SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: January 25, 1999
INTERACTIVE MAGIC, INC.
(Exact name of registrant as specified in charter)
NORTH CAROLINA
(State of other jurisdiction of incorporation)
0-29750 56-2092059
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(Commission File Number) (IRS Employer Identification No.)
215 Southport Drive, Suite 1000, Morrisville, NC 27560
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (919) 461-0722
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Item 2. Acquisition or Disposition of Assets.
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On January 25, 1999, the Company entered into an agreement (the
"MPG-Net Agreement") to acquire, pursuant to a merger transaction, MPG-Net, Inc.
("MPGN"). In consideration for the merger and certain related obligations of
MPGN, the Company issued 750,000 shares of the Company's common stock, par value
$.10 per share ("Common Stock"), which shares have been deposited into escrow
pending the consummation of the merger and final determination of the merger
consideration. The maximum merger consideration will be $4,000,000. In the event
that at closing, the fair market value of the Common Stock deposited into escrow
exceeds $4,000,000, the number of shares delivered upon consummation of the
merger will be reduced accordingly. Upon the closing of the proposed
transaction, the stockholders of MPGN will receive demand and piggyback
registration rights. The consummation of the merger is subject to customary
closing conditions.
MPGN develops, publishes and distributes interactive, real-time
entertainment for multi-user online play, as well as creates interactive
entertainment platforms on the Internet, such as online game channels, game hubs
and websites.
Item 5. Other Events
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On January 26, 1999 the Company sold a $4 million convertible note due
January 25, 2002 in a private placement to RGC International Investors, LDC (the
"Purchaser") pursuant to a Securities Purchase Agreement dated as of January 25,
1999 by and between the Company and the Purchaser. The Note bears interest at
six percent (6%) per annum, subject to increase in certain circumstances. The
Note is convertible into shares of the Company's Common Stock at a conversion
price (the "Conversion Price") initially equal to the lower of (i) $4.815 (the
"Fixed Conversion Price") and (ii) 93% of the market price at the time of
conversion. The Fixed Conversion Price equals 120% of the average closing bid
prices of the Common Stock for the five trading days immediately preceding
January 25, 1999. The market price at the time of conversion will be determined
by averaging the lowest closing bid prices on any two trading days during the
22-day trading period immediately prior to the conversion date. The Conversion
Price is subject to reduction in certain circumstances, including (i) if the
Common Stock trading volume does not exceed specified amounts and (ii)
commencing on June 26, 1999 and every 60 days thereafter (in this case up to a
maximum reduction of sixteen percentage points). In certain circumstances upon
conversion of the Note, the holder is entitled to warrants to purchase a number
of shares of Common Stock equal to 50% of the shares issued upon conversion of
the Note, exercisable at the then Conversion Price. The Conversion Price is also
subject to adjustment in other circumstances.
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Unless stockholder approval is obtained and other specified conditions
are met, the total number of shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Note (the "Conversion Shares") and upon exercise of
or otherwise pursuant to the warrants (the "Warrant Shares") shall not exceed
2,119,889, which represents 19.99% of the 10,604,748 shares of outstanding
Common Stock as of the date the Note was issued (including the 750,000 shares of
common stock issued and held in escrow in connection with the MPG-Net
Agreement). Stockholders of the Company beneficially owning an aggregate of
5,396,266 shares of Common Stock (including shares issuable upon exercise of
options and shares as to which such stockholders have the right to vote) agreed
to vote their shares in favor of stockholder approval if the Company is required
to obtain such approval.
The net proceeds of the financing were approximately $3,670,000, net
of a placement agent commission and expenses of the financing. The Company
agreed to grant the placement agent warrants to purchase 200,000 shares of
Common Stock at an exercise price equal to 110% of market price determined at
the date of issuance. The Company intends to use the net proceeds of the private
placement for working capital and business development activities including for
potential acquisitions. Although the Company from time to time evaluates and
engages in discussions with respect to potential acquisitions, with the
exception of the MPG-Net Agreement, the Company has no agreements or commitments
with respect to any particular acquisition.
The Company granted the Purchaser demand and piggyback registration
rights relating to the resale of the Conversion Shares and the Warrant Shares.
The holder of the Note has the right to require the Company to redeem the Note
at a specified value under certain conditions including if the Company (i) fails
to have a registration statement relating to the resale of the Conversion Shares
and the Warrant Shares declared effective by the Securities and Exchange
Commission by June 25, 1999; (ii) declares bankruptcy or makes an assignment for
the benefit of creditors; (iii) sells all or substantially all of its assets or
merges into another corporation, except under certain conditions; (iv) fails to
maintain a listing of its Common Stock on the Nasdaq National Market; or (v)
breaches in any material respect certain covenants.
In the event the Notes were redeemed, the Company's liquidity would be
materially adversely affected. In the event the market price of the Common Stock
declines, the issuance of Conversion Shares and/or Warrant Shares will be
increasingly dilutive to the other stockholders of the Company.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Financial Statements of the Businesses Acquired
To be filed by amendment within the time period specified by
Item 7 of Form 8-K.
(b) Pro Forma Financial Information
To be filed by amendment within the time period specified by
Item 7 of Form 8-K.
(c) Exhibits
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10.27 Agreement and Plan of Merger by and among the
Company, i Magic Online Corporation, MPG-Net, Inc.
Multiplayer Games Network, Inc and Tantalus, Inc.,
James Hettinger and Donn A. Clendenon dated as of
January 25, 1999
10.28 Securities Purchase Agreement dated as of January 25,
1999 between the Company and RGC International
Investors LDC ("RGC")
10.29 Promissory Note dated January 26, 1999 issued by the
Company to RGC ("Note")
10.30 Registration Rights Agreement dated as of January 25,
1999 between the Company and RGC
10.31 Form of Warrant issuable by the Company pursuant to
the Note
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERACTIVE MAGIC INC.
By: /s/ Michael Oliver
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Michael Oliver
Chief Financial Officer
Dated: January 29 , 1999
AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 25, 1999
BY AND AMONG
INTERACTIVE MAGIC, INC.,
IMAGICONLINE CORPORATION,
MPG-NET, INC.,
MULTIPLAYER GAMES NETWORK, INC.,
TANTALUS, INC.,
DONN A. CLENDENON
AND
JAMES HETTINGER
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TABLE OF CONTENTS PAGE
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1. CERTAIN DEFINITIONS.........................................................................................1
1.1 Defined Terms......................................................................................1
1.2 References to Dollars..............................................................................6
2. THE MERGER..................................................................................................6
2.1 The Merger.........................................................................................6
2.2 Consummation of the Merger and Effective Time......................................................6
2.3 Conversion or Cancellation of Shares...............................................................6
2.4 Merger Consideration...............................................................................7
2.5 Certificate of Incorporation and By-Laws...........................................................7
2.6 Directors and Officers.............................................................................7
3. THE CLOSING.................................................................................................7
3.1 Closing............................................................................................7
3.2 Issuance of Purchaser Common Stock.................................................................8
3.3 Pooling of Interests...............................................................................8
3.4 Withholding into Escrow............................................................................8
3.5 Registration Rights; and Resale Restrictions.......................................................8
4. REPRESENTATIONS AND WARRANTIES OF MPGN, HETTINGER, THE STOCKHOLDERS AND CLENDENON...........................9
4.1 Organization and Good Standing.....................................................................9
4.2 Capitalization of MPGN; Title to the MPGN Shares...................................................9
4.3 Authority Relative to Agreement....................................................................9
4.4 Absence of Conflict...............................................................................10
4.5 Consents and Approvals; Effect of Change in Control...............................................10
4.6 Financial Statements..............................................................................10
4.7 Title to Property; Sufficiency; Encumbrances......................................................11
4.8 Leased Property...................................................................................12
4.9 Intellectual Property Rights......................................................................12
4.10 Plant and Equipment...............................................................................12
4.11 Litigation........................................................................................12
4.12 Tax Matters.......................................................................................13
4.13 Absence of Certain Changes or Events..............................................................15
4.14 Employee Benefits; Executive Officers; Labor......................................................16
4.15 Insurance; Claims.................................................................................17
4.16 Contracts and Commitments.........................................................................17
4.17 Status of Agreements..............................................................................19
4.18 Compliance with Law...............................................................................19
4.19 Transactions with Related Parties.................................................................20
4.20 Bank Accounts.....................................................................................20
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4.21 Absence of Certain Business Practices.............................................................20
4.22 No Guaranties.....................................................................................20
4.23 Records...........................................................................................20
4.24 No Brokers or Finders.............................................................................20
4.25 Year 2000 Compliance..............................................................................21
4.26 Investment Representations........................................................................21
4.27 Hettinger Representations.........................................................................22
4.28. Clendenon Representations.........................................................................22
4.29 Disclosure........................................................................................23
4.30 Knowledge Defined.................................................................................23
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER................................................................23
5.1 Organization and Good Standing....................................................................23
5.2 Capitalization of Purchaser.......................................................................24
5.3 Authority Relative to Agreement; Compliance with Other Instruments; Absence of Conflict...........24
5.4 Effect of Agreement...............................................................................24
5.5 Consents and Approvals of Governmental Authorities................................................25
5.6 No Brokers or Finders.............................................................................25
5.7 SEC Documents: I-Magic Financial Statements......................................................25
6. CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND I-MAGIC.....................................................25
6.1 Legal Opinion.....................................................................................25
6.2 No Injunction.....................................................................................26
6.3 Representations, Warranties and Agreements........................................................26
6.4 Litigation........................................................................................26
6.5 Approvals.........................................................................................26
6.6 No Material Adverse Effect........................................................................26
6.7 Completion of Due Diligence.......................................................................26
6.8 Payment of Transaction Expenses...................................................................26
6.9 Resignations......................................................................................27
6.10 Registration Rights Agreement.....................................................................27
6.11 Indebtedness Agreements...........................................................................27
6.12 Proceedings Satisfactory..........................................................................27
6.13 Stockholder Approval..............................................................................27
6.14 Cancellation of Indebtedness......................................................................27
6.15 Escrow Agreement..................................................................................27
6.16 Pooling Letter....................................................................................27
6.17 Opinion of Accountants............................................................................28
6.18 Secretary of State Certificates...................................................................28
6.19 Secretary's Certificate of the Company............................................................28
6.20 Lease.............................................................................................28
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7. CONDITIONS TO THE OBLIGATIONS OF MPGN AND STOCKHOLDER......................................................28
7.1 No Injunction.....................................................................................28
7.2 Representations, Warranties and Agreements........................................................28
7.3 Litigation........................................................................................29
7.4 Approvals.........................................................................................29
7.5 Registration Rights Agreement.....................................................................29
7.6 Legal Opinion.....................................................................................29
8. FURTHER AGREEMENTS OF THE PARTIES..........................................................................29
8.1 Expenses..........................................................................................29
8.2 Access Prior to the Closing.......................................................................29
8.3 Publicity.........................................................................................30
8.4 Non-Competition; Confidentiality..................................................................30
8.5 Conduct of Business of MPGN.......................................................................32
8.6 Further Assurances................................................................................34
8.7 Tax Matters.......................................................................................34
8.8 Exclusivity.......................................................................................36
8.9 Retrieval of Confidential Information.............................................................36
8.10 Pooling of Interests..............................................................................36
8.11 Amending Schedules................................................................................36
8.12 Consents: Regulatory Approval....................................................................37
9. INDEMNIFICATION AND RELATED MATTERS
9.1 Indemnification by MPGN, Hettinger and the Stockholders...........................................37
9.2 Indemnification by Purchaser......................................................................37
9.3 Survival..........................................................................................37
9.4 Time Limitations..................................................................................38
9.5 Limitations as to Amount -- Stockholders..........................................................38
9.6 Procedure for Indemnificatio......................................................................38
10. TERMINATION................................................................................................39
10.1 Termination Procedures............................................................................39
10.2 Effect of Termination.............................................................................39
11. MISCELLANEOUS.............................................................................................39
11.1 Entire Agreement.................................................................................39
11.2 Governing Law....................................................................................40
11.3 Headings.........................................................................................40
11.4 Notices..........................................................................................40
11.5 Binding Effect; Assignment.......................................................................41
11.6 Counterparts.....................................................................................41
11.7 Amendment and Waiver.............................................................................41
11.8 Dispute Resolution...............................................................................41
11.9 Attorneys' Fees..................................................................................42
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SCHEDULES
Schedule 2.6
Schedule 4.1
Schedule 4.2
Schedule 4.5
Schedule 4.6
Schedule 4.7
Schedule 4.7(b)
Schedule 4.7(c)
Schedule 4.8
Schedule 4.9
Schedule 4.12(a)
Schedule 4.12(b)
Schedule 4.12(c)
Schedule 4.12(d)
Schedule 4.12(e)
Schedule 4.12(g)
Schedule 4.14
Schedule 4.15
Schedule 4.16
Schedule 4.17
Schedule 4.18(a)
Schedule 4.18(b)
Schedule 4.18(c)
Schedule 4.19
Schedule 4.20
Schedule 4.24
Schedule 5.1
Schedule 5.5
Schedule 6.9
EXHIBITS
Exhibit A Plan of Merger
Exhibit B Escrow Agreement
Exhibit C Registration Rights Agreement
Exhibit 6.1 Legal Opinion of Counsel to MPGN, Hettinger and the
Stockholders
Exhibit 7.6 Legal Opinion of Counsel to Purchaser
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of January 25, 1999, by
and among Interactive Magic, Inc., a North Carolina corporation ("Purchaser"),
iMagic Online Corporation, a North Carolina corporation and a wholly-owned
subsidiary of Purchaser ("I-Magic"), MPG-Net, Inc., a Delaware corporation
("MPGN"), Multiplayer Games Network, Inc. and Tantalus, Inc., the stockholders
of MPGN (the "Stockholders"), James Hettinger, the sole stockholder of each of
the Stockholders ("Hettinger"), and Donn A. Clendenon ("Clendenon").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of each of Purchaser, I-Magic
and MPGN has determined that it is in the best interests of each such company
and its respective stockholders for MPGN to merge with and into I-Magic upon the
terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of I-Magic has adopted
resolutions approving this Agreement pursuant to Article 11 of the North
Carolina Business Corporation Act, as amended (the "NCBCA");
WHEREAS, the Board of Directors of MPGN has adopted a
resolution approving this Agreement pursuant to Section 252 of the Delaware
General Corporation Law (the "DGCL");
WHEREAS, the Stockholders and Clendenon have adopted this
Agreement in accordance with Section 252 of the DGCL;
WHEREAS, the Parties hereto intend that the merger
contemplated herein shall qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Parties hereto intend for the merger contemplated
herein to constitute a "pooling of interests" for Purchaser's accounting
purposes;
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, the Parties hereto do hereby agree as follows:
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1. CERTAIN DEFINITIONS.
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified or referred to below (terms defined in
the singular to have the correlative meaning in the plural and vice versa):
"AFFILIATE" of any Person shall mean any entity which,
directly or indirectly, controls or is controlled by that Person, or is under
common control with that Person. For the purposes of this definition, "control"
(including, with correlative meaning, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
"APPROVALS" shall have the meaning set forth in SECTION 4.5.
