of the Cayman Islands, or
registered assigns (the "Holder") is hereby granted the right to purchase at
any time until 5:00 P.M., New York City time, on July 29, 2004 (the "Expiration
Date"), Two Hundred Eighty-Seven Thousand Eight Hundred Forty-Three (287,843)
fully paid and nonassessable shares of the Company's Common Stock, no par value
per share (the "Common Stock"), at an initial exercise price per share (the
"Exercise Price") of $2.7035, subject to further adjustment as set forth
herein.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or
in part at any time and from time to time at the Exercise Price per share of
Common Stock payable hereunder, payable in cash or by certified or official
bank check, or by "cashless exercise," by means of tendering this Warrant
Certificate to the Company to receive a number of shares of Common Stock equal
in Market Value to the difference between the Market Value of the shares of
Common Stock issuable upon exercise of this Warrant and the total cash exercise
price thereof. Upon surrender of this Warrant Certificate with the annexed
Notice of Exercise Form duly executed (which Notice of Exercise Form may be
submitted either by delivery to the Company or by facsimile transmission as
provided in Section 8 hereof), together with payment of the Exercise Price for
the shares of Common Stock purchased, if applicable, the Holder shall be
entitled to receive a certificate or certificates for the shares of Common
Stock so purchased. For the purposes of this Section 2, "Market Value" shall be
an amount equal to the average closing bid price of a share of Common Stock, as
reported by Bloomberg, LP, for the five (5) trading days preceding the
Company's receipt of the Notice of Exercise Form duly executed multiplied
<PAGE> 2
by the number of shares of Common Stock to be issued upon surrender of this
Warrant Certificate.
2.2 Limitation on Exercise. Notwithstanding the
provisions of this Warrant, the Securities Purchase Agreement (as defined
below) or of the other Transaction Agreements (as defined in the Securities
Purchase Agreement), in no event (except (i) with respect to an automatic
conversion, if any, of a Debenture as provided in the Debenture or a conversion
pursuant to a Redemption Notice Conversion [as defined in the Debenture], (ii)
as specifically provided in the Debenture as an exception to this provision, or
(iii) if the Company is in default hereunder or under any of the Transaction
Agreements, and the Holder has asserted such default in writing and the
applicability of this provision to such default) shall the Holder be entitled
to exercise this Warrant or shall the Company have the obligation, to issue
shares upon such exercise of all or any portion of this Warrant to the extent
that, after such conversion, the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Debentures or unexercised portion of the
Warrants), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures or exercise of the Warrants with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 9.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Holder upon such conversion or exercise). For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), except as otherwise provided in clause (1)
of such sentence. The Holder, by its acceptance of this Warrant, further agrees
that if the Holder transfers or assigns any of the Warrants to a party who or
which would not be considered such an affiliate, such assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound by the
provisions of this Section 2.2 as if such transferee or assignee were the
original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as
shall be required for issuance upon exercise of this Warrant (the "Warrant
Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
this Warrant and are not enforceable against the Company except to the extent
set forth herein.
<PAGE> 3
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as will
cause (i) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase
price per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied by
the total purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the
purposes hereof. A rights offering to stockholders shall be deemed a stock
dividend to the extent of the bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason,
prior to the exercise of this Warrant in full, the Company spins off or
otherwise divests itself of a part of its business or operations or disposes
all or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be
issued to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to the
Holder had all of the Holder's unexercised Warrants outstanding on the
record date (the "Record Date") for determining the amount and number of
Spin Off Securities to be issued to security holders of the Company (the
"Outstanding Warrants") been exercised as of the close of business on the
trading day immediately before the Record Date (the "Reserved Spin Off
Shares"), and (ii) to be issued to the Holder on the exercise of all or any
of the Outstanding Warrants, such amount of the Reserved Spin Off Shares
equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of
which (I) the numerator is the amount of the Outstanding Warrants then
being exercised, and (II) the denominator is the amount of the Outstanding
Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying the
Exercise Price by a fraction (if, but only if, such fraction is less than
1.0), the numerator of which is the numerator of which is the Average
Market Price of the Common Stock for the five (5) trading days immediately
following the fifth trading day after the Record Date, and the denominator
of
<PAGE> 4
which is the Average Market Price of the Common Stock on the five (5)
trading days immediately following the fifth trading day after the Record
Date, and the denominator of which is the Average Market Price of the
Common Stock on the five (5) trading days immediately preceding the Record
Date; and such adjusted Exercise Price shall be deemed to be the Exercise
Price with respect to the Outstanding Warrants after the Record Date.
For the purposes of this Section 6.3, the "Average Market Price of the Common
Stock" shall mean, for the relevant period, (x) the average closing bid price
of a share of Common Stock, as reported by Bloomberg, LP or, if not so
reported, as reported on the over-the-counter market or (y) if the Common Stock
is listed on a stock exchange, the closing price on such exchange on the date
indicated in the relevant provision hereof, as reported in The Wall Street
Journal.