"BUSINESS DAY" shall mean any day that is not a Saturday or a
Sunday or a day on which banks located in New York City are authorized or
required to be closed.
"CLOSING" shall have the meaning set forth in SECTION 3.1.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMPETING ENTERPRISE" shall mean any person, corporation,
firm or entity engaged in the same or a competitive business as MPGN, Purchaser
or any of its Affiliates, as conducted as of the date of this Agreement or
during any period of employment of Hettinger with Purchaser or any of its
Affiliates, including, without limitation, any activities related to online
gaming.
"CONTEMPLATED TRANSACTIONS" shall mean the merger of MPGN with
and into I-Magic and the execution, delivery and performance of and compliance
with this Agreement and all other agreements to be executed and delivered
pursuant to this Agreement.
"CONTRACT" shall have the meaning set forth in SECTION 4.16.
"DAMAGES" shall have the meaning set forth in SECTION 9.1.
"DGCL" shall have the meaning set forth in the third recital
to the Agreement.
"EFFECTIVE TIME" shall mean the date and time of consummation
of the Merger, as evidenced by the filing of articles of merger with the
Secretary of State of the State of North Carolina and a certificate of merger
with the Secretary of State of the State of Delaware, whichever is later.
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"ENCUMBRANCE" shall mean any security interest, mortgage,
lien, charge, license, easement, right-of-way, cloud on title, adverse claim or
restriction of any kind, including, but not limited to, any restriction on the
use, voting, transfer, receipt of income or other exercise of any attributes of
ownership.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and
foreign laws and regulations in effect as of the Effective Time relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, ground water, wetland, land surface and subsurface
strata), including, without limitation, laws and regulations relating to the
importation, manufacture, processing, formulation, testing, distribution, use,
treatment, storage, disposal, transport, handling or release of any "hazardous
waste" (as defined in the Resource Conservation and Recovery Act of 1976, as
amended, and regulations promulgated thereunder), "hazardous substance" or
"pollutant or contaminant" (as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and regulations
promulgated thereunder), radioactive materials, genetically modified organisms,
asbestos, and petroleum, its derivatives, by-products and other
petroleum-related hydrocarbons.
"ESCROW AGREEMENT" shall have the meaning set forth in SECTION
3.4.
"FAIR MARKET VALUE" shall mean the average of the last sales
price, regular way, for a share of Purchaser Common Stock on the Nasdaq National
Market for the five consecutive trading days ending on the Business Day
immediately preceding the date for calculation.
"FINANCIAL STATEMENTS" shall have the meaning set forth in
SECTION 4.6.
"GAAP" shall mean generally accepted accounting principles in
the United States.
"GOVERNMENTAL BODY" shall mean any domestic or foreign
national, state, multi-state or municipal or other local government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
or private body exercising any regulatory or taxing authority thereunder.
"HAZARDOUS MATERIALS" shall mean any substance which as of the
date of this Agreement shall be identified as "hazardous" or "toxic" or
otherwise regulated under the Comprehensive Environmental Response, Compensation
and Liability Act or Resource Conservation and Recovery Act of 1976, as amended
or which has been determined by any agency or court to be a hazardous or toxic
substance under Environmental Laws. The term "Hazardous Material" shall also
include, with limitation, raw materials, building components, the products of
any manufacturing or other activities on the properties, wastes, petroleum, and
source, special nuclear or by-product material as defined by the Atomic Energy
Act of 1954, as amended.
"INDEBTEDNESS" shall mean any and all obligations of MPGN to
Bill Hettinger, in the amount of $1,200,000.
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"INTELLECTUAL PROPERTY" shall mean any and all United States
and foreign: (a) patents (including, without limitation, design patents,
industrial designs and utility models) and patent applications (including
certificates of invention, applications for certificates of invention, docketed
patent disclosures awaiting filing, reissues, renewals, divisions,
continuations, continuations-in-part, extensions and supplementary protection
certificates or the like), patent disclosures awaiting filing determination,
inventions and improvements thereto; (b) trademarks, service marks, trade names,
trade dress, logos, business and product names, slogans, and registrations and
applications for registration thereof; (c) copyrights and registrations thereof;
and (d) inventions, processes, designs, formulae, computer programs and
databases, trade secrets, know-how, industrial models, confidential and
technical information, manufacturing, engineering and technical drawings,
product specifications and confidential business information.
"LAW" shall have the meaning set forth in SECTION 4.18.
"LEASES" shall have the meaning set forth in SECTION 4.8
"MATERIAL ADVERSE EFFECT" shall mean any act, occurrence,
fact, event, omission or circumstance which in the reasonable judgment of an
experienced, prudent business person would (a) reduce the value of the business
of MPGN, or (b) result in a decision not to consummate the Contemplated
Transactions on the terms and conditions set forth in this Agreement.
"MERGER" shall mean the merger of MPGN with and into I-Magic,
as contemplated by ARTICLE 2 of this Agreement.
"MERGER CONSIDERATION" shall have the meaning set forth in
SECTION 2.4.
"MPGN SHARES" shall have the meaning set forth in SECTION
2.3.1.
"NORTH CAROLINA BUSINESS CORPORATION ACT" shall have the
meaning set forth in the second recital to this Agreement.
"PARTY" shall mean any of Purchaser, I-Magic, MPGN, the
Stockholders, Hettinger and Clendenon.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in
SECTION 4.7.
"PERSON" shall mean any individual, corporation, limited
liability company, partnership, joint venture, trust, association,
unincorporated organization, other entity or Governmental Body.
"PLANS" shall have the meaning set forth in SECTION 4.14.
"PURCHASE PRICE" shall have the meaing set forth in SECTION
2.4.
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"PURCHASER COMMON STOCK" shall mean the Common Stock, $.10 par
value per share, of Purchaser.
"PURCHASER DOCUMENTS" shall have the meaning set forth in
SECTION 5.3.
"RECENT BALANCE SHEET" shall have the meaning set forth in
SECTION 4.6.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement entered into on the date of this Agreement by and among
Purchaser, the Stockholders and Clendenon, a copy of which is attached hereto as
EXHIBIT C.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder by the Securities
and Exchange Commission.
"STOCKHOLDERS DOCUMENTS" shall have the meaning set forth in
SECTION 4.3.
"STOCKHOLDER REPRESENTATIVE" shall mean Hettinger, in his
capacity as representative of the Stockholders for the receipt or giving of
notices and the giving of consents, waivers and approvals.
"SUBSIDIARY" shall mean with respect to any specified Person,
any other Person (a) whose board of directors or similar governing body, or a
majority thereof, may presently be directly or indirectly elected or appointed
by such specified Person, (b) whose management decisions and corporate actions
are directly or indirectly subject to the present control of such specified
Person, or (c) whose voting securities or equity securities are more than fifty
percent (50%) owned, directly or indirectly, by such specified Person.
"SURVIVING CORPORATION" shall have the meaning set forth in
SECTION 2.1.
"TAXES" means (a) any federal, state, local, foreign and other
income, alternative or add-on minimum, accumulated earnings, personal holding
company, franchise, capital stock, profits, windfall profits, gross receipts,
value added, sales, use, excise (including the golden parachute excise tax
imposed by Section 4999 of the Code and the green mail excise tax imposed by
Section 5881 of the Code), customs duties, transfer, conveyance, registration,
stamp, documentation, recording, premium, severance, environmental (including
taxes under Section 59A of the Code), real property, personal property, ad
valorem, intangibles, rent, occupancy, firearm, ammunition, license, occupation,
employment, unemployment insurance, social security, disability, workers'
compensation, payroll, withholding, estimated or any other tax, duty, levy,
governmental fee or other like assessment or charge of any kind whatsoever
(including all interest and penalties thereon and additions thereto whether
disputed or not) imposed by any Governmental Body, and (b) any obligations under
any agreements or arrangements (whether or not with a Governmental Body) with
respect to Taxes described in clause (a) above, together with any cost, charge
or liability
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incurred in contesting or prosecuting any assessment, refund claim or other
proceeding in connection with the determination or collection of any Tax.
"TAX RETURNS" means any federal, state, local or foreign
return, report, information return or other document (including any related or
supporting information) filed or required to be filed with any Governmental Body
in connection with the determination, assessment or collection of any Taxes or
the administration of any laws, regulations or administrative requirements
relating to any Taxes.
"TERRITORY" shall mean any area in the United States, its
commonwealths, territories and protectorates, Mexico and Canada and any other
geographical area in which Purchaser, the Surviving Corporation or any of their
respective Affiliates transacts any business.
"THIRD PARTY" shall mean a Person who or which is neither a
Party nor an Affiliate of a Party.
1.2 References to Dollars. References to dollars or "$" in
this Agreement shall mean United States dollars.
2. THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the provisions of the NCBCA and DGCL, MPGN shall be
merged with and into I-Magic as soon as practicable following the satisfaction
or waiver of the conditions set forth in ARTICLES 6 AND 7 hereof. Following the
Merger, I-Magic shall continue as the surviving corporation (the "Surviving
Corporation") under the name iMagicOnline Corporation and shall continue its
existence under the laws of the State of North Carolina and the separate
existence of MPGN shall thereupon cease. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all properties, rights,
privileges, powers and franchises of MPGN shall vest in the Surviving
Corporation, and all debts, liabilities and duties of MPGN shall become the
debts, liabilities and duties of the Surviving Corporation. All terms and
provisions of the Merger shall be in accordance with the Plan of Merger,
attached as Exhibit A hereto.
2.2 Consummation of the Merger and Effective Time. The Merger shall be
effected by the filing of articles of merger with the Secretary of State of the
State of North Carolina in accordance with the provisions of Article 11 of the
NCBCA and the filing of a certificate of merger with the Secretary of State of
the State of Delaware pursuant to Section 252 of the DGCL. The Parties hereto
shall take all such other and further actions as may be required by law to make
the Merger effective.
2.3 Conversion or Cancellation of Shares. The manner of
converting or cancelling shares of MPGN in the Merger shall be as follows. At
the Effective Time,
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2.3.1 subject to the escrow arrangement referred to in SECTION
3.4 below, the shares of Common Stock, par value $.001 per share (the "MPGN
Shares"), of MPGN issued and outstanding immediately prior to the Effective
Time, other than MPGN Shares held in the treasury of MPGN shall, by virtue of
the Merger and without any action on the part of the holders thereof, be
converted into the right to receive the Merger Consideration. All MPGN Shares,
by virtue of the Merger and without any action on the part of the holders
thereof, shall no longer be outstanding and shall be cancelled and retired and
shall cease to exist, and the holders of certificates representing MPGN Shares
shall thereafter cease to have any rights with respect to such MPGN Shares,
except, in the case of MPGN Shares other than MPGN Shares held in the treasury
of MPGN, the right to receive the Merger Consideration for such MPGN Shares upon
the surrender of such certificates.
2.3.2 each MPGN Share issued and held at such time in MPGN's
treasury shall, by virtue of the Merger and without any action on the part of
the holder thereof, cease to be outstanding, shall be cancelled and retired
without payment of any consideration therefor and shall cease to exist.
2.3.3 each share of Common Stock, par value $.10 per share, of
I-Magic issued and outstanding immediately prior to the Effective Time shall
continue to be issued and outstanding, fully paid and nonassessable shares of
the Surviving Corporation's Common Stock, par value $.10 per share and owned by
Purchaser. Each certificate of I-Magic evidencing ownership of such shares shall
continue to evidence ownership of the same number of shares of Common Stock of
the Surviving Corporation.
2.4 Merger Consideration. The "Merger Consideration" shall
mean (a) that number of shares of Purchaser Common Stock equal to the lesser of
(i) $4,000,000 divided by the Fair Market Value of Purchaser Common Stock as of
the Effective Time and (ii) 750,000, reduced by (b) any shares of Common Stock
issued by Purchaser (i) to Carolina Securities, Inc. or its designees in
connection with the Contemplated Transactions, and (ii) in order to discharge
the Indebtedness. The shares of Purchaser Common Stock which constitute the
Merger Consideration are hereinafter referred to as the "Purchaser Shares." Each
Stockholder and Clendenon shall be entitled to receive its PRO RATA share of the
Merger Consideration based on the proportion that the number of MPGN Shares
owned by such Stockholder and Clendenon immediately prior to the Effective Time
bears to the total number of issued and outstanding MPGN Shares at such time.
2.5 Certificate of Incorporation and By-Laws. The Certificate
of Incorporation and the By-Laws of I-Magic shall be and remain the Certificate
of Incorporation and By-Laws of the Surviving Corporation.
2.6 Directors and Officers. Except as set forth on SCHEDULE
2.6, those persons who immediately prior to the Effective Time are (a) directors
of I-Magic, shall be the directors of the Surviving Corporation and (b) officers
of I-Magic, shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected and qualified.
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3. THE CLOSING.
3.1 Closing. (a) Unless this Agreement shall have been terminated
pursuant to SECTION 10, a closing of the Merger (the "Closing") will be held at
the offices of Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New
York, New York 10017, on the date on which the conditions set forth in SECTIONS
6 and 7 shall be satisfied or duly waived (or such other place and date as
Purchaser and the Stockholder Representative may agree in writing).
(b) At the Closing:
(1) MPGN, the Stockholders, Hettinger or
Clendenon as applicable, shall deliver to I-Magic or
Purchaser, as applicable, all documents contemplated
by ARTICLE 6, to the extent not theretofore
delivered.
(2) I-Magic or Purchaser, as applicable,
shall deliver to MPGN all documents contemplated by
ARTICLE 7, to the extent not theretofore delivered.
(3) Purchaser shall deliver to the
Stockholders and Clendenon certificates representing
the Purchaser Shares, other than the Escrowed Shares.
3.2 Issuance of Purchaser Common Stock.
3.2.1 Subject to the escrow arrangement referred to in SECTION
3.4 below, upon surrender by the Stockholders and Clendenon of certificates
evidencing the MPGN Shares, the Purchaser shall issue certificates to each
Stockholder and Clendenon, registered in the name of such Stockholder and
Clendenon and bearing the legends set forth in SECTION 4.25, representing the
number of Purchaser Shares to which each Stockholder and Clendenon is entitled
pursuant to SECTION 2.4 and such certificates evidencing the MPGN Shares shall
forthwith be cancelled.
3.2.2 No fractional Purchaser Shares shall be issued pursuant
to the Merger. In lieu of the issuance of any such fractional shares, cash
adjustments will be paid to the holders in respect of any fractional share that
would otherwise be issuable. The amount of such adjustment shall be the product
of such fraction of a share of Purchaser Common Stock multiplied by the Fair
Market Value thereof.
3.3 Pooling of Interests. Purchaser, MPGN, Hettinger, the Stockholders
and Clendenon intend for the transactions contemplated by this Agreement to
qualify for "pooling of interests" treatment for purposes of Purchaser's
accounting.