7. Transfer to Comply with the Securities Act; Registration
Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended, (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective
registration statement under the Act relating to such security or an opinion of
counsel satisfactory to the Company that registration is not required under the
Act. Each certificate for the Warrant, the Warrant Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a
legend on the face thereof, in form and substance satisfactory to counsel for
the Company, setting forth the restrictions on transfer contained in this
Section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares, (as so amended, the "Registration
Statement"), pursuant to the Act, by the 30th calendar day after the date the
Closing Date (as defined in the Securities Purchase Agreement) on which this
Warrant was issued to the Holder or the Holder's predecessor in interest (the
"Original Issuance Date") and to have the registration of the Warrant Shares
completed and effective by the 120th calendar day after the Closing Date. The
term "Securities Purchase Agreement" means the Securities Purchase Agreement,
dated July 30, 1999, between the Company and the Holder (or the Holder's
predecessor in interest).
8. Notices. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
(c) the third business day after mailing by next-day express courier,
with delivery costs and fees prepaid,
<PAGE> 5
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: INFORMATION ARCHITECTS CORP.
4064 Colony Road
Charlotte, North Carolina 28211
ATTN: Chief Executive Officer
Telephone No.: (704) 365-2324
Telecopier No.: (704) -
with a copy to:
Jeffrey S. Hay, Esq.
McGuire, Woods, Battle & Boothe LLP
Bank of America Corporate Center
100 North Tryon Street - Suite 2900
Charlotte, NC 28202-4011
Telephone No.: (704) 373-8999
Telecopier No.: (704) 373-8935
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant
may be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York for contracts to be
wholly performed in such state and
<PAGE> 6
without giving effect to the principles thereof regarding the conflict of laws.
Each of the parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state courts of the
State of New York sitting in the City of New York in connection with any
dispute arising under this Warrant and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. To
the extent determined by such court, the Company shall reimburse the Holder for
any reasonable legal fees and disbursements incurred by the Buyer in
enforcement of or protection of any of its rights under any of the Transaction
Agreements.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as
of the __ th day of July 1999.
INFORMATION ARCHITECTS CORP.
By:
------------------------------------
Name:
Its:
Attest:
- -------------------------------------
Name:
Title:
<PAGE> 8
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate, dated as of , 199 , to
purchase shares of the Common Stock, no par value per share, of INFORMATION
ARCHITECTS CORP. and tenders herewith payment in accordance with Section 1 of
said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:
--------------------------------------
- --------------------------------------------
[Name of Holder]
By:
-----------------------------------------
[ ] CASH: $
-----------------------
[ ] CASHLESS EXERCISE
<PAGE> 1
EXHIBIT 10.18
KING LLC
C/O CITCO TRUSTEES (CAYMAN) LIMITED COMMERCIAL CENTRE
P.O. BOX 31106 SMB
GRAND CAYMAN, CAYMAN ISLANDS
BRITISH WEST INDIES
July 30, 1999
Information Architects Corporation
4064 Colony Road
Charlotte, North Carolina 28211
Attention: President
Re: Information Architects Corporation (the "Company")
Gentlemen:
King LLC, a limited liability company organized under the
laws of the Cayman Islands (the "Purchaser") shall commit, subject to and upon
the terms and conditions hereof, to purchase from the Company, and the Company
shall sell to the Purchaser shares of Common Stock (the "Shares") for an
aggregate purchase price of $5,000,000, at a price equal to 85% of the two
lowest closing bid prices of the Common Stock (not necessarily consecutive) for
the ten (10) trading days prior to each Closing.
The commitment of the Purchaser set forth in this letter is
subject to the terms, conditions and qualifications set forth below:
1. Documentation. In order to effectuate a purchase and
sale of the Shares, prior to their issuance, the Company and the Purchaser
shall enter into the following agreements: (a) a securities purchase agreement
(the "Purchase Agreement") and (b) a registration rights agreement (the
"Registration Rights Agreement", and together with the Purchase Agreement,
collectively the "Transaction Documents"). The Purchaser shall prepare the
Transaction Documents.
2. The Closing. (i) The Company shall have the right to
deliver one or more written notices to the Purchaser (the "Financing Notice")
requiring the party to buy the Shares for an aggregate purchase price of
$5,000,000 (the "Purchase Price"), and not to exceed the amount per Financing,
equal to 15% of the sum of the weighted daily volume for the 15 trading days
prior to the delivery of the Financing Notice, as determined in accordance with
Exhibit A attached hereto. A Financing Notice may be delivered no earlier than
fifteen (15) Trading Days following the Effective Date or the prior Financing
Notice. The closing of the purchase and sale of the Securities (the "Closing")
shall take place at the offices of Krieger & Prager, Esqs., 319 Fifth Avenue,
New York, New York 10016, on or before the fifth (5th) Business Day after the
Financing Notice is received by the Purchaser or the Company, as the case may
be, or on such other date as otherwise agreed to by the parties hereto;
provided, however, that in no case shall the Closing take place unless and
until all of the conditions listed in Section 3 of this letter shall have been
satisfied by the Company or waived by the Purchasers. The date of the Closing
is hereinafter referred to as the "Closing Date." Notwithstanding anything to
the contrary contained in this letter, the Purchaser may designate an Affiliate
thereof to acquire all or any portion of the Securities.