3.4 Withholding into Escrow. Notwithstanding anything to the contrary
set forth in SECTION 3.2.1, Purchaser shall withhold from the Stockholders and
deliver to the Escrow Agent (as defined in the Escrow Agreement referred to
below) certificates representing ten percent (10%) of the total number of
Purchaser Shares (the "Escrowed Shares"), PRO RATA from each Stockholder
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based on the proportion that the number of MPGN Shares owned by such Stockholder
immediately prior to the Effective Time bears to the total number of issued and
outstanding MPGN Shares owned in the aggregate by the Stockholders at such time,
to be held and distributed by the Escrow Agent pursuant to the terms of this
Agreement and the Escrow Agreement attached as EXHIBIT B hereto (the "Escrow
Agreement"). All such certificates representing Purchaser Shares shall be issued
in the names of the respective Stockholders and shall be accompanied by
corresponding stock powers, duly executed, undated and in blank, which each
Stockholder shall provide to facilitate distribution by the Escrow Agent
pursuant to the Escrow Agreement.
3.5 Registration Rights; and Resale Restrictions. The Stockholders and
Clendenon shall be entitled to the registration rights contained in the
Registration Rights Agreement, attached as EXHIBIT C hereto, with respect to the
Purchaser Shares received in payment of the Merger Consideration.
4 REPRESENTATIONS AND WARRANTIES OF MPGN, HETTINGER, THE STOCKHOLDERS AND
CLENDENON.
MPGN, Hettinger and the Stockholders, jointly and severally,
and Clendenon, with respect to SECTIONS 4.26 AND 4.28, represent and warrant to
Purchaser and I-Magic that, except as otherwise disclosed on a Schedule
corresponding in number to the applicable Section of this ARTICLE 4 (which
Schedule shall be deemed to modify and limit only the representations and
warranties contained in the Section to which it corresponds in number):
4.1 Organization and Good Standing. (a) Each of MPGN and each
Stockholder is a corporation duly organized, validly existing and in good
standing under the laws of the State of its incorporation. Each of MPGN and each
Stockholder (i) has all requisite corporate power to own, operate and lease its
properties and carry on its business as the same is now being conducted and (ii)
is duly qualified and in good standing as a foreign corporation under the laws
of each jurisdiction where the properties owned, leased or operated, or the
business conducted by it require such qualification. SCHEDULE 4.1 sets forth the
jurisdictions in which MPGN and each Stockholder, as applicable, is authorized
to do business.
(b) Complete and correct copies of the certificate of
incorporation and by-laws of MPGN and each Stockholder as currently in effect
have been delivered to Purchaser. MPGN has no Subsidiaries nor does it own any
equity interest in, or control directly or indirectly, any other entity. MPGN is
not a party to any joint venture or partnership arrangement. MPGN has not
assumed by merger, contract, assignment or assumption any liabilities of any
other Person.
4.2 Capitalization of MPGN; Title to the MPGN Shares. (a) The
authorized capital stock of MPGN consists of 30,000,000 shares of Common Stock,
par value $.001 per share, of which 5,263,158 shares (constituting the MPGN
Shares) are issued and outstanding and are owned beneficially and of record by
the Stockholders and Clendenon as set forth on SCHEDULE 4.2. All of the MPGN
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on SCHEDULE 4.2, there are no outstanding
subscriptions, options,
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rights, warrants, convertible securities or other agreements (other than this
Agreement) or calls, demands or commitments of any kind relating to the
issuance, sale or transfer of any capital stock or other equity securities of
MPGN, whether directly or upon the exercise or conversion of other securities.
(b) The Stockholders and Clendenon own the MPGN Shares of
record and beneficially, free and clear of all Encumbrances. The delivery of the
certificates representing the MPGN Shares in accordance with SECTION 3.2 in
consideration of the payment of the Merger Consideration therefor will transfer
record and beneficial ownership of and good and valid title to the MPGN Shares
free and clear of all Encumbrances.
4.3 Authority Relative to Agreement. Each of MPGN and each Stockholder
has all requisite power and authority, corporate or otherwise, to execute,
deliver and perform their obligations, as applicable, under this Agreement and
the Plan of Merger, the Registration Rights Agreement and the Escrow Agreement
(such agreements, together with the stock certificates and powers referred to in
SECTION 2.3, collectively, the "Stockholders Documents") and has taken all
action necessary, corporate or otherwise, in order to execute and deliver this
Agreement and to consummate the Contemplated Transactions. This Agreement has
been duly executed and delivered by MPGN and each Stockholder. Each of this
Agreement and the other Stockholders Documents constitute valid and binding
obligations of MPGN and each Stockholder which is a Party thereto, enforceable
against MPGN and each Stockholder in accordance with their respective terms.
4.4 Absence of Conflict. Neither the execution and delivery of this
Agreement and the other Stockholder Documents, nor the consummation of the
Contemplated Transactions will (a) violate, conflict with or result in a breach
or termination of or constitute a default or give rise to a right to terminate
or accelerate (or an event which, with notice or lapse of time or both, would
constitute a default or give rise to such right) (i) any agreement, commitment,
mortgage, corporate or otherwise, deed of trust, indenture, lease or other
instrument to which any Stockholder or MPGN is a party or by which any of their
respective properties or assets is bound, (ii) the certificate of incorporation
or by-laws of MPGN or any Stockholder or (iii) any Law or any other restriction
of any kind or character applicable to any Stockholder or MPGN or any of their
respective properties or assets, or (b) result in the creation or imposition of
any Encumbrance upon any properties or assets of any Stockholder or MPGN under
any agreement or commitment to which any Stockholder or MPGN is a party or by
which any Stockholder or MPGN or any of their respective properties or assets
may be bound.
4.5 Consents and Approvals; Effect of Change in Control. Except as set
forth in SCHEDULE 4.5, no consent, waiver, registrations, certificates,
approval, grant, franchise, concession, permit, license, exception or
authorization of, or declaration or filing with, or notice or report to, (a) any
Governmental Body and (b) any other Person (including, but not limited to, any
party to a lease or other agreement or commitment of MPGN) (collectively, the
"Approvals"), is required, and has not been obtained, in connection with the
execution, delivery and performance of this Agreement, the Stockholders
Documents or the consummation of the Contemplated Transactions. All such
required Approvals have been obtained and are in full force and effect, and MPGN
is in full
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compliance with each of such Approvals. Except as set forth in SCHEDULE 4.5,
there are no Contracts, Leases or Approvals by which any Stockholder or MPGN or
any of their respective assets or properties may be bound, that contain any
change in control provisions or other terms or conditions that will become
applicable or inapplicable as a result of the consummation of the Contemplated
Transactions.
4.6 Financial Statements. (a) MPGN has (i) delivered to Purchaser the
unaudited balance sheets of each of the Stockholders as at December 31, 1997 and
the related unaudited statements of income and retained earnings of each of the
Stockholders for the year then ended, compiled by Bruce Oberfest & Associates,
and (ii) reviewed the unaudited combined balance sheets of MPGN and the
Stockholders as at October 31, 1998 (the "Recent Balance Sheet") (collectively,
the "Financial Statements"), as indicated on SCHEDULE 4.6. The Financial
Statements were prepared from the respective books and records of the
Stockholders and MPGN, have been prepared in accordance with GAAP consistently
applied throughout the periods indicated, and fairly present the financial
position, results of operations and cash flows of the Stockholders and MPGN as
at the respective dates thereof and for the periods therein referred to, subject
in the case of the interim financial statements, to the absence of footnotes and
for normal, year-end adjustments.
(b) MPGN does not have any liabilities or obligations (whether
known or unknown, absolute, accrued, contingent or otherwise and whether due or
to become due) that were not fully reflected or reserved against in the Recent
Balance Sheet, except for non-material liabilities and obligations incurred in
the ordinary course of business and consistent with past practice (in nature and
scope) since the date thereof. The reserves reflected in the Recent Balance
Sheet are adequate, appropriate and reasonable and the reserves reflected in the
Recent Balance Sheet are in accordance with GAAP consistently applied.
(c) Since the date of the Recent Balance Sheet, there has been
no material adverse change in the business, operations or financial condition of
MPGN or any event, condition or contingency that could reasonably be expected to
result in such a material adverse change.
(d) The accounts receivable of MPGN reflected in the Recent
Balance Sheet constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of business. MPGN has not received written
notice of any counterclaims or setoffs against such accounts receivable for
which reserves have not been established in accordance with GAAP. There has been
no material adverse change since the date of the Recent Balance Sheet in the
amount of accounts receivable or other debts due MPGN or the allowances with
respect thereto, or accounts payable of MPGN, from that reflected in the Recent
Balance Sheet.
4.7 Title to Property; Sufficiency; Encumbrances. (a) MPGN has never
owned any real property or any interest in real property.
(b) SCHEDULE 4.7(b) describes all personal property or
interests therein owned by MPGN. MPGN has good and valid title to all such
properties used in the operation of its business (personal and mixed, tangible
and intangible) which it purports to own, including without limitation
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the property reflected as being so owned on the Recent Balance Sheet (except for
immaterial personal property sold or otherwise disposed of since the date of the
Recent Balance Sheet in the ordinary course of business and all the properties
and assets purchased or otherwise acquired since the date of the Recent Balance
Sheet), free and clear of all Encumbrances other than Permitted Encumbrances. As
used herein, "Permitted Encumbrances" means (i) those Encumbrances disclosed in
the Financial Statements or the notes thereto; (ii) statutory liens for current
taxes or assessments not yet due or delinquent or the validity of which are
being contested in good faith by appropriate Proceedings (a list of all such
Proceedings as of the date of this Agreement being included on SCHEDULE 4.7);
(iii) mechanics', carriers', workers', repairmen's and other similar liens
arising or incurred in the ordinary course of business with respect to charges
not yet due and payable; and (iv) those Encumbrances disclosed on SCHEDULE 4.7.
(c) All of the assets and properties (real and personal,
tangible and intangible) necessary for the conduct of the business of MPGN as
conducted by MPGN prior to the date of this Agreement, including, without
limitation, any agreement or contract necessary for MPGN to operate the AT&T
WorldNet Game Website, are owned by MPGN or held by MPGN under a valid lease
and, except as set forth on SCHEDULE 4.7(c), will continue in effect following
the Closing, in each case free and clear of all Encumbrances except Permitted
Encumbrances.
4.8 Leased Property. SCHEDULE 4.8 sets forth a true and complete list
of each lease under which MPGN is a lessee or lessor (each, a "Lease"). MPGN has
delivered to Purchaser complete and correct copies of each such Lease. Each such
Lease is a valid and binding obligation of MPGN, enforceable in accordance with
its terms, and is in full force and effect, and except as set forth on SCHEDULE
4.8, upon consummation of the Contemplated Transactions, will continue to
entitle the Surviving Corporation to the use and possession of the property
specified in such lease and for the purposes for which such property is now
being used by MPGN. There is not, with respect to any such Lease, any existing
breach or event of default, or event which with notice or lapse of time or both
would constitute a breach or event of default, on the part of MPGN, or on the
part of any other person thereto.
4.9 Intellectual Property Rights. MPGN owns, or is licensed or
otherwise has the rights to use, all Intellectual Property used in or necessary
for the conduct of its business as heretofore conducted, and as presently
contemplated to be conducted. SCHEDULE 4.9 contains an accurate and complete
description of (a) all Intellectual Property owned, used or proposed to be used
by MPGN, and all applications therefor, and (b) a summary of the terms of all
agreements relating to Intellectual Property which MPGN is licensed or
authorized to use by others. Except as set forth in SCHEDULE 4.9, MPGN has the
sole and exclusive right to use the Intellectual Property referred to therein,
and the consummation of the Contemplated Transactions will not alter or impair
any such rights; no claims have been asserted by any Person to the use of any
such Intellectual Property or challenging or questioning the validity or
effectiveness of any such licenses or agreements and there is no valid basis for
any such claim; and the use of such Intellectual Property by MPGN does not
violate or infringe the rights of any Person. Neither MPGN nor any other Person
is in default under any license or other agreement relating to such Intellectual
Property, and all such licenses and agreements are valid, in full force and
effect and enforceable. MPGN has taken reasonable steps to
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safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, its Intellectual Property.
4.10 Plant and Equipment. The personal property, including without
limitation machinery, equipment and other fixed assets, owned or leased by MPGN
is in a condition sufficient to conduct the business of MPGN in all respects in
the same manner as it is conducted on or has been conducted prior to the date of
this Agreement, and all of such property is in good repair and operating
condition. MPGN is not in violation of any applicable building, zoning or other
Law in respect of its buildings, plants or structures or their operation.
4.11 Litigation. There is no action, suit, inquiry, proceeding or
investigation by or before any court or Governmental Body pending or threatened
against or involving MPGN or which questions or challenges the validity of this
Agreement or any action taken or to be taken by MPGN pursuant to this Agreement
or in connection with the Contemplated Transactions and MPGN has not received
any notice of any event or occurrence which could result in any such action,
suit, inquiry, proceeding or investigation nor is there any valid basis for any
such action, suit, inquiry, proceeding or investigation. MPGN is not subject to
any judgment, order or decree.
4.12 Tax Matters.
(a) MPGN and each of the Stockholders have filed or caused to
be filed on a timely basis all Tax Returns that are or were required to be filed
by or with respect to it through the Effective Time, either separately or as a
member of a group of affiliated corporations pursuant to the laws, regulations
or administrative requirements of each Governmental Body with taxing power over
it or its assets. The Stockholders and MPGN have delivered to Purchaser true,
complete and correct copies of, and SCHEDULE 4.12(A) lists, all federal, state,
local or foreign income Tax Returns filed by any of them since formation.