(ii) At the Closing, the parties shall deliver or shall
cause to be delivered the following: (a) the Company shall deliver to (x) the
Purchaser or its designated Affiliate, (1) the number of Shares, registered in
the name of such Purchaser or its designated Affiliate, representing the shares
of Common Stock to be issued and sold to such Purchaser at the Closing; (2) a
legal opinion in form and substance acceptable to the Purchasers, and (3)
executed Transaction Documents and the Transfer Agent Instructions relating to
the Securities, and (y) Krieger &
<PAGE> 2
Prager, Esqs., one half of one percent (.5%) of the Purchase Price of the
Debentures as reimbursement of the legal fees and expenses incurred by the
Purchasers to prepare the Transaction Documents, which amount shall be deducted
by the Purchasers from the amount due to the Company for the Securities and
shall be paid directly to Krieger & Prager, Esqs., and (b) the Purchaser shall
deliver to the Company (1) its pro rata portion of the Purchase Price, in
United States dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose prior to the
Closing Date and (2) the executed Transaction Documents.
3. Conditions precedent to the Additional Closing.
Notwithstanding anything to the contrary contained in this letter, the
commitment of a Purchaser to purchase acquire the Securities is subject to the
satisfaction or waiver by the Purchaser of customary conditions to be contained
in the Purchase Agreement, including each of the following conditions:
a. Underlying Shares Registration Statement. A
registration statement covering the Shares (the "Registration Statement") shall
have been declared effective under the Securities Act by the Commission and
shall have remained effective at all times, not subject to any actual or
threatened stop order or subject to any actual or threatened suspension at any
time prior to the Closing Date;
b. No Suspensions of Trading in Common Stock. The trading
in the Common Stock shall not have been suspended by the Commission or on the
NASDAQ at any time since the Closing Date;
c. Listing of Common Stock. The Common Stock shall have
been at all times since the Closing Date listed for trading on the NASDAQ;
d. Closing Threshold. For the thirty (30) Trading Days
immediately preceding the Closing Date, the average daily trading volume of the
Common Stock on the NASDAQ shall be at least 50,000 shares and the average of
the Per Share Market Value for such 30 Trading Day period shall be greater than
$1;
e. Shareholder Approval. No approval of the shareholders
of the Company shall be required under the rules of the Nasdaq Stock Market or
such other exchange or trading facility or which the Common Stock is the traded
or listed for trading in Common Stock; and
4. Governing Law. This letter shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof.
5. Execution. This letter may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature page were an original thereof.
Please indicate your agreement with the foregoing by executing a
countersigned copy of this letter and returning the same to our attention.
Sincerely,
KING LLC
By:
-----------------------------
Name:
Title:
Agreed and accepted
July __, 1999
INFORMATION ARCHITECTS CORP.
By:
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.19
May 17, 1999
Marshall Capital Management, Inc.
11 Madison Avenue
New York, New York 10010
Attn: Allan D. Weine
Dear Sirs:
This letter confirms the understanding between Information Architects
Corp. (formerly Alydaar Software Corporation) ("IAC") and Marshall Capital
Management, Inc. ("Marshall") relating to (i) the amendment and waiver of
certain provisions of the Securities Purchase Agreement, dated March 5, 1999,
between IAC and Marshall (the "Securities Purchase Agreement") and (ii) the
amendment of the Warrant issued pursuant to the Securities Purchase Agreement
and currently held by Marshall (the "Warrant"). Capitalized terms used herein
and not otherwise defined shall have the respective meanings specified in the
Securities Purchase Agreement.
1. Waiver. In connection with the proposed transaction between IAC
and King LLC ("King") under the terms of which King would (i) purchase a 6%
Convertible Debenture due 2004 with a principal amount of $5,000,000 (the "King
Debenture") and (ii) agree to purchase common stock of IAC ("Common Stock")
from time to time for an aggregate purchase price of up to $5,000,000 (the
"Proposed Transactions"), Marshall hereby waives the obligations of IAC under
paragraphs 4.10 ("Capital Raising Limitations") and 4.11 ("Right of First
Offer"), respectively, of the Securities Purchase Agreement as such obligations
apply to the Proposed Transactions.
2. Amendment of Securities Purchase Agreement. Upon the purchase of
the King Debenture by King for a purchase price of $5,000,000, the Securities
Purchase Agreement shall be deemed to be amended so that paragraph 4.10
("Capital Raising Limitations") is deleted in its entirety.
3. Amendment of Warrant. The Warrant is hereby amended so that the
term "Exercise Price" (as defined in paragraph 1 of the Warrant) shall, from
and after the date hereof, be equal to $2.15625 (subject to adjustment for the
events specified in the Warrant).
4. Payment by IAC. IAC agrees, in consideration for the agreements
made by Marshall herein, to pay to Marshall the sum of twenty five thousand
dollars ($25,000), such payment to be made by wire transfer to the account
specified on Annex I hereto on the date on which King purchases the King
Debenture. In the event that such amount is not paid in full within two (2)
business days following such date, the waiver contained in paragraph 1 hereof
and the amendment to the Securities Purchase Agreement contained in paragraph 2
hereof shall have no further force or effect.