SCHEDULE 4.12(A) lists all state, local and foreign jurisdictions in which MPGN
or either of the Stockholders has previously filed or currently files Tax
Returns, which are all of the state, local or foreign taxing jurisdictions in
which MPGN or either of the Stockholders has been or is required to file Tax
Returns;
(b) MPGN (and to the extent MPGN may be liable therefor, the
Stockholders) has paid, or made provision in the Financial Statements for the
payment of all income, sales, withholding and other Taxes that have or may have
become due for all periods through the Effective Time, whether pursuant to those
Tax Returns, any assessment received by any Stockholder or MPGN, or otherwise,
except such Taxes, if any, as are set forth in SCHEDULE 4.12(B) and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP consistently applied) have been provided in the Financial
Statements. All Tax Returns filed by MPGN (and to the extent MPGN may be liable
therefor, the Stockholders) have been or will be prepared in accordance with
applicable law, are true, correct and complete in all material respects and
reflect all Taxes required to be paid thereunder;
(c) Except as set forth on SCHEDULE 4.12(C), the United States
federal, foreign, state and local Tax Returns of MPGN and the Stockholders have
been audited by the Internal
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Revenue Service or relevant state, foreign or local tax authorities or are
closed by the applicable statute of limitations for all taxable years through
December 31, 1998. All deficiencies proposed as a result of such audits have
been paid, reserved against on the Financial Statements, settled, or, as
described in SCHEDULE 4.12(C) are being contested in good faith by appropriate
proceedings;
(d) SCHEDULE 4.12(D) describes all proposed adjustments to the
United States federal, state, foreign or local Tax Returns filed by MPGN or the
Stockholders or any Tax Return including any group of corporations including
MPGN or the Stockholders for all taxable years since December 31, 1995, and the
resulting deficiencies proposed by the Internal Revenue Service or other
Governmental Body;
(e) Except as set forth in SCHEDULE 4.12(E), neither any
Stockholder, Hettinger, nor MPGN has given or been requested to give waivers or
extensions (or is or would be subject to a waiver or extension given by any
other entity) of any statute of limitations relating to the payment of Taxes by
any of them or for which MPGN may be liable;
(f) The charges, accruals and reserves with respect to Taxes
on the respective books of MPGN and the Stockholders are adequate (determined in
accordance with GAAP consistently applied) and are at least equal to MPGN's
liability for Taxes through the Effective Time;
(g) There exists no proposed tax assessment against MPGN (or,
to the extent MPGN may be liable therefor, against the Stockholders) nor any
lien for Taxes against any property of MPGN except as disclosed in the Financial
Statements or on SCHEDULE 4.12(G);
(h) No consent to the application of Section 341(f)(2) of the
Code has been filed with respect to any property or assets held or acquired or
to be acquired by MPGN, no property of MPGN is "tax-exempt use property" under
Code Section 168(h)(1) and neither MPGN nor either of the Stockholders have
agreed to, been required to make or applied for any adjustment by reason of any
change in accounting method under Code Section 481 nor has any Governmental Body
proposed any such change in accounting method with respect to MPGN or either
Stockholder;
(i) All Taxes that MPGN is or was required by law to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Body or other Person;
(j) There is no tax sharing agreement that will require any
payment by MPGN after the date of this Agreement;
(k) Neither MPGN nor either Stockholder has ever filed or been
included in a combined, consolidated or unitary Tax Return;
(l) No Code Section 338 election has ever been made by or with
respect to MPGN or either Stockholder and no sales are being reported by any of
them under the installment
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method of reporting pursuant to Code Section 453 with respect to which less than
all the gain has been recognized;
(m) There is no claim, audit, action, suit, proceeding, or
investigation with respect to Taxes due or claimed to be due from MPGN (or, to
the extent MPGN may be liable therefore, from any Stockholder) or of any Tax
Return filed or required to be filed by MPGN or any Stockholder pending or
threatened against or with respect to MPGN or any Stockholder;
(n) There are no closing agreements, requests for rulings, or
technical advice, in respect of any Tax currently in effect or pending between
MPGN, either Stockholder or any affiliate thereof and any Governmental Body;
(o) Since the date of its formation in August 1998, MPGN has
been a C Corporation under the Code, and each Stockholder has since its
respective date of formation continuously qualified as an "S" corporation under
Section 1361 ET. SEQ. of the Code, will continue to so qualify through the
Effective Time and no Governmental Body has asserted or notified either
Stockholder or Hettinger that it did not so qualify;
(p) MPGN does not own any interest in any foreign corporation,
nor has it ever held any such interest;
(q) Neither MPGN nor either Stockholder is or has been a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section 897(c)(1)(ii) of
the Code;
(r) Neither MPGN nor either Stockholder has in effect any tax
elections for federal income tax purposes under Sections 108, 168, 441, 471,
1017, 1033, or 4977 of the Code;
(s) During the two year period ending on the date of this
Agreement, neither MPGN nor either Stockholder has engaged in any exchange under
which the gain realized on such exchange was not recognized due to Section 1031
of the Code.
(t) MPGN has not made, and is not party to any agreement
requiring it to make, any payment which would not be deductible under Code
Section 280G or which would be subject to the excise tax imposed by Code Section
4999.
4.13 Absence of Certain Changes or Events. Since the date of the Recent
Balance Sheet, MPGN has conducted its business only in the ordinary course and
has not:
(a) declared or paid any dividend or made any other payment or
distribution in respect of its capital stock;
(b) purchased, redeemed, issued, sold or otherwise acquired or
disposed of, either directly or indirectly, any of its capital stock or
reclassified, split or otherwise changed any of its capital stock or granted or
entered into any options, warrants, puts or calls or other rights to purchase,
sell or convert any obligation into any of, its capital stock;
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(c) paid, discharged or satisfied any Encumbrance (other than
an Encumbrance then required to be paid, discharged or satisfied), claim,
liability or obligation (whether fixed, accrued, contingent or otherwise,
whether due or to become due), other than a claim, liability or obligation that
is a current liability shown on the Recent Balance Sheet or incurred since the
date of the Recent Balance Sheet in the ordinary course of business consistent
with prior practice;
(d) canceled or compromised any debt or claim, or waived or
released any material right, other than adjustments in the ordinary course of
business for goods sold and received which, in the aggregate, are not material;
(e) sold, assigned, transferred, conveyed, leased, pledged,
encumbered or otherwise disposed of any of its rights, assets or properties
(real or personal, tangible or intangible) except for sales of inventory in the
ordinary course of business consistent with past practice.
(f) transferred or granted any right under, or entered into
any settlement regarding the breach or infringement of, any Intellectual
Property right, or modified any existing right with respect thereto;
(g) made or granted any general increase in the compensation
(whether salary, commission, bonus, benefits (retirement, severance or other) or
other direct or indirect remuneration) of any of MPGN=s employees (other than
individual increases which coincided with year-end reviews and were generally
consistent in amount with MPGN=s historical practices), or made or granted any
increase in the compensation of the officers of MPGN, or entered into any
employment, severance, bonus or similar agreement with any employee of MPGN;
(h) written off or been required by GAAP to write off or write
down any assets of MPGN;
(i) received any notice of termination of any Contract or
Lease or suffered any damage, destruction or loss (whether or not covered by
insurance) adversely affecting MPGN's business, assets or properties;
(j) incurred any Tax liability other than in the ordinary
course of business;
(k) purchased any properties or assets, other than in the
ordinary course of business and consistent with past practice;
(l) made any capital expenditures or additions to property,
plant or equipment or acquired of any other property or assets (other than raw
materials and supplies) at a cost in excess of $10,000 in the aggregate.
(m) incurred or assumed any indebtedness for money borrowed
or guarantied any indebtedness or other obligation; or
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(n) agreed or otherwise committed, whether in writing or
otherwise, to do, or taken any action or omitted to take any action that would
result in, any of the foregoing.
4.14 Employee Benefits; Executive Officers; Labor. (a) No employees of
MPGN are covered by collective bargaining agreements. SCHEDULE 4.14 sets forth a
true and complete list of (i) all written employment and consulting agreements
to which MPGN is a party, indicating which will terminate at the Effective Time;
and (ii) all written executive compensation plans, bonus plans, incentive
compensation plans, deferred compensation plans or agreements, employee pension
plans or retirement plans, employee profit sharing plans, employee stock
purchase plans, group life insurance, hospitalization insurance, severance or
other employee benefit plans (as defined in Section 3(3) of ERISA) of MPGN (the
"Plans") providing for benefits for any employees of MPGN. True and correct
copies of all of the foregoing have been provided to Purchaser and, since the
date the documents were so provided, there has not been any material change to
the assets or liabilities of any Plan. There are no other binding plans or
commitments of the type referred to in this SECTION 4.14(A) which are not
reduced to writing, and MPGN has no agreement or commitment to create any
additional such Plan.
(b) SCHEDULE 4.14 includes a true and complete list of all
officers or other employees of MPGN receiving compensation (including bonuses,
incentives and similar compensation) at a rate in excess of Fifty Thousand
Dollars ($50,000) per annum. To the best knowledge of each Stockholder and MPGN,
no past or present officer or other executive employee of MPGN has ever been
indicted, tried or convicted of a criminal felony. To the best knowledge of each
Stockholder and MPGN, no officer or other executive employee of MPGN is in
violation of (a) any material term of any employment agreement, non-disclosure
agreement, noncompete agreement or other similar agreement with any previous
employer (and the employment of such employee by I-Magic or any of its
Affiliates will not result in a violation of any such agreement) or (b) any
obligation binding on such employee which would prohibit the use of information
obtained from such employee which MPGN has used or the Surviving Corporation
proposes to use.
(c) Neither the execution and delivery of this Agreement nor
the consummation of any of the Contemplated Transactions under this Agreement
will entitle any current or former employee of MPGN to severance pay or other
similar payment, or accelerate the time of payment or increase the amount of
compensation due to any such employee or former employee.
4.15 Insurance; Claims. (a) SCHEDULE 4.15 sets forth a true, correct
and complete list of all insurance policies of any kind or nature maintained as
of the date of this Agreement by or on behalf of MPGN and relating to its
business and/or assets, indicating the type of coverage, name of insured, name
of insurance carrier or underwriter, premium thereon, policy limits and
expiration date of each policy. All such insurance policies are in full force
and effect, and MPGN is not in default with respect to its obligations under any
such insurance policy and no notice of cancellation or termination has been
received with respect to any such policy. MPGN has delivered to Purchaser
complete and correct copies of all insurance policies (together with all riders
and amendments thereto) set forth on SCHEDULE 4.15. MPGN has never had any
insurance coverage canceled by any carrier.
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(b) SCHEDULE 4.15 sets forth all claims made by MPGN under any
insurance policy (regardless of whether such policy is set forth on such
Schedule) since the date of its formation, setting forth as to each claim the
date, nature and amount thereof and its disposition (indicating the date and
amount as applicable) or current status. No insurance carrier or underwriter has
ever denied coverage on any claim by MPGN.
4.16 Contracts and Commitments. SCHEDULE 4.16 contains a true and
complete and accurate list of each of the following contracts, agreements,
understandings or other obligations (whether written or oral) to which MPGN is a
party or by which any of its assets or properties are bound (each, a
"Contract"):
(a) any contracts, agreements, commitments or other
obligations with officers, employees, agents, consultants, advisors, or salesmen
that (i) are not cancelable by it on notice of not longer than 30 days without
penalty or premium or other liabilities, or (ii) provide for the payment of any
bonus or commission based on sales or earnings;
(b) all leases, subleases or rental or use agreements,
contracts, covenants or obligations;
(c) indentures, notes, loans, letters of credit or credit
agreements or other contract, agreement, commitment or other obligation with
respect to indebtedness for borrowed money; any guarantee of, or contract,
agreement, commitment or obligation to acquire any such indebtedness of others;
and any other contract, agreement, commitment or other obligation under which
MPGN has any obligations or liabilities (whether absolute, accrued, contingent
or otherwise) as guarantor, surety, co-signer, endorser, co-maker or indemnitor
in respect of the obligation of any Person;
(d) security agreement, mortgage or other contract, agreement,
commitment or obligation that creates or may create any Encumbrance on any of
its properties or assets;
(e) any outstanding agreement, contract, commitment or
obligation as to loans or advances made, or to be made, by MPGN to any Person;
(f) any contract, agreement, commitment or obligation to make
any capital expenditures;
(g) contracts, agreements, commitments or other obligations
with any Person containing any provision or covenant limiting the ability of
MPGN to engage in any line of business or to compete with or to obtain products
or services from any Person or limiting the ability of any Person to compete
with or to provide products or services to, or obtain products or services from,
MPGN;
(h) any partnership, joint venture, profit-sharing or similar
contract, agreement, understanding or obligation with any Person;
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(i) outstanding proxies, powers of attorney, or similar
delegations of authority of MPGN, except for powers of attorney for the service
of process on Governmental Bodies pursuant to applicable insurance or securities
laws;
(j) contracts, agreements, commitments or other obligations
with respect to the purchase or sale by or to MPGN of any product, equipment,
facility, or similar item that by their respective terms do not expire or
terminate or are not terminable by MPGN, without penalty, premium or other
liability within 30 days or may involve the payment by or to MPGN of more than
$5,000;
(k) license, royalty, franchise, distributorship, dealer,
service, sales agency, public relations or advertising contracts, agreements,
commitments or other obligations;
(l) contracts, agreements, commitments or other obligations to
provide services or facilities by or to MPGN or to or by another Person which is
not terminable by MPGN within 30 days without penalty, premium or other
liability or involving payment by MPGN or the other Person of more than $5,000;
and
(m) all other contracts, agreements, commitments, or other
obligations whether or not made in the ordinary course of business which either
(i) may involve the expenditure by MPGN of funds in excess of $5,000 per
commitment (or under a group of similar commitments), or (ii) are not terminable
within 30 days from the date hereof without penalty, premium or other liability,
or are otherwise material to MPGN.
4.17 Status of Agreements. All Contracts to which MPGN is a party are
in full force and effect and constitute valid and binding obligations of MPGN
and are binding on the other parties thereto; there are no existing defaults (or
events which, with notice or lapse of time or both, would constitute a default)
by MPGN or any other party thereunder. Except as disclosed in SCHEDULE 4.17,
MPGN is not a party to any Contract that was not entered into in the ordinary
course of business and consistent with past practice or that, whether or not
entered into in the ordinary course of business, has or may reasonably be
expected to have individually or in the aggregate with any other Contracts a
material adverse effect on the business, operations, properties or financial
condition of MPGN .
4.18 Compliance with Law. (a) SCHEDULE 4.18(A) is a true and complete
list of each license, permit, order or approval of Governmental Bodies held or
obtained by MPGN or any employee of MPGN which is required in connection with
the business conducted by MPGN immediately prior to the Effective Time. The
operations of MPGN have been conducted in all material respects in accordance
with all applicable laws, regulations and other requirements of all Governmental
Bodies having jurisdiction over MPGN, including, without limitation, all such
laws, regulations and requirements relating to antitrust, consumer protection,
currency exchange, equal opportunity, health, occupational safety, pension and
securities matters (each, a "Law"). MPGN has not received any notification of
any asserted present or past failure to comply with any such Laws. MPGN and each
employee of MPGN have all licenses, permits, orders or approvals from
Governmental Bodies required for the conduct of MPGN's business and are not in
violation of any
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such license, permit, order or approval. All such licenses, permits, orders and
approvals are in full force and effect and no suspension or cancellation thereof
has been threatened.
(b) MPGN has obtained all permits, licenses and other
authorizations which are required with respect to MPGN under all Environmental
Laws. MPGN is in compliance in all material respects with all terms and
conditions of the required permits, licenses and authorizations, and is also in
compliance in all material respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in any Environmental Laws, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder.
Except as set forth in SCHEDULE 4.18(B), there does not exist as a result of any
action or inaction of MPGN or, to the knowledge of any Stockholder or MPGN, as a
result of any action or inaction of any other person, nor has MPGN received
notice of, any events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent continued
compliance, or which may give rise to any common law or legal liability, or
otherwise form the basis of any claim, action, suit, proceedings, hearing or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any Hazardous
Material
(c) Except as set forth in SCHEDULE 4.18(C), no Hazardous
Material has been incorporated in, used on, stored on or under, released from,
treated on, transported to or from, or disposed of by MPGN on or from any
property owned or leased by MPGN or by any other Person such that, under
Environmental Laws (i) any such Hazardous Material would be required to be
removed, cleaned-up or remediated before the property owned or leased by MPGN
could be altered, renovated, demolished or transferred, or (ii) the owner or
lessee of the property (as applicable to MPGN) could be subjected to liability
for the removal, clean-up or remediation of such Hazardous Material; and neither
any Stockholder nor MPGN has received notification from any Governmental Bodies
or other third parties relating to Hazardous Material on or affecting any
property owned or leased by MPGN or relating to any potential or known liability
under Environmental Laws arising from the ownership or leasing of any property.