5. Remaining Terms Unaffected. Except as specifically amended
hereby, the respective terms of the Securities Purchase Agreement and the
Warrant in effect on the date hereof shall remain unaffected and in full force
and effect.
6. Further Assurances. The parties agree that they will execute
such documents and do such other things as may be required in order to
effectuate the intent of this letter.
7. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of New York (other than the conflict of
laws provisions thereof).
If the foregoing correctly sets forth the understanding between IAC
and Marshall with respect to the
<PAGE> 2
matters described herein, please sign below in the space indicated, whereupon
this letter shall constitute a binding letter between the parties.
Information Architects Corp.
By:
----------------------------------
Name:
Title:
Accepted and Agreed:
Marshall Capital Management, Inc.
By:
----------------------------------
Allan D. Weine
President
<PAGE> 1
EXHIBIT 10.20
PROMISSORY NOTE
$1,000,000.00 New Orleans, Louisiana
June 1, 1999
FOR VALUE RECEIVED, the undersigned, ALYDAAR SOFTWARE CORP., a
Delaware corporation, having an address located in North Carolina, and Robert
Gruder, a person of the full age of majority and resident of the State of North
Carolina (Alydaar Software Corp. and Robert Gruder are collectively hereinafter
referred to as the "Borrower"), hereby promises to pay to the order of Rodney
R. Schoemann, Sr., a person of the full age of majority and resident of the
State of Louisiana, having an address at 3904 Wheat Drive, Metairie, Louisiana
70002 ("the Lender"), his successors and permitted assigns as holder of this
Note or, if this Note has then been endorsed "to bearer," to the bearer of this
Note (the Lender, his said successors and permitted assigns, and any such
bearer, being hereinafter sometimes referred to collectively as "the Holder"),
at the Lender's said address or at such other place or to such other person as
may be designated in writing to the Borrower by the Lender, the principal sum
of One Million and No/100 Dollars ($1,000,000.00) (the "Loan"), together with
interest on the unpaid balance thereof at the rate hereinafter set forth.
ON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set
forth:
Section 1. Interest Rate and Payment Dates.
1.1 Initial Interest Rate and Initial Payment. Interest shall
accrue on the principal amount outstanding hereunder from time to time from and
after the date hereof at the rate of 10.0% per annum (the "Initial Interest
Rate"). Interest shall be paid in arrears and shall be computed on the basis of
a 360-day year and actual days elapsed for any whole or partial month and shall
be charged on the principal balance outstanding from time to time.
1.2 Default Interest Rate. If the Borrower fails to make any
payment of principal, interest or fees on the date on which such payment
becomes due and payable whether at maturity or by acceleration or on any other
date, such payment shall accrue interest from the date on which such payment
was due (and not the date of the payment default) until paid at eighteen
percent (18%) per annum ("the Default Rate"), but in no event shall the rate of
interest payable hereunder exceed the highest rate allowed by law.
1.3 Reimbursement for Increased Costs. If any law or guideline
or interpretation or application thereof by any governmental authority charged
with the interpretation or administration thereof or compliance with any
request or directive of any governmental authority (whether or not having the
force of law) now existing or hereafter adopted (a) subjects Holder to any tax
or changes the basis of taxation with respect to this Note or payments by
Borrower of principal, interest or other amounts due from Borrower hereunder or
thereunder (except for taxes on the overall net income or overall gross
receipts of Holder imposed as a result of a present or former connection
between the jurisdiction of the governmental authority imposing such tax on
Holder), or (b) imposes upon Holder any other condition or expense with respect
to this Note or its making, maintenance or funding of any part of the Loan
evidenced by this Note, and the result of any of the foregoing is to increase
the cost to, reduce the income receivable by, or impose any expense (including,
without limitation, loss of margin) upon Holder with respect to the Note, or
the making, maintenance or funding of any part of the Loan evidenced by this
Note, by an amount which Holder deems to be material, Holder may from time to
time notify Borrower of the amount determined in good faith (using any
averaging and attribution methods) by Holder (which determination shall be
conclusive absent manifest error) to be necessary to compensate Holder for such
increase, reduction or imposition and, if Borrower is by law prohibited from
paying any such amount, Holder may elect to declare the unpaid principal
balance hereof and all interest accrued thereon immediately due and payable.
Such amount shall be due and payable by Borrower to Holder three (3) days after
such notice is given.
<PAGE> 2
Section 2. Payments; Maturity. Anything in this Note to the
contrary notwithstanding, the entire unpaid balance of the principal amount
hereof and all interest accrued thereon (including interest accruing at the
Default Rate), shall, unless sooner paid, and except to the extent that payment
thereof is sooner accelerated, be and become due and payable on Monday, June
28, 1999 (the "Maturity Date"). In addition, as an inducement to the Holder to
make the Loan evidenced by this Note, concurrently with Borrower's receipt of
the principal amount of the Loan hereunder, Borrower shall transfer to Holder
50,000 shares of common stock of Holder. Such shares shall be made without
registration of the such common stock under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance on an exemption for transactions by
an issuer not involving a public offering and without the Holder being
furnished any prospectus setting forth all of the information that would be
required to be furnished under the Securities Act by virtue of the Holder being
an "accredited investor" (as defined in Rule 501 of Regulation D under the
Securities Act).
Section 3. Application of Payments. Payments made by Borrower on
account hereof shall be applied, first, toward any fees and charges due
hereunder, second, toward payment of any interest due at the Default Rate and,
third, toward payment of any interest due at the Initial Interest Rate set
forth in subsection 1.1 above, and fourth toward payment of principal.
Section 4. Prepayment. Prepayment of the Loan in full or in part
shall be permitted at any time during the term of the Loan without penalty.
Partial prepayments of the Loan shall not be permitted unless each such partial
prepayment is in an amount not less than Five Hundred Thousand Dollars
($500,000.00).
Section 5. Method of Payment. Any payment made hereunder shall be
paid directly to the Holder in lawful tender of the United States of America.
Each such payment shall be paid by 1:00 p.m. New Orleans, Louisiana, time on
the date such payment is due, except if such date is not a business day such
payment shall then be due on the first business day after such date, but
interest shall continue to accrue until the date payment is received. Any
payment received after 1:00 p.m. New Orleans, Louisiana, time shall be deemed
to have been received on the immediately following business day for all
purposes, including, without limitation, the accrual of interest on principal.
Section 6. Default.
6.1 Events of Default. Anything in this Note to the contrary
notwithstanding, on the occurrence of any of the following events (each of
which is hereinafter referred to as an "Event of Default"), the Holder may, in
the exercise of its sole and absolute discretion, increase the interest rate on
the Note to the Default Rate, in which event the entire outstanding principal
balance and all interest and fees accrued thereon shall immediately be and
become due and payable without further notice at the sole option of the Holder:
6.1.1 Failure to Pay or Perform. If the Borrower fails
in making any payment to the Holder of any or all sums due hereunder by the
Maturity Date.
6.1.2 Failure to Register Common Stock. In the event
that any amount owed by Borrower hereunder is outstanding as of the Demand
Registration Date or on the date on which the piggyback registration rights
granted to the Holder hereunder vest, if the Borrower fails to register the
common stock transferred to the Holder hereunder as required by Section 7
hereof.
6.2 Late Payment Penalty. Without limiting the generality of
the foregoing provisions of this Section, if payment of all amounts due and
owing under this Note are not made on the Maturity Date or upon the occurrence
of an Event of Default, the Borrower shall thereupon automatically become
obligated immediately to pay to the Holder a late payment penalty of 50,000
shares of common stock of Borrower, which shares of common stock shall be
subject to all of the provisions of Section 7 hereof, to defray the expenses
incurred by Holder in handling and processing such delinquent payment and to
compensate Holder for the loss of use of such delinquent payment, which sum
shall be due and payable immediately thereupon.
<PAGE> 3
Section 7. Additional Agreements.
7.1 Registration of Shares. Not later than the next business
day following the date which is one hundred twenty (120) days from the date
hereof, which date is Monday, September 27, 1999 (the "Demand Registration
Date"), the Borrower shall effect a non-underwritten registration under the
Securities Act of all shares of common stock transferred to the Holder
hereunder.
If, with the consent of the Holder, which consent may be
withheld for any or no reason, the Borrower intends to distribute any of the
shares of the Holder so registered pursuant to this Section pursuant to an
underwriting and the underwriter advises the Borrower in writing that marketing
factors require a limitation of shares to be underwritten, the number of shares
of the Holder to be included in such underwriting shall not be reduced, pro
rata or otherwise, unless all other securities are first entirely excluded from
the underwriting or upon receipt of the written consent of the Holder, which
further consent may be withheld for any or no reason. If despite the best
efforts of the Borrower, the total number of shares of the Holder to be
registered cannot be so included, the Borrower shall purchase from the Holder
that number of shares which was unable to be included in the underwritten
offering at the price per share received in the offering.
If the Holder shall furnish to the Borrower a certificate
signed by the Borrower's President or Chief Executive Officer providing that in
the good faith judgment of the Board of Directors of the Borrower, it would be
seriously detrimental to the Borrower and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Borrower shall have the right to
defer taking action with respect to such filing for a period not to exceed
ninety (90) days following the Demand Registration Date; provided, however, in
the event that the Borrower shall fail to have a registration statement
declared effective by the United States Securities and Exchange Commission
("SEC") by the Demand Registration Date for any reason whatsoever, including
pursuant to the terms of this paragraph, as compensation for the breach of the
terms of this Section by the Borrower, the Borrower shall immediately transfer
to the undersigned 50,000 shares of common stock. For each successive thirty
(30) day period commencing on the Demand Registration Date that the Borrower
does not have an effective registration statement filed with the SEC, the
Borrower shall transfer to the Holder an additional 50,000 shares of common
stock, all of which common stock shall have the rights afforded under Section 7
hereof. The Borrower shall not have the right to defer registration more than
once.