4.19 Transactions with Related Parties. MPGN is not a party to any
contract, lease, commitment or arrangement, written or oral, which, were MPGN a
"Registrant" under the Securities Exchange Act of 1934, would be required to be
disclosed pursuant to Item 404(a) or (c) of Regulation S-K as promulgated by the
Securities Exchange Commission, and except as disclosed in SCHEDULE 4.19 hereto,
there are no loans outstanding to or from any Person specified in Item 404(a)
from or to MPGN.
4.20 Bank Accounts. SCHEDULE 4.20 hereto sets forth a true, correct and
complete list of the names and addresses of all banks and other financial
institutions in which MPGN maintains an account, deposit or safe-deposit box,
together with the names of all Persons authorized to draw on these accounts or
deposits or to have access to these boxes.
4.21 Absence of Certain Business Practices. None of (a) MPGN, any
officer or any of MPGN's 3 highest paid employees, acting on its behalf, or (b)
to the best knowledge of MPGN or any Stockholder, any other employee or agent of
MPGN acting on its behalf, has, directly or
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indirectly, given or agreed to give any improper or illegal gift or similar
benefit to any customer, supplier, governmental employee or other person who is
or may be in a position to help or hinder the business of MPGN (or assist MPGN
in connection with any actual or proposed transaction relating to the business
of MPGN) (i) which subjected or might have subjected MPGN to any damage or
penalty in any Proceeding, (ii) which if not given in the past, might have had a
Material Adverse Effect, (iii) which if not continued in the future, would have
a Material Adverse Effect or subject MPGN to suit or penalty in any Proceeding,
(iv) for any of the purposes described in Section 162(c) of the Code or (v) for
the purpose of establishing or maintaining any concealed fund or concealed bank
account.
4.22 No Guaranties. None of the obligations or liabilities of MPGN
incurred in connection with the operation of its business is guaranteed by or
subject to a similar contingent obligation of any other Person. MPGN has not
guaranteed or become subject to a similar contingent obligation in respect of
the obligations or liabilities of any other Person. There are no outstanding
letters of credit, surety bonds or similar instruments of MPGN or any of its
Affiliates.
4.23 Records. The books of account and minute books of MPGN are
complete and correct in all respects.
4.24 No Brokers or Finders. Except as set forth in SCHEDULE 4.24, the
Stockholders and MPGN have not, and their respective Affiliates, officers,
directors or employees have not, employed any broker or finder or incurred any
liability for any brokerage or finder's fee or commissions or similar payment in
connection with any of the Contemplated Transactions.
4.25 Year 2000 Compliance. All computer and telecommunications
hardware, software and firmware, whether in computer systems, equipment,
facilities, embedded microcopies or otherwise (the "Information Technology")
used in the business of MPGN is Year 2000 Compliant. "Year 2000 Compliant" means
that such Information Technology (a) accurately processes date/time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries and the years 1999 and
2000; (b) accurately performs leap-year calculations and (c) will not cause any
other Information Technology to fail or generate errors related to any such
dates.
4.26 Investment Representations.
(a) Acquisition for Investment. The Purchaser Shares to be
received by the Stockholders and Clendenon pursuant to the terms hereof will be
acquired for investment for their own account, without any view to the
unregistered public distribution or resale thereof, all without prejudice,
however, to the right of either Stockholder or Clendenon at any time lawfully to
sell or otherwise to dispose of all or any part of the such shares pursuant to
registration or any exemption therefrom under the Securities Act and applicable
state securities laws, subject to the restrictions on resale contained in the
Registration Rights Agreement. Each Stockholder and Clendenon acknowledge and
understand that except as provided in and subject to the terms and conditions
contained in the Registration Rights Agreement, neither Stockholder nor
Clendenon has any independent right to require Purchaser to register the
Purchaser Shares and each Stockholder and Clendenon represent and warrant that
such Stockholder and Clendenon will sell the Purchaser
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Shares only in compliance with the restrictions, terms and conditions contained
in the Registration Rights Agreement.
(b) Restricted Securities. Each Stockholder and Clendenon
understand that the Purchaser Shares to be received by it or him pursuant to the
terms hereof are characterized as "restricted securities" under the Securities
Act inasmuch as they are being acquired from Purchaser in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.
(c) Investor Suitability. Each Stockholder and Clendenon is an
"accredited investor" within the meaning of Rule 501 of Regulation D under the
Securities Act. Each Stockholder and Clendenon has the capacity to evaluate the
merits and high risks of an investment in the Purchaser Shares and is able to
bear the economic risk of this investment. Each Stockholder and Clendenon
understand that an investment in the Purchaser Shares is highly speculative and
involves a high degree of risk. Each Stockholder and Clendenon has been provided
access to all information requested by it in order to evaluate the merits and
risks of an investment in the Purchaser Shares.
(d) Legends. Each Stockholder and Clendenon acknowledge that
the certificates evidencing the Purchaser Shares shall bear the following legend
(in addition to any legend required by the Registration Rights Agreement):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
The foregoing legend shall be removed by Purchaser from any
certificate at such time as the holder of the Purchaser Shares represented by
the certificate delivers an opinion of counsel reasonably satisfactory to
Purchaser to the effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act, or at such time as the
holder of such Purchaser Shares satisfies the requirements of Rule 144(k) under
the Securities Act (provided that Rule 144(k) as then in effect does not differ
substantially from Rule 144(k) as in effect as of the date of this Agreement),
and provided further that Purchaser has received from the holder a written
representation that such holder satisfies the requirements of Rule 144(k) as
then in effect with respect to such Purchaser Shares.
4.27 Hettinger Representations.
(a) Authorization. Hettinger is of full age and has full
right, power, legal capacity and authority to execute and deliver this Agreement
and to perform his obligations hereunder. The execution, delivery and
performance of this Agreement and the performance of Hettinger's obligations
hereunder constitute valid and binding obligations of Hettinger, enforceable
against him in accordance with its terms.
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(b) Ownership of Shares. Hettinger owns all of the issued and
outstanding shares of each Stockholder of record and beneficially, free and
clear of all Encumbrances.
(c) No Conflict as to Hettinger. Neither the execution and
delivery of this Agreement nor the consummation of any or all of the
Contemplated Transactions will (a) violate, or be in conflict with, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or excuse performance by any Person of
any of its obligations under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, or result in the creation or imposition of any
Encumbrance upon any property or assets of Hettinger under, any agreement or
commitment to which Hettinger a party or by which any of his respective property
or assets is bound, or to which any of the property or assets of Hettinger is
subject, or (b) violate any statute or law or any judgment, decree, order,
regulation or rule of any court or other Governmental Body applicable to
Hettinger.
4.28. Clendenon Representations.
(a) Authorization. Clendenon is of full age and has full
right, power, legal capacity and authority to execute and deliver this Agreement
and to perform his obligations hereunder. The execution, delivery and
performance of this Agreement and the performance of Clendenon's obligations
hereunder constitute valid and binding obligations of Clendenon, enforceable
against him in accordance with its terms.
(b) Ownership of Shares. Clendenon owns all of the issued and
outstanding shares of MPGN set forth opposite his name on SCHEDULE 4.2 of record
and beneficially, free and clear of all Encumbrances.
(c) No Conflict as to Clendenon. Neither the execution and
delivery of this Agreement nor the consummation of any or all of the
Contemplated Transactions will (a) violate, or be in conflict with, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or excuse performance by any Person of
any of its obligations under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, or result in the creation or imposition of any
Encumbrance upon any property or assets of Clendenon under, any agreement or
commitment to which Clendenon a party or by which any of his respective property
or assets is bound, or to which any of the property or assets of Clendenon is
subject, or (b) violate any statute or law or any judgment, decree, order,
regulation or rule of any court or other Governmental Body applicable to
Clendenon.
4.29 Disclosure. No representations or warranties by any Stockholder,
Hettinger, MPGN or Clendenon in this Agreement and no statement contained in any
schedules, exhibits or certificates furnished or to be furnished to Purchaser or
I-Magic or any of their representatives pursuant to the provisions hereof,
contains or will contain any untrue statement of material fact or
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omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading. Documents delivered or to be delivered to Purchaser or
I-Magic pursuant to this Agreement are or will be true and complete copies of
what they purport to be.
4.30 Knowledge Defined. As used in this SECTION 4, "knowledge of the
Stockholders and MPGN" or "best knowledge of the Stockholders and MPGN" shall
include the actual knowledge of Hettinger, after review of his own files and
inquiry of those employees and advisors to MPGN and the Stockholders who would
reasonably be expected to have knowledge of the specific matter at issue.
5 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND I-MAGIC
Purchaser and I-Magic hereby represent and warrant to each
Stockholder and MPGN that, except as otherwise disclosed on a Schedule
corresponding in number to the applicable Section of this ARTICLE 5 (which
Schedule shall be deemed to modify and limit only the representations and
warranties contained in the Section to which it corresponds in number):
5.1 Organization and Good Standing. Each of Purchaser and I-Magic is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina. Each of Purchaser and I-Magic (a) has all
requisite corporate power to own, operate and lease its properties and carry on
its business as the same is now being conducted and (b) is qualified to do
business as a foreign corporation in each jurisdiction set forth on SCHEDULE
5.1. Complete and correct copies of the certificate of incorporation and by-laws
of Purchaser and I-Magic as currently in effect have been delivered to MPGN and
the Stockholders.
SCHEDULE 5.1 sets forth the Subsidiaries of Purchaser.
5.2 Capitalization of Purchaser. Purchaser has the authority to issue
75,000,000 shares of capital stock, consisting of (i) 50,000,000 Purchaser
Shares, par value $0.10 per share of which as of January 18, 1999, 9,854,748
shares are outstanding, and (iii) 25,000,000 shares of Preferred Stock, par
value $0.10 per share, none of which shares are outstanding. In addition,
Purchaser has reserved for issuance (i) 2,875,000 Purchaser Shares upon exercise
of options granted under Purchaser's 1995 Stock Option Plans; (ii) 800,000
Purchaser Shares upon exercise of options granted under Purchaser's 1998 Stock
Plan, as amended; and (iii) 500,000 Purchaser Shares pursuant to Purchaser's
1998 Employee Stock Purchase Plan, as amended. As of January 18, 1999, Purchaser
has options to purchase 2,047,400 shares of Common Stock outstanding and
warrants to purchase 327,496 shares of Common Stock outstanding.
All of the Purchaser Shares to be issued to the Stockholders
will, as of the Effective Time, be duly authorized and validly issued, fully
paid and nonassessable.
5.3 Authority Relative to Agreement; Compliance with Other Instruments;
Absence of Conflict. Each of Purchaser and I-Magic, as applicable, has all
requisite corporate power and authority to execute, deliver and perform its
obligations, as applicable, under this Agreement and
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the Plan of Merger, the Registration Rights Agreement and the Escrow Agreement
(such agreements, being collectively, the "Purchaser Documents"). The execution,
delivery and performance by Purchaser and I-Magic of each of this Agreement and
the other Purchaser Documents, and the consummation by Purchaser and I-Magic of
the Contemplated Transactions have been duly authorized by all necessary
corporate action on the part of Purchaser and I-Magic and, (a) do not require
the Approval of any Person or other Governmental Body, (b) do not violate, with
or without the giving of notice or the passage of time or both, any provision of
Law, and (c) do not conflict with or result in a breach or termination of, or
constitute a default or give rise to a right of termination or acceleration
under (or an event which, with notice or lapse of time or both, would constitute
a default or give rise to such right), or result in the creation of any
Encumbrance upon any of the respective properties or assets of Purchaser or
I-Magic pursuant to any corporate charter, by-law, mortgage, deed of trust,
indenture, commitment or other agreement or instrument or any Law or any other
restriction of any kind or character to which Purchaser or I-Magic is a party or
by which any of their respective assets or properties may be bound, the
consequence of which violation, conflict, breach, termination or default
referred to in clauses (b) and (c) would be reasonably expected to materially
adversely affect the ability of Purchaser or I-Magic to perform their respective
obligations hereunder or consummate the Contemplated Transactions in accordance
with the terms hereof.
5.4 Effect of Agreement. This Agreement has been duly executed and
delivered by Purchaser and I-Magic. This Agreement and each such other Purchaser
Document constitute legal and valid obligations of Purchaser and I-Magic, if a
party thereto, enforceable against Purchaser and I-Magic in accordance with
their terms, subject to laws relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, marshalling or other laws and rules of
law affecting the enforcement generally of creditors' rights and remedies
(including such as may deny giving effect to waivers of debtors' or guarantors'
rights).
5.5 Consents and Approvals of Governmental Authorities. Except as set
forth in SCHEDULE 5.5, no notice to, consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Body is required in
connection with the execution, delivery and performance of this Agreement by
Purchaser or the consummation of the Contemplated Transactions by Purchaser.
5.6 No Brokers or Finders. Purchaser and I-Magic have not, nor have any
of their officers, directors or employees, employed any broker or finder or
incurred any liability for any brokerage or finder's fee or commissions or
similar payment in connection with any of the Contemplated Transactions.
5.7 SEC Documents: I-Magic Financial Statements. As of their respective
filing dates (i) each quarterly and other report and registration statement
(without exhibits), including any prospectus or prospectus supplement filed by
Purchaser with the SEC since August 1, 1998 ("Purchaser SEC Documents") complied
in all material respects with the applicable requirements of the Securities
Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, as
the case may be, and (ii) none of Purchaser SEC Documents contained any untrue
statement of a
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material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading. The financial statements of Purchaser
included in Purchaser SEC Documents (the "Purchaser Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in conformity with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by the rules
and regulations of the SEC) and present fairly, in all material respects, the
financial position of Purchaser and its consolidated subsidiaries at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal,
recurring and certain non-recurring audit adjustments).
6. CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND I-MAGIC.
The obligations of Purchaser and I-Magic to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any one or more of which may be waived by
Purchaser, to the extent permitted by applicable law:
6.1 Legal Opinion. Purchaser and I-Magic shall have received the
opinion of counsel to MPGN, Hettinger and the Stockholders, dated the Effective
Time and addressed to Purchaser and I-Magic, in substantially the form of
EXHIBIT 6.1.
6.2 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prohibits or delays
consummation of the Contemplated Transactions, or that will require any
divestiture by Purchaser as a result of the Contemplated Transactions.
6.3 Representations, Warranties and Agreements. (a) The representations
and warranties of MPGN, Hettinger, each of the Stockholders and Clendenon set
forth in this Agreement shall be true and correct in all material respects as of
the date of this Agreement, and as of the Effective Time with the same effect as
though made as of the Effective Time, (b) each of Hettinger, the Stockholders,
MPGN and Clendenon shall have performed and complied with the agreements
contained in this Agreement required to be performed and complied with by them
prior to or as of the Effective Time, and (c) Purchaser shall have received a
certificate to the foregoing effect signed by the President of MPGN, Hettinger,
each Stockholder and Clendenon.