7.2 Piggyback Registration. So long as Holder, or any assignee
or transferee, owns any shares of common stock transferred to Holder hereunder,
the Holder shall be entitled to unlimited "piggyback" registration rights in
connection with all registrations of securities by the Borrower under the
Securities Act of 1933 or in connection with any demand registration of any
shareholder of the Borrower (except for registrations on Form S-8 or Form S-4).
The Borrower will bear all registration expenses of all piggyback registrations
by the undersigned.
7.3 Future Financing. In the event that Alydaar Software Corp.
receives any additional financing, whether from conventional financial
institution lending or through any private (i.e., (i) pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended,
(ii) not on any securities market (including any over-the-counter market) or
exchange, and (iii) not through any broker or dealer), or public sale of any
securities of the Borrowers, or if Robert Gruder sells any shares of common
stock of Alydaar Software Corp. in any public or private transaction, prior to
the payment in full of any and all amounts due under this Note, any outstanding
principal amount of the Loan and any accrued but unpaid interest, including all
interests accrued at the Initial Interest Rate and the Default Rate, if any,
shall be paid in full out of the proceeds of such financing or sale.
Section 8. Costs of Enforcement. The Borrower shall pay to the
Holder on demand by the latter the amount of any and all actual expenses
incurred by the Holder as the result of a default by the Borrower in performing
its obligations under this Note and due to enforcing its rights hereunder,
including but not limited to the expense of collecting any amount owed
hereunder, and of any and all attorneys' fees incurred by Holder in connection
with such default, whether suit be brought or not. Such expenses shall be added
to the principal amount hereof and shall accrue interest at the Default Rate.
<PAGE> 4
Section 9. Borrower's Waiver of Certain Rights. The Borrower and
any endorser, guarantor or surety hereby waives the exercise of any and all
exemption rights which it holds at law or in equity with respect to the debt
evidenced by this Note, and of any and all rights which it holds at law or in
equity to require any valuation, appraisal or marshalling, or to have or
receive any presentment, protest, demand and notice of dishonor, protest,
demand and nonpayment as a condition to the Holder's exercise of any of its
rights under this Note.
To the maximum extent permitted by Louisiana law, Borrower
confesses judgment in favor of Holder for the purpose of executory process or
any other remedies available under the Uniform Commercial Code and acknowledges
the indebtedness to Holder, up to the full amount of this Note, plus interest,
costs, expenses, attorney fees, and other fees and charges as agreed to in this
Note. Time being of the essence, Borrower further expressly waives the benefit
of approval, demand for payment, the need of putting the Borrower in default,
citation, service, all notices and delays, including: (i) the three-day notice
provided for in Article 2639 of the Louisiana Code of Civil Procedure (the
"LCCP"); (ii) the Notice of Seizure provided under Articles 2293 and 2721 of
the LCCP; (iii) the three (3) day Notice of Delay provided for in Articles 2331
and 2722 of the LCCP; and (iv) all other benefits provided under Articles 2331,
2722, 2723, 2332, 2336, 2723, and 2724 of the LCCP.
Section 10. Extensions. The Maturity Date and/or any other date by
which any payment is required to be made hereunder may be extended by the
Holder from time to time in the exercise of its sole discretion, without in any
way altering or impairing the Borrower's liability hereunder.
Section 11. General.
11.1 Applicable Law. This Note shall be given effect and
construed by application of the laws of the State of Louisiana (without regard
to the principles thereof governing conflicts of laws), and any action or
proceeding arising hereunder, and each of Holder and Borrower submits (and
waives all rights to object) to non-exclusive personal jurisdiction in the
State of Louisiana, for the enforcement of any and all obligations under this
Note except that if any such action or proceeding arises under the
Constitution, laws or treaties of the United States of America, or if there is
a diversity of citizenship between the parties thereto, so that it is to be
brought in a United States District Court, it shall be brought in the United
States District Court for the Eastern District of Louisiana or any successor
federal court having original jurisdiction.
11.2 Headings. The headings of the Sections, subsections,
paragraphs and subparagraphs hereof are provided herein for and only for
convenience of reference, and shall not be considered in construing their
contents.
11.3 Construction. As used herein, (a) the term "person" means a
natural person, a trustee, a corporation, a limited liability company, a
partnership and any other form of legal entity, and (b) all references made (i)
in the neuter, masculine or feminine gender shall be deemed to have been made
in all such genders, (ii) in the singular or plural number shall be deemed to
have been made, respectively, in the plural or singular number as well, and
(iii) to any Section, subsection, paragraph or subparagraph shall, unless
therein expressly indicated to the contrary, be deemed to have been made to
such Section, subsection, paragraph or subparagraph of this Note.
11.4 Severability. No determination by any court, governmental
body or otherwise that any provision of this Note or any amendment hereof is
invalid or unenforceable in any instance shall affect the validity or
enforceability of (a) any other such provision, or (b) such provision in any
circumstance not controlled by such determination. Each such provision shall be
valid and enforceable to the fullest extent allowed by, and shall be construed
wherever possible as being consistent with, applicable law.