6.4 Litigation. No Proceeding shall have been instituted by any
Governmental Body or by any other Person and, at what would otherwise have been
the Effective Time, remain pending to delay, restrain or prohibit the
Contemplated Transactions or to seek any divestiture or to revoke or suspend any
Approval by reason of any or all of the Contemplated Transactions; nor shall any
Governmental Body have notified any Party or any of their respective Affiliates
that consummation of any part of the Contemplated Transactions would constitute
a violation of any Law or that it intends to commence a Proceeding to restrain
or prohibit any part of the Contemplated Transactions or to require such
divestiture, revocation or suspension; unless, in either such case, such
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Governmental Body or other Person shall have withdrawn such notice and abandoned
such Proceeding.
6.5 Approvals. All Approvals of, (a) any Person or (b) Governmental
Bodies, necessary in connection with the execution, delivery and performance of
this Agreement by MPGN, Hettinger or any Stockholder or for the consummation of
the Contemplated Transactions shall have been obtained or made and shall be in
full force and effect.
6.6 No Material Adverse Effect. No event, occurrence, fact, condition,
change, development or effect shall have occurred, exist or come to exist since
the date of this Agreement that, individually or in the aggregate, has
constituted or resulted in, or could reasonably be expected to constitute or
result in a Material Adverse Effect.
6.7 Completion of Due Diligence. Purchaser shall have completed its due
diligence investigation of MPGN, including accounting and legal matters, and
Purchaser in its sole discretion shall be satisfied with the results of such
investigation.
6.8 Payment of Transaction Expenses. Each of MPGN, Hettinger and the
Stockholders shall have paid, or made all necessary arrangements with respect to
payment of, all costs, liabilities and expenses incurred by or for the benefit
of MPGN, Hettinger or any Stockholder (including, without limitation, all legal
and accounting fees, stock transfer, real estate transfer and other transfer
taxes and expenses and any brokerage or finder's fees or commission or similar
payment due to any Person listed on SCHEDULE 4.24) in connection with the
negotiation and execution of this Agreement and the consummation of the
Contemplated Transactions, in each case at no cost or obligation to Purchaser or
the Surviving Corporation following the Closing; and MPGN, Hettinger and each
Stockholder shall have provided Purchaser with evidence reasonably satisfactory
to Purchaser of such payments or other arrangements.
6.9 Resignations. The officers and directors of MPGN listed on SCHEDULE
6.9 shall have delivered to MPGN duly executed resignations, dated the Effective
Time.
6.10 Registration Rights Agreement. The Stockholders and Clendenon
shall have executed and delivered the Registration Rights Agreement in the form
of EXHIBIT C attached hereto, which agreement shall be in full force and effect.
6.11 Indebtedness Agreements. Purchaser shall have received an
agreement from Bill Hettinger in form and substance satisfactory to Purchaser,
with respect to the discharge of the Indebtedness in shares of Purchaser's
Common Stock.
6.12 Proceedings Satisfactory. All certificates, opinions and other
documents to be delivered by Hettinger, the Stockholders, MPGN and Clendenon and
all other matters to be accomplished by Hettinger, the Stockholders, MPGN and
Clendenon prior to or at the Closing shall be satisfactory in the judgment of
Purchaser and its counsel.
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6.13 Stockholder Approval. Prior to the Effective Time, this Agreement
and the Plan of Merger shall have been duly approved by the Stockholders and
Clendenon, in accordance with applicable law.
6.14 Cancellation of Indebtedness. The Stockholders and Hettinger shall
have cancelled any notes payable by MPGN to any Stockholder or Hettinger; any
indebtedness owed by MPGN to any Stockholder, Hettinger, Bruce Oberfest &
Associates or any related party described on SCHEDULE 4.19, shall have been
repaid, discharged or contributed to the capital of MPGN and, as of the
Effective Time, there shall be no outstanding notes, loans, payables or other
indebtedness owed by MPGN to any Stockholder, Hettinger, Bruce Oberfest &
Associates or any related party.
6.15 Escrow Agreement. Each Stockholder and the Escrow Agent (as
defined therein) shall have executed and delivered to Purchaser the Escrow
Agreement, substantially in the form attached as EXHIBIT B, with such
modifications thereto as are reasonably requested by the Escrow Agent prior to
execution thereof.
6.16 Pooling Letter. MPGN and each of its Affiliates (within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act or applicable accounting releases of the Securities and Exchange
Commission with respect to pooling of interests accounting treatment) shall have
executed and delivered to Purchaser's accountants a letter in form and substance
reasonably satisfactory to Purchaser and its accountants relating to "pooling of
interests" accounting.
6.17 Opinion of Accountants. Purchaser shall have received a letter,
dated as of the date of the Closing, from Ernst & Young LLP, accountants for
Purchaser, in form and substance satisfactory to Purchaser, regarding the
appropriateness of pooling of interests accounting for the transactions
contemplated by this Agreement.
6.18 Secretary of State Certificates. Purchaser shall have received
Certificates of the Secretary of State of the State of Delaware with respect to
MPGN, and of each state in which MPGN is qualified to do business as a foreign
corporation as of a recent date showing MPGN to be validly existing or qualified
as a foreign corporation in its states of existence and qualification, as the
case may be, and in good standing and that all franchise taxes required to be
paid and all reports required to be filed have been duly paid and filed, and
with respect to the Certificate of the Secretary of State of the State of
Delaware, listing all documents filed and attaching certified copies thereof.
6.19 Secretary's Certificate of the Company. Purchaser shall have
received a Certificate of the Secretary of MPGN, stating that (i) no document
has been filed relating to or affecting the Certificate of Incorporation of MPGN
after the date of the Certificate of the Secretary of State of the state of its
incorporation furnished pursuant to SECTION 6.18 and (ii) attached to the
Certificate is a true and complete copy of the By-Laws of MPGN, as in full force
and effect immediately prior to the Effective Time.
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6.20 Lease. The lease relating to MPGN's facility at 801 Eisenhower
Drive Key West Florida shall be terminated.
7. CONDITIONS TO THE OBLIGATIONS OF MPGN AND STOCKHOLDER.
The obligations of MPGN and each Stockholder to effect the
Merger shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any one or more of which may be waived by MPGN
and each of the Stockholders, to the extent permitted by applicable law:
7.1 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prohibits or delays
consummation of any material part of the Contemplated Transactions.
7.2 Representations, Warranties and Agreements. (a) The representations
and warranties of Purchaser and I-Magic set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Effective Time with the same effect as though made as of the Effective
Time, (b) Purchaser and I-Magic shall have performed and complied in all
material respects with the agreements contained in this Agreement required to be
performed and complied with by it prior to or at the Closing and (c) the
Stockholders and MPGN shall have received a certificate to the foregoing effect
signed by an authorized officer of Purchaser.
7.3 Litigation. No Proceeding shall have been instituted by any
Governmental Body or by any other Person and, at what would otherwise have been
the Effective Time, remain pending to delay, restrain or prohibit any material
part of the Contemplated Transactions; nor shall any Governmental Body have
notified any Party or any of their respective Affiliates that consummation of
any material part of the Contemplated Transactions would constitute a violation
of any Law or that it intends to commence a Proceeding to restrain or prohibit
any material part of the Contemplated Transactions; unless, in either such case,
such Governmental Body or other Person shall have withdrawn such notice and
abandoned such Proceeding.
7.4 Approvals. All Approvals of (a) any Person or (b) Governmental
Bodies, necessary in connection with the execution, delivery and performance of
this Agreement by Purchaser and I-Magic or for the consummation of the
Contemplated Transactions shall have been obtained or made and shall be in full
force and effect.
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7.5 Registration Rights Agreement. Purchaser shall have executed and
delivered the Registration Rights Agreement in the form of EXHIBIT C attached
hereto, which agreement shall be in full force and effect.
7.6 Legal Opinion. MPGN shall have received the legal opinion of
Bachner, Tally, Polevoy & Misher LLP, counsel to Purchaser, in substantially the
form of EXHIBIT 7.6.
8. FURTHER AGREEMENTS OF THE PARTIES.
8.1 Expenses. (a) The Parties shall each bear their own respective
expenses incurred in connection with the Contemplated Transactions, except as
otherwise specifically provided herein. If the Contemplated Transactions shall
not be consummated for any reason and this Agreement is terminated as provided
in SECTION 10.1, MPGN shall repay to Purchaser working capital advances made by
Purchaser to MPGN in the amount of $250,000 (plus interest accrued to the date
of repayment) no later than 90 days following termination of this Agreement.
8.2 Access Prior to the Closing. (a) Between the date of this Agreement
and the Effective Time, each Stockholder shall, and shall cause MPGN to, as
Purchaser may from time to time request with reasonable notice to MPGN, (i) give
Purchaser and its authorized representatives full and complete access to all
properties, personnel, facilities and offices of MPGN and to the books and
records of MPGN (and permit Purchaser to make copies thereof), (ii) permit
Purchaser to make inspections thereof, (iii) cause the officers and employees
of, and consultants to MPGN to furnish Purchaser with all financial information
and operating data and other information with respect to the business and
properties of MPGN, and to discuss with Purchaser and its authorized
representatives the affairs of MPGN.
(b) Between the date of this Agreement and the Effective Time,
each of the Parties shall and shall cause their respective Affiliates and
officers and directors, and shall use reasonable efforts to cause all their
other respective employees, auditors, attorneys, consultants, advisors and
agents, to treat as confidential and hold in strict confidence, unless compelled
to disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of Law, and after prior written notice to the
other Party, all confidential information of the Stockholders and MPGN, or
Purchaser and its Affiliates, as the case may be, furnished to Purchaser by the
Stockholders and MPGN or to the Stockholders and MPGN by Purchaser, as the case
may be, or any of their respective representatives in connection with the
Contemplated Transactions and will not release or disclose such confidential
information to any other Person, except their respective auditors, attorneys,
financial advisors and other consultants, agents and advisors in connection with
the consummation of the Contemplated Transactions. If the Closing does not occur
(i) such confidence shall be maintained by the Parties and each Party shall
cause its officers and directors and Affiliates and shall use reasonable efforts
to cause such other Persons to maintain such confidence, except to the extent
such information comes into the public domain (other than as a result of an
action by such Party, its officers, directors or such other persons in
contravention of this Agreement), (ii) each Party shall and shall cause its
officers and directors and Affiliates and shall use reasonable efforts to cause
such other Persons to refrain from using any of such confidential
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information except in connection with this Agreement, and (iii) upon the request
of any Party, the other Party shall promptly return to the requesting Party any
written materials remaining in its possession, which materials it has received
from the requesting Party, or their respective representatives.
8.3 Publicity. Between the date of this Agreement and the Effective
Time, except to the extent required by law, neither Purchaser nor the
Stockholders, MPGN or Clendenon shall, and none of them shall permit any
Affiliate to, issue any press release or public announcement of any kind
concerning, or otherwise publicly disclose, the Contemplated Transactions
without the consent of the other; and in the event any such public announcement,
release or disclosure is required by law, the Parties will consult prior to the
making thereof and use their best efforts to agree upon a mutually satisfactory
text.
8.4 Non-Competition; Confidentiality.
(a) (i) Each of the Stockholders and Hettinger agree that for
the period commencing on the date of this Agreement and until the later of (i)
three (3) years from the Effective Time and (ii) two years following the date of
termination of Hettinger's employment with Purchaser or any of its Affiliates
(the "Non-Competition Period"), neither any Stockholder nor Hettinger shall,
directly or indirectly, on behalf of itself or himself or in any way on behalf
of any Person, within the Territory, engage or participate in or make any
financial investment in, or become employed by, or act as an agent or principal
of, or render advisory, consulting or other services to or for, any Competing
Enterprise; provided however, that this provision shall not prohibit the
Stockholders or Hettinger from acquiring, solely as an investment and without
any management or other active participation therein, up to one percent (1%) of
any class of securities of any Person listed on a national securities exchange
or regularly traded in the over-the-counter market. Notwithstanding the
foregoing, in the event that Hettinger's employment with Purchaser or any of its
Affiliates is terminated by such employer other than for "Just Cause", the
restrictions set forth in SECTION 8(A)(I) shall simultaneously terminate. For
purposes of this SECTION 8(A)(I), "Just Cause" shall mean (i) if Hettinger is
convicted of a crime (A) which involves either fraud or embezzlement, (B)
involving moral turpitude or (C) which constitutes a felony; or (ii) an act of
material dishonesty or fraud against, or in connection with, the services
rendered for, such employer; or (iii) a willful failure by Hettinger to perform
his duties and fulfill his obligations to such employer in any material respect;
or (iv) willful misconduct or gross negligence in the performance of Hettinger's
duties and fulfillment of his obligations to such employer; or (v) a breach by
Hettinger of any of the material terms of this Agreement or other agreement with
such employer, or a material breach of any rules or policies established by the
Board of Directors of such employer or any of its Affiliates.
(ii) Each of the Stockholders and Hettinger further agree that
during the Non-Competition Period neither it, he nor any of their respective
Affiliates shall, directly or indirectly, (i) solicit, encourage, induce or
employ any Person who is now or becomes an employee or independent contractor of
MPGN, Purchaser, the Surviving Corporation or any of their respective
Affiliates, to leave the employment or association with any of such entities, or
(ii) solicit, divert or induce Persons to which MPGN, Purchaser, the Surviving
Corporation or any of their respective
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Affiliates currently or hereafter sells products, to terminate their
arrangements with Purchaser, the Surviving Corporation or any of their
respective Affiliates, or obtain similar products from any other Person, or do
business with any such Persons. The Parties agree and acknowledge that the
duration and scope of the covenant not to compete described in this SECTION
8.4(A) are fair, reasonable and necessary in order to protect the legitimate
interests of Purchaser, and that adequate consideration has been received by the
Stockholders and Hettinger for such obligations. If, however, for any reason any
court determines that the restrictions in this SECTION 8.4(A) are not reasonable
or that such consideration is inadequate, such restrictions shall be
interpreted, modified or rewritten to include as much of the duration, scope and
geographic area identified in this SECTION 8.4(A) as will render such
restrictions valid and enforceable.
(b) Each of the Stockholders and Hettinger agree that
following the Effective Time, it, he and their respective Affiliates shall and
shall cause their respective officers and directors and shall use reasonable
efforts to cause all of its or his other employees, auditors, attorneys,
consultants, advisors and agents to, hold in strict confidence, unless compelled
to disclose by judicial or administrative process or in the opinion of counsel
by other requirements of law and after prior written notice to Purchaser, all
confidential information of MPGN in their respective possession and will not
release or disclose such confidential information to any other Person, except to
the auditors, attorneys, financial advisors and other consultants, agents and
advisors to MPGN in connection with post-Closing matters hereunder or other
matters as to which the Stockholders or Hettinger have retained obligations or
liabilities hereunder; PROVIDED that the foregoing obligations shall not apply
to any such information which otherwise comes into the public domain (other than
as a result of an action by any Stockholder, Hettinger, their Affiliates or such
other persons). Upon expiration of the time periods set forth in SECTION 9.4 and
upon expiration and/or satisfaction of any other matters as to which the
Stockholders or Hettinger have retained obligations or liabilities hereunder,
and except for information required for tax purposes, upon the request of
Purchaser, the Stockholders and Hettinger will promptly turn over to Purchaser
all documents containing such confidential information (and copies thereof)
remaining in each Stockholders' or Hettinger's possession.
(c) The Parties acknowledge that any breach of the provisions
contained in SECTION 8.2(B) and this SECTION 8.4 will result in serious and
irreparable injury. Therefore, the Parties acknowledge and agree that in the
event of a breach by a Party, the other Party shall be entitled, in addition to
any other remedy at law or in equity to which it or they may be entitled, to
equitable relief against the other, including, without limitation, an injunction
to restrain the other from such breach and to compel compliance with its
obligations hereunder.
8.5 Conduct of Business of MPGN. Except as expressly permitted by this
Agreement, between the date of this Agreement and the Effective Time, MPGN shall
conduct its business only in the ordinary course in substantially the same
manner as heretofore conducted, and use all its reasonable efforts to preserve
intact its present business organization and to preserve the goodwill of Persons
having business relations with MPGN. Without limiting the generality of the
foregoing, except as otherwise expressly provided in this Agreement, between the
date of this Agreement and the Effective Time, MPGN shall pay accounts payable
and pay and perform other obligations of the
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business of MPGN when they become due and payable in the ordinary course of
business consistent with prior practice, or when required to be performed, as
the case may be, and shall not:
(a) amend its articles or certificate of incorporation or
by-laws;
(b) declare or pay any dividend or make any other payment or
distribution in respect of its capital stock;
(c) purchase, redeem, issue, sell or otherwise acquire or
dispose of, either directly or indirectly, any of its capital stock, or
reclassify, split or otherwise change any of its capital stock or grant or enter
into any options, warrants, puts or calls or other rights to purchase, sell or
convert any obligation into any of, its capital stock;
(d) organize any Subsidiary or acquire any capital stock or
other equity securities of any Person or any equity or ownership interest in any
business;
(e) borrow any funds or incur, assume or acquire any
obligation or liability (whether fixed, accrued, contingent or otherwise,
whether due or to become due), except for current liabilities incurred in the
ordinary course of business in connection with the Contemplated Transactions or
the purchase of goods or services consistent with prior practice;
(f) pay, discharge or satisfy any Encumbrance (other than an
Encumbrance then required to be paid, discharged or satisfied), claim, liability
or obligation (whether fixed, accrued, contingent or otherwise, whether due or
to become due), except for payment, discharge or satisfaction for cash of a
claim, liability or obligation that is a current liability either shown on the
most Recent Balance Sheet, or incurred since the date of the Recent Balance
Sheet in the ordinary course of business consistent with prior practice;
(g) make or grant any increase in the compensation (whether
salary, commission, bonus, benefits (retirement, severance or other) or other
direct or indirect remuneration) of any employees of MPGN, or enter into any
employment contract with any employee of MPGN other than as contemplated by
SECTIONS 4.14;
(h) sell, assign, transfer, convey, lease, pledge, encumber or
otherwise dispose of any of its assets or properties (real or personal, tangible
or intangible) or any other material right;
(i) transfer or grant any right under, or enter into any
settlement regarding the breach or infringement of, any Intellectual Property
right, or modify any existing right with respect thereto;
(j) enter into any instrument which would constitute a Lease
or Contract or enter into any material amendment, supplement or waiver in
respect of any such Lease or Contract;
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(k) incur any severance pay obligation by reason of this
Agreement or the Contemplated Transactions;
(l) grant or extend any power of attorney other than in the
ordinary course of business which does not affect a material part of MPGN's
business or act as guarantor, surety, co-signer, endorser, co-maker, indemnitor
or otherwise in respect of the obligation of any Person other than through
endorsements of negotiable instruments in the ordinary course of business or;
(m) cancel or compromise any debt or claim, or waive or
release any material right, other than adjustments in the ordinary course of
business for goods sold and received which, in the aggregate, are not material;
(n) make any capital expenditures or capital additions or
improvements in excess of an aggregate of $10,000, other than pursuant to
capital expenditure commitments disclosed on SCHEDULE 4.13 or not required to be
disclosed thereon;
(o) enter into or amend any collective bargaining or union
contract or agreement;
(p) institute or settle any Proceeding;
(q) incur any Tax liability other than in the ordinary course
of business;
(r) in any other manner, modify, change or otherwise alter
the fundamental nature of the business of MPGN as presently conducted; or
(s) agree or otherwise commit, whether in writing or
otherwise, to do, or take any action or omit to take any action that would
result in, any of the foregoing.
8.6 Further Assurances. Following the Closing, the Parties shall, and
shall cause each of their Affiliates to, from time to time, execute and deliver
such additional instruments, documents, conveyances or assurances and take such
other actions as shall be necessary, or otherwise reasonably requested by the
other Party, to confirm and assure the rights and obligations provided for in
this Agreement and in the Stockholder Documents and Purchaser Documents and
render effective the consummation of the Contemplated Transactions.
8.7 Tax Matters. (a) Purchaser shall cause MPGN and/or the Surviving
Corporation, as appropriate, to file all its Tax Returns due after the Effective
Time with respect to the operations of MPGN, including any Tax Returns due for
any short taxable year of MPGN ending at the Effective Time. Copies of any such
Tax Returns with respect to the operations of MPGN, for periods which end on or
prior to or which include the date of the Closing, but which are due thereafter,
shall be furnished to the Stockholders Representative by the Purchaser at least
30 days prior to the filing thereof. Any such Tax Return shall be prepared in a
manner that, to the extent consistent with
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applicable laws and regulations, is reasonably consistent with the positions
taken and accounting methods employed by MPGN, provided that the Stockholder
Representative advises Purchaser of such positions and methods, in the
preparation of similar Tax Returns for prior periods (to the extent consistent
with applicable law and without (in Purchaser's reasonable judgment) risking
imposition of a penalty). All Tax Returns required to be furnished to the
Stockholder Representative hereunder shall be filed in the form delivered to the
Stockholder Representative, unless the Stockholder Representative, within 15
days after their receipt of that Tax Return, gives notice to Purchaser of his
objection to that Tax Return and setting forth in reasonable detail the basis
for that objection. If the Stockholder Representative gives such a notice with
respect to a Tax Return, but the parties are unable to resolve such dispute
prior to the due date of such Tax Return, that Tax Return shall be timely filed
in the form proposed by Purchaser but any Tax or indemnification liability of
the Stockholders and/or Hettinger arising therefrom shall be resolved pursuant
to SECTION 8.7(B) hereof.
(b) If Purchaser and the Stockholder Representative, after
good faith negotiations, are unable to reach agreement prior to the filing date
of the Tax Return, then after such filing, the dispute shall be referred to the
Accountants selected in accordance with subparagraph (g) hereof, whose
determination shall be final. In the event that the Accountants determine that
the disputed amount of such Taxes, or any portion thereof, should not have been
included with such Tax Return, Purchaser shall cause the Surviving Corporation
to take all necessary steps, including, without limitation, preparing an
amendment to such Tax Return or a request for a refund of Taxes paid thereunder,
in order to enable the Stockholders to receive a refund of such disputed amount
(or portion thereof) or, at its option, shall reimburse the Stockholders for any
tax paid by them as a result of such disputed amount. The fees and expenses of
such accounting firm shall be paid by the Stockholders and Purchaser as follows:
(i) the Stockholders shall pay that portion of the fees and expenses which is
equal to the product obtained by multiplying (A) such fees and expenses by (B) a
fraction, the numerator of which is the portion of the disputed amount that the
Accountants determine should have been included with the Tax Return and the
denominator of which is the disputed amount; and (ii) Purchaser shall pay the
balance, if any, of the fees and expenses of such accounting firm.
(c) The Stockholders agree to assist in and execute, to the
extent required, any Tax Returns required to be filed by Purchaser or the
Surviving Corporation in connection with the Contemplated Transactions on or
after the Effective Time, including without limitation, Tax Returns related to
any Taxes payable as a result of the Contemplated Transactions.
(d) The Stockholders agree to join in making any elections
permitted under the Code or other applicable tax statute reasonably requested by
Purchaser with respect to MPGN.
(e) Stockholders and/or Hettinger shall be jointly and
severally liable for, and shall upon request by Purchaser, pay all Tax
liabilities of MPGN reflected on Tax Returns of MPGN or the Surviving
Corporation described in SECTION 8.7(A) hereof with respect to the operations of
MPGN, covering periods ending on or prior to, or which include the Effective
Time but which are due thereafter (with respect to Tax liabilities for periods
which include, but do not end on, the Effective Time, to the extent reasonably
allocable to the period ending at the Effective
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Time), to the extent such liabilities exceed the amount of the reserve for Taxes
(excluding any deferred Taxes or any contingent Tax reserve) accrued on the
Recent Balance Sheet. Such payment shall be made sufficiently in advance of the
filing of the relevant Tax Return so that Purchaser may timely pay any Taxes due
upon the filing of such Tax Return. In addition, the Stockholders and Hettinger
shall, jointly and severally, indemnify and hold harmless Purchaser and the
Surviving Corporation from and against all Tax liabilities of MPGN or for which
it may be liable for all periods ending on or prior to the Effective Time, or
which include the Effective Time (to the extent reasonably allocable to the
period ending at the Effective Time) including, without limitation, all
liability for Taxes of MPGN or the Stockholders attributable to the Merger or
the other Contemplated Transactions to the extent such liabilities exceed the
amount of the reserve for Taxes (excluding any deferred Taxes or the contingent
Tax reserve) accrued on the Recent Balance Sheet.
(f) Each Stockholder and MPGN shall provide Purchaser with
such assistance as may reasonably be requested by it in connection with the
preparation of any Tax Return or any Tax contest and each will retain and
provide Purchaser with any records or information which may be relevant to any
such Tax Return or Tax contest.
(g) Purchaser and the Stockholder Representative shall select
an accounting firm to resolve disputes with respect to Taxes for which
Stockholders or Hettinger may be liable if the parties are unable to resolve any
such dispute within thirty (30) days. If Purchaser and the Stockholder
Representative are unable to agree on an accounting firm within an additional
thirty (30) days, a firm shall be selected by the North Carolina office of the
American Arbitration Association from among the 20 largest firms of independent
certified public accountants in the United States (the firm selected by either
Purchaser and the Stockholder Representative or the American Arbitration
Association being hereinafter referred to as the "Accountants") which firm shall
have no affiliation with Stockholders, Hettinger, Purchaser, MPGN or the
Surviving Corporation. Purchaser, on the one hand, and the Stockholders, on the
other hand, shall each bear 50% of the fees of the American Arbitration
Association, if any, and the Accountants, in connection with such determination.
8.8 Exclusivity. Through the earlier of the Effective Time or the date
of termination of this Agreement pursuant to ARTICLE 10 hereof, neither
Hettinger, the Stockholders nor MPGN shall (i) solicit, initiate or encourage
the submission of inquiries, proposals or offers from any Person relating to (x)
any business combination with MPGN (y) the sale or transfer of any Intellectual
Property of MPGN or to which MPGN has rights or (z) the sale of a material
portion of the assets and/or capital stock of MPGN (a "Transaction"), (ii) enter
into or participate in any negotiations, nor initiate any discussions or
continue any discussions initiated by others, regarding any Transaction, or
furnish to any other person any information with respect to the assets or
business of MPGN for the purposes of pursuing a possible Transaction with any
other party, or (iii) otherwise participate in, assist, facilitate or encourage
any effort or attempt by any other Person to do any of the foregoing. Neither
Hettinger, the Stockholders nor MPGN shall authorize their investment bankers or
other advisors to violate the provisions of this paragraph and shall use
reasonable efforts to prevent their investment bankers or other advisors from
violating the provisions of this paragraph.
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8.9 Retrieval of Confidential Information. At the Closing, the
Stockholders and MPGN shall deliver to Purchaser a list of all Persons (other
than directors, officers and employees of MPGN) who received confidential
information concerning MPGN and copies of all confidentiality agreements entered
into by such Persons in connection with the solicitation of prospective
acquirors of MPGN. Following the Closing, the Stockholders and MPGN shall, with
respect to confidential information given to such persons pursuant to or in
connection with confidentiality agreements that do not run directly to MPGN,
authorize Purchaser to retrieve or cause its agents to retrieve all such
confidential information from such Persons. The Stockholders and MPGN shall
provide their full cooperation in connection with the foregoing. In addition,
the Stockholders and MPGN shall assign to Purchaser all rights of the
Stockholders and MPGN, if any, to enforce the confidentiality agreements entered
into by such Persons.
8.10 Pooling of Interests. Each of the Parties shall refrain from
taking any action which would disqualify the transactions contemplated by this
Agreement from pooling of interests accounting treatment by Purchaser.
8.11 Amending Schedules. From time to time prior to the Closing, MPGN
and the Stockholders shall promptly supplement or amend the Schedules hereto
with respect to any matter arising after the date of this Agreement which, if
existing or occurring at the date of this Agreement, would have been required to
have been set forth in the Schedules hereto. Such supplement or amendment shall
have the effect of curing any related misrepresentation or breach of warranty
made in connection with the transactions contemplated by this Agreement;
provided, however, that Purchaser shall have a commercially reasonable period of
time following receipt of any supplemented or amended Schedules to elect (i) to
terminate this Agreement without any further liability to MPGN or the
Stockholders or (ii) in Purchaser's sole discretion, to elect to waive such
breach and consummate the transactions contemplated by this Agreement.
8.12 Consents: Regulatory Approval. Each Party will take all such
commercially reasonable actions as may be necessary to obtain all approvals or
consents from Persons or Governmental Bodies in order to permit the consummation
of the Contemplated Transactions.
9. INDEMNIFICATION AND RELATED MATTERS.
9.1 Indemnification by MPGN, Hettinger and the Stockholders. MPGN,
Hettinger and the Stockholders shall jointly and severally indemnify and hold
harmless Purchaser and its Affiliates, Subsidiaries, officers, directors,
employees and agents thereof (the "Purchaser Indemnified Parties"), and shall
reimburse Purchaser Indemnified Parties for, any loss, liability, claim, damage,
expense (including, but not limited to, costs of investigation and defense and
reasonable attorneys' fees) or diminution of value (collectively, "Damages"),
arising from or in connection with (a) any inaccuracy in any of the
representations and warranties of MPGN, Hettinger or a Stockholder in this
Agreement or in any certificate delivered by MPGN, Hettinger or a Stockholder
pursuant to this Agreement, or any actions, omissions or statements of fact
inconsistent with any such representation or warranty, (b) any failure by MPGN,
Hettinger or a Stockholder to perform or comply with any agreement in this
Agreement, (c) any claim by any
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Person for brokerage or finder's fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by any such Person
with MPGN, Hettinger or a Stockholder (or any Person acting on his or its
behalf) in connection with any of the Contemplated Transactions, except for any
claim for fees arising out of the letter agreement between Kaufman Bros., L.P.
and Multiplayer Games Network, Inc. dated July 24, 1998 or (d) Taxes
attributable to any transaction or event occurring on or prior to the Closing
(including Taxes attributable to the Contemplated Transactions) to the extent
such liabilities exceed the amount of the reserve for Taxes accrued on the
Recent Balance Sheet.