11.5 No Waiver. The Holder shall not be deemed to have waived the
exercise of any right which it holds hereunder unless such waiver is made
expressly and in writing. No delay or omission by the Holder in exercising any
such right (and no allowance by the Holder to the Borrower of an opportunity to
cure a default in performing its obligations hereunder) shall be deemed a
waiver of its future exercise. No such waiver made as to any instance involving
the exercise of any such right shall be deemed a waiver as to any other such
instance, or any
<PAGE> 5
other such right. Further, acceptance by Holder of all or any portion of any
sum payable under, or partial performance of any covenant of, this Note,
whether before, on, or after the due date of such payment or performance, shall
not be a waiver of Holder's right either to require prompt and full payment and
performance when due of all other sums payable or obligations due thereunder or
hereunder or to exercise any of Holder's rights and remedies hereunder or
thereunder.
11.6 Waiver of Jury Trial; Service of Process; Court Costs. EACH
OF BORROWER AND LENDER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY
JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND ACTION OR CAUSE OF ACTION (A)
ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS NOTE AND/OR ANY OF THE OTHER
LOAN DOCUMENTS OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR
INCIDENTAL TO ANY DEALINGS OF LENDER AND/OR BORROWER WITH RESPECT TO THE LOAN
DOCUMENTS OR IN CONNECTION WITH THIS NOTE OR THE EXERCISE OF EITHER PARTIES'
RIGHTS AND REMEDIES UNDER THIS NOTE OR OTHERWISE, OR THE CONDUCT OR THE
RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE. BORROWER AGREES THAT LENDER MAY FILE A COPY OF THIS AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED
AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY AS AN
INDUCEMENT OF LENDER TO MAKE THE LOAN, AND THAT TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED
HEREIN) BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY
AND VOLUNTARILY MADE BY THE BORROWER, UPON CONSULTATION WITH COUNSEL OF
BORROWER'S CHOICE, AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
11.7 Non-Exclusivity of Rights and Remedies. None of the rights
and remedies herein conferred upon or reserved to Holder is intended to be
exclusive of any other right or remedy contained herein and each and every such
right and remedy shall be cumulative and concurrent, and may be enforced
separately, successively or together, and may be exercised from time to time as
often as may be deemed necessary or desirable by Holder.
11.8 Joint, Several and In Solido Liability. If Borrower
consists of more than one person and/or entity, each such person and/or entity
agrees that its liability hereunder is joint, several and in solido.
11.9 Business Purpose. Borrower represents and warrants that the
Loan evidenced by this Note is being obtained solely for the purpose of
acquiring or carrying on a business, professional or commercial activity and is
not for personal, agricultural, family or household purposes.
11.10 Interest Limitation. Notwithstanding anything to the
contrary contained herein, the effective rate of interest on the obligation
evidenced by this Note shall not exceed the lawful maximum rate of interest
permitted to be paid. Without limiting the generality of the foregoing, in the
event that the interest charged hereunder results in an effective rate of
interest higher than that lawfully permitted to be paid, then such charges
shall be reduced by the sum sufficient to result in an effective rate of
interest permitted and any amount which would exceed the highest lawful rate
already received and held by the Holder shall be applied to a reduction of
principal and not to the payment of interest. Borrower agrees that for the
purpose of determining highest rate permitted by law, any non-principal payment
(including, without limitation, Late Fees and other fees) shall be deemed, to
the extent permitted by law, to be an expense, fee or premium rather than
interest.
<PAGE> 6
11.11 Modification. This Note may be modified, amended,
discharged or waived only by an agreement in writing signed by the party
against whom enforcement of such modification, amendment, discharge or waiver
is sought.
11.12 Time of the Essence. Time is strictly of the essence of
this Note.
11.13 Negotiable Instrument. The Borrower agrees that this Note
shall be deemed a negotiable instrument, even though this Note may not
otherwise qualify, under applicable law, absent this paragraph, as a negotiable
instrument.
11.14 Interest Rate After Judgment. If judgment is entered
against the Borrower on this Note, the amount of the judgment entered (which
may include principal, interest, fees, Late Fees and costs) shall bear interest
at the Default Rate, to be determined on the date of the entry of the judgment.
11.15 Relationship. Borrower and Holder intend that the
relationship between them shall be solely that of creditor and debtor. Nothing
contained in this Note shall be deemed or construed to create a partnership,
tenancy-in-common, joint tenancy, joint venture or co-ownership by or between
Borrower and Holder.
[THE IMMEDIATELY FOLLOWING PAGE CONTAINS THE SIGNATURES OF THE BORROWER]
<PAGE> 7
IN WITNESS WHEREOF, the Borrower has executed and sealed this Note or
caused it to be executed and sealed on its behalf by its duly authorized
representatives, the day and year first above written, and the obligations
under this Note shall be binding upon Borrower's successors and assigns.