9.2 Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless each Stockholder and MPGN, and shall reimburse each Stockholder and
MPGN, as applicable, for, any Damages arising from or in connection with (a) any
inaccuracy in any of the representations and warranties of Purchaser or I-Magic
in this Agreement or in any certificate delivered by Purchaser or I-Magic
pursuant to this Agreement, or any actions, omissions or statements of fact
inconsistent with any such representation or warranty, (b) any failure by
Purchaser or I-Magic to perform or comply with any agreement in this Agreement,
or (c) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by such Person with Purchaser or I-Magic (or any Person acting on their
behalf) in connection with any of the Contemplated Transactions.
9.3 Survival. All representations, warranties, covenants and agreements
of each of the Parties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Closing for the time
period set forth in SECTION 9.4 notwithstanding any investigation conducted with
respect thereto.
9.4 Time Limitations. Neither MPGN, Hettinger nor any Stockholder shall
have any liability (for indemnification or otherwise) with respect to any
representation or warranty, or agreement to be performed and complied with prior
to the Effective Time (other than those set forth in SECTIONS 4.2, 4.6, 4.12,
4.14, 4.18 AND 8.7, which shall not be subject to such limitation) unless on or
before the second anniversary of the Effective Time, the Stockholder
Representative is given notice asserting a claim with respect thereto specifying
the factual basis therefor in reasonable detail to the extent then known by
Purchaser. Purchaser shall have no liability (for indemnification or otherwise)
with respect to any representation or warranty, or agreement to be performed and
complied with prior to the Effective Time, unless on or before the second
anniversary of the Effective Time, Purchaser is given notice of a claim with
respect thereto specifying the factual basis therefor in reasonable detail to
the extent then known by any Stockholder. However, the provisions of this
SECTION 9.4 shall not apply to any liability resulting from any intentional
misrepresentation, wilful neglect, fraud or intentional failure to perform or
comply with any agreement.
9.5 Limitations as to Amount -- Stockholders. No Party shall have any
liability (for indemnification or otherwise) with respect to the matters
described in clause (a) or (b) of SECTION 9.1 until the total of all Damages
with respect thereto exceeds $50,000, in which event such indemnification shall
be effective with respect to all of the Damages. This SECTION 9.5 shall not
apply to any liability resulting from any intentional misrepresentation or
breach of warranty or any intentional failure to perform or comply with any
agreement and Purchaser shall be liable for all Damages with respect thereto.
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9.6 Procedure for Indemnification. Promptly after receipt by an
indemnified party under SECTION 9.1 or 9.2 of notice of the commencement of any
action for which indemnification is available under SECTION 9.1 or 9.2, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such section, give notice to the indemnifying party of
the commencement thereof, but the failure so to notify the indemnifying party
shall not relieve it of any liability that it may have to any indemnified party
except to the extent the indemnifying party demonstrates that the defense of
such action is prejudiced thereby. In case any such action shall be brought
against an indemnified party and it shall give notice to the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume the defense
thereof with counsel satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such section for any fees of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable costs of
investigation and costs and expenses of legal counsel, if the indemnified party
and the indemnifying party are both parties to the action and the indemnified
party has been advised by counsel that there may be one or more defenses
available to it and not available to the indemnifying party. If an indemnifying
party assumes the defense of such an action, (a) no compromise or settlement
thereof may be effected by the indemnifying party without the indemnified
party's consent (which shall not be unreasonably withheld) unless (i) there is
no finding or admission of any violation of law or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party and (ii) the sole relief provided is monetary damages that are
paid in full by the indemnifying party and (b) the indemnifying party shall have
no liability with respect to any compromise or settlement thereof effected
without its consent (which shall not be unreasonably withheld). If notice is
given to an indemnifying party of the commencement of any action and it does
not, within ten days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense thereof, the
indemnifying party shall be bound by any determination made in such action or
any compromise or settlement thereof effected by the indemnified party.
Notwithstanding the foregoing, if an indemnified party determines in good faith
that there is a reasonable probability that an action may adversely affect it or
its affiliates other than as a result of monetary damages, such indemnified
party may, by notice to the indemnifying party, assume the exclusive right to
defend, compromise or settle such action, but the indemnifying party shall not
be bound by any determination of an action so defended or any compromise or
settlement thereof effected without its consent (which shall not be unreasonably
withheld). An indemnified party may make payment of any Taxes at the time the
same is due and payable, whether or not a proceeding relating thereto has been
commenced, and such payment shall not affect its right to indemnification
hereunder.
10. TERMINATION.
10.1 Termination Procedures. This Agreement may be terminated before
the Effective Time only as follows:
(a) by written agreement of the Stockholders, MPGN and
Purchaser at any time;
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(b) by Purchaser, by notice to the Stockholders and MPGN, if
satisfaction of any of the conditions to Purchaser's or I-Magic's obligations
set forth in SECTION 6 becomes impossible, and such condition has not been
waived by Purchaser; or
(c) by the Stockholders and MPGN, by notice to Purchaser, if
satisfaction of any of the conditions to MPGN's, Hettinger's and the
Stockholder's obligations set forth in SECTION 7 becomes impossible, and such
condition has not been waived by the Stockholders and MPGN.
10.2 Effect of Termination. In the event that this Agreement is
terminated pursuant to SECTION 10.1, this Agreement shall terminate without any
liability or further obligation of any Party to another, except for the
obligations of the Parties under SECTIONS 8.1 and 8.2.
11. MISCELLANEOUS.
11.1 Entire Agreement. This Agreement, the Stockholder's Documents and
Purchaser Documents contain, and are intended as, a complete statement of all of
the terms and the arrangements between the Parties with respect to the matters
provided for, supersede any previous agreements and understandings between the
Parties with respect to those matters, and cannot be changed or terminated
orally. No Party makes, and each Party hereby expressly disclaims reliance upon,
any representations or warranties with respect to the Contemplated Transactions
other than as expressly set forth herein as limited by the exceptions contained
in the Schedules hereto or in the other Stockholder Documents and Purchaser
Documents.
11.2 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of Delaware applicable to agreements
made and to be performed therein.
11.3 Headings. The section headings contained in this Agreement are
solely for the purpose of reference, are not part of the Agreement of the
Parties and shall not in any way affect the meaning or interpretation of this
Agreement. All references in this Agreement to Sections, Schedules and Exhibits
are to sections, schedules and exhibits to this Agreement, unless otherwise
indicated.
11.4 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when (a) delivered by hand, (b)
transmitted by facsimile (and confirmed by return facsimile), or (c) delivered,
if sent by Express Mail, Federal Express or other express delivery service, or
registered or certified mail, return receipt requested, to the addressee at the
following addresses or telecopier numbers (or to such other addresses, telex
number or telecopier number as a party may specify by notice given to the other
party pursuant to this provision):
If to Purchaser, I-Magic or the Surviving Corporation to:
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Interactive Magic Inc.
215 Southport Drive, Suite 100
Morrisville, North Carolina
Attention: President
Facsimile No.: (919) 461-0723
with copies to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017-2590
Attention: Jill M. Cohen, Esq.
Facsimile No.: (212) 682-5729
If to MPGN, the Stockholders or Clendenon, to them c/o:
James Hettinger
900 Eisenhower Boulevard
Key West, Florida 33040
with a copy to:
Branden Burmingham
455 E. 500 South, Suite 205
Salt Lake City, Utah 84111
Facsimile No.: (801) 355-7126
11.5 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any Third Party beneficiary rights in any Person who is not a Party. No
assignment of this Agreement or of any rights or obligations hereunder may be
made by MPGN or the Stockholders (by operation of law or otherwise) and any such
attempted assignment shall be void. Purchaser or I-Magic may assign this
Agreement provided that such assignment does not relieve Purchaser from its
obligations hereunder.
11.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Amendment and Waiver. This Agreement may be amended, or any
provision of this Agreement may be waived, provided that such amendment or
waiver will be binding on Purchaser only if such amendment or waiver is set
forth in a writing executed by Purchaser, and provided that any such amendment
or waiver will be binding upon MPGN or any Stockholder only if such amendment or
waiver is set forth in a writing executed by MPGN or such Stockholder. The
waiver of any Party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any other breach.
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<PAGE>
11.8 Dispute Resolution. The Parties agree to attempt initially to
solve all claims, disputes, or controversies arising under, out of, or in
connection with this Agreement by conducting good faith negotiations. If the
Parties are unable to settle the matter between themselves, the matter shall
thereafter be resolved by alternative dispute resolution, starting with
mediation and including, if necessary, a final and binding arbitration. Whenever
a Party shall decide to institute arbitration proceedings, it shall give written
notice to that effect to the other Party. The Party giving such notice shall
refrain from instituting the arbitration proceedings for a period of sixty (60)
days following such notice. During such period, the Parties shall make good
faith efforts to amicably resolve the dispute without arbitration. Any
arbitration hereunder shall be conducted under the rules of the American
Arbitration Association. Each such arbitration shall be conducted by a panel of
three arbitrators: one arbitrator shall be appointed by each of Purchaser and
the Stockholders and the third shall be appointed by the American Arbitration
Association. Any such arbitration shall be held in Raleigh, North Carolina. The
arbitrators shall have the authority to grant specific performance. Judgment
upon the award so rendered may be entered in any court having jurisdiction or
application may be made to such court for judicial acceptance of any award and
an order of enforcement, as the case may be. In no event shall a demand for
arbitration be made after the date when institution of a legal or equitable
proceeding based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.
11.9 Attorneys' Fees. In the event that either of the parties hereto
(or any successor thereto) resorts to legal action or arbitration in order to
enforce, defend or interpret any of the terms or the provisions of this
Agreement, the prevailing party shall be entitled to receive, in addition to
such other remedies as shall be awarded to it in such legal action or
arbitration, reimbursement from the non-prevailing party for all reasonable
attorneys' fees and all other costs incurred in commencing or defending such
action or arbitration. In addition, the prevailing party shall be entitled to
recover from the non-prevailing party post-judgment reasonable attorneys' fees
incurred by the prevailing party in enforcing a judgment against the
non-prevailing party. Notwithstanding anything in this Agreement to the
contrary, the provisions of the preceding sentence are intended to be severable
from the balance of this Agreement, shall survive any judgment rendered in
connection with the aforesaid legal action or arbitration, and shall not be
merged into any such judgment.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
instrument as of the date and year first above written.
INTERACTIVE MAGIC, INC.
By: /s/ J. W. Stealey
-------------------------------------
Name:
Title:
iMAGIC ONLINE CORPORATION
By: /s/ J. W. Stealey
-------------------------------------
Name:
Title:
MPG-NET, INC.
By: /s/ James Hettinger
-------------------------------------
Name:
Title:
MULTIPLAYER GAMES NETWORK, INC.
By: /s/ James Hettinger
-------------------------------------
Name:
Title
TANTALUS, INC.
By: /s/ James Hettinger
-------------------------------------
Name:
Title
/s/ James Hettinger
-------------------------------------
James Hettinger
/s/ Donn A. Clendenon
-------------------------------------
Donn A. Clendenon
EXHIBIT 10.28
SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of January
25, 1999, between Interactive Magic, Inc., a corporation organized under the
laws of the State of North Carolina (the "COMPANY"), with headquarters located
at 215 Southport Drive, Suite 1000, Morrisville, NC 27560, and the purchaser
(the "PURCHASER") set forth on the execution page hereof (the "EXECUTION PAGE").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of 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 "SECURITIES ACT");
B. The Purchaser desires to purchase from the Company, upon the terms
and conditions stated in this Agreement, a convertible note in the aggregate
principal amount of $4,000,000, in the form attached hereto as Exhibit A (the
"NOTE"), (i) convertible into shares of the Company's common stock, par value
$.10 per share (the "COMMON STOCK") and (ii) in certain circumstances, entitling
the holder to warrants (the "WARRANTS") to acquire a number of shares of Common
Stock determined at the time of such conversion. The shares of Common Stock
issuable upon conversion of or otherwise pursuant to the Note are referred to
herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants are referred to herein as the
"WARRANT SHARES". The Note, the Warrants, the Conversion Shares and the Warrant
Shares are collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
a. Purchase of Note. On the Closing Date (as defined below), subject to
the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, the Note for an aggregate
purchase price (the "PURCHASE PRICE") equal to $4,000,000.
<PAGE>
b. Form of Payment. On the Closing Date, the Purchaser shall pay the
aggregate Purchase Price hereunder by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
the duly executed Note and the Company shall deliver the Note against delivery
of the Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Note pursuant to this Agreement (the "CLOSING")
shall be 12:00 noon Eastern Standard Time on January 26, 1999, subject to a two
business day grace period at either party's option, but in no event later than
January 28, 1999, or such other time as may be mutually agreed upon by the
Company and the Purchaser (the "CLOSING DATE"). The Closing shall occur at the
offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 1401 Walnut Street,
Philadelphia, Pennsylvania 19102.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for
the Purchaser's own account and not with a present view towards the public sale
or distribution thereof; provided, however, by making the representations
herein, the Purchaser does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the
Securities are being offered and sold to the Purchaser in reliance upon 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 Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.
d. Information. The Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by the Purchaser or its counsel. The Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company and
have received what the Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that Purchaser's investment in the Securities involves a significant
degree of risk.
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<PAGE>
e. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities has not been and is not being registered under the Securities Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the Securities Act, (b) the Purchaser shall have delivered to
the Company an opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions and shall be
given by counsel reasonably acceptable 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, (c) the Securities are sold or transferred to
an "affiliate" (as defined in Rule 144 promulgated under the Securities Act (or
a successor rule) ("RULE 144")) of the Purchaser who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of such Rule and further, if such 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 defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement;
provided that any transfer by the pledgee of such Securities must be in
accordance with Rule 144.
g. Legends. The Purchaser understands that the Note and the Warrants
and, until such time as the Conversion Shares and the Warrant Shares have been
registered under the Securities Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144(k) (or a successor
rule), the Conversion Shares and the Warrant Shares shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under such Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required
under such Act or unless sold pursuant to Rule 144 under such
Act."
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<PAGE>
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the Securities Act or otherwise may be sold
pursuant to Rule 144(k) (or a successor rule), or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions and given by counsel reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act and such sale
or transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 and such sale is
effected. The Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement has been duly authorized,
executed and delivered on behalf of the Purchaser and is a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms. The Registration Rights Agreement has been duly authorized and, when
executed and delivered on behalf of the Purchaser, will be a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
under the Purchaser's name on the Execution Page hereto executed by the
Purchaser.
j. Transactions in the Common Stock. Purchaser has not sold (including
any short sale), offered to sell, granted any option or purchased any contract
to sell, or granted any option or purchased any contract to buy, any Common
Stock during the period commencing 20 trading days prior to the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own, lease and operate
its properties and to carry on its business as and where now owned, leased,
used, operated and conducted. Schedule 3(a) sets forth a list of all of the
Subsidiaries of the Company and the jurisdiction in which each is incorporated.
The Company and each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership or use of property or the nature of the business conducted
by it makes such qualification necessary and where the failure so to qualify
would have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any
material adverse effect on (i) the