WITNESSES: BORROWER:
ALYDAAR SOFTWARE CORP.,
- --------------------------------- a _________ corporation
- ---------------------------------
BY:
------------------------------------
Robert Gruder
President
- --------------------------------- ----------------------------------------
ROBERT GRUDER,
Individually
- ---------------------------------
<PAGE> 1
EXHIBIT 11
INFORMATION ARCHITECTS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED: SIX MONTHS ENDED
--------------------------------- ---------------------------------
6/30/99 6/30/98 6/30/99 6/30/98
- -------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income (loss) $ (3,850,435) $ 2,846,382 $ (7,003,057) $ 4,545,700
- -------------------------------------------- ------------ ------------ ------------ ------------
Average # shares outstanding 17,779,561 17,410,150 17,657,554 17,406,082
- -------------------------------------------- ------------ ------------ ------------ ------------
Diluted Average # shares outstanding 17,779,561 17,682,441 17,657,554 17,668,374
- -------------------------------------------- ------------ ------------ ------------ ------------
Basic Earnings (loss) per share $ (0.22) $ 0.16 $ (0.40) $ 0.26
- -------------------------------------------- ------------ ------------ ------------ ------------
Diluted Earnings per share $ (0.22) $ 0.16 $ (0.40) $ 0.26
- -------------------------------------------- ------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1999 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN OUR FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,103
<SECURITIES> 0
<RECEIVABLES> 3,825
<ALLOWANCES> 368
<INVENTORY> 0
<CURRENT-ASSETS> 10,739
<PP&E> 5,856
<DEPRECIATION> 2,204
<TOTAL-ASSETS> 23,264
<CURRENT-LIABILITIES> 8,191
<BONDS> 62
0
0
<COMMON> 19
<OTHER-SE> 14,992
<TOTAL-LIABILITY-AND-EQUITY> 23,264
<SALES> 10,741
<TOTAL-REVENUES> 10,741
<CGS> 0
<TOTAL-COSTS> 12,037
<OTHER-EXPENSES> 2,127
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> (7,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,003)
<EPS-BASIC> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
<PAGE> 1
INFORMATION ARCHITECTS OBTAINS FUNDING FOR INTERNET BUSINESS-TO-BUSINESS
OFFERING
August 4, 1999
Information Architects Corporation (NASDAQ:IARC), a provider of Web-based
digital content and information management solutions, today announced that it
has completed a private placement of $5 million in original principal amount of
convertible debentures with a single investor. The debentures accrue interest at
the rate of 6% per annum and are convertible at a discount to the market. In
addition to the issuance of the debentures, Information Architects has issued
warrants to the investor to purchase shares of common stock. The proceeds from
the sale of the debentures will be used for internal working capital purposes,
including the start-up costs of the new business-to-business Internet offering,
Metaphoria, and to reduce certain short term debts. Details of the financing
will be covered in the Company's 3rd Quarter, 1999 Form 10-Q filing.
"We are extremely pleased with the financing. Companies that see the potential
of the Internet to capture the competitive advantage for the coming decade know
that quick entry with business-to-business access is the key." stated Robert F.
Gruder, Chairman and Chief Executive Officer of Information Architects
Corporation (iA). "This funding will assist us with our continued roll out of
our recently patented, Metaphoria, Internet technology." Mr. Gruder stated, "The
'any data - anywhere' concept available with Metaphoria is a means to provide
iA's clients the most state of the art content and supply chain management
software available."
iA and the investor have also entered into a letter to meet iA's possible future
capital needs. Under the terms of the letter, the parties contemplate
establishing a $5 million equity line, subject to certain conditions as well as
mutually agreed to documentation. The equity line would be structured so that iA
could draw down funds, from time to time as needed, by selling shares of its
common stock at a discount to the then current market price.
About iA
iA provides business-to-business Web based solutions that, regardless of
platform, enable real-time access and updates of information from any source
platform or system using a standard Internet Web Browser. The Company's flagship
offering, the Metaphoria Virtual Web Server, is a patented, open JAVA-based
Internet technology that can take any type of digital information, regardless of
whether it resides in a document, presentation, file, database, or application,
and independent of its source platform, and make it available to be divorced,
combined, viewed, and updated from a standard Internet browser. This technology
is intended to allow customers to make immediate business and purchasing
decisions, broaden business opportunities, improve information exchange and
collaborate among co-workers, customers, suppliers and partners. Additionally,
since the Metaphoria Virtual Web Server can access data regardless of its
location, it enables data to be combined from multiple internal and external
locations including host servers, Internets, Extranets, and others. More
information about iA and its services can be found on the World Wide Web at
http://www.ia.com.
Forward Looking Statements
The foregoing statements made in this press release that are not historical
facts contain "forward-looking information" within the meaning of the Private
Securities Litigation Reform Act of 1995, and Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934, both as
amended, which can be identified by the use of forward-looking terminology such
as "may", "will", "anticipates", "expects", "projects", "estimates", "believes"
or "continue", the negative thereof, other variations or comparable terminology.
Important factors, including certain risks and uncertainties with respect to
such forward-looking statements that could cause actual results to differ
materially from those reflected in such forward looking statements include, but
are not limited to, the impact of competitive products and services, our ability
to manage growth and acquisitions of technology or people, diversification of
our business, the effect of economic and business conditions, including risks
inherent in international operations, the ability to attract and retain
technical personnel and other risks detailed from time to time in our filed SEC
documents. We assume no obligation to update the information in this release.
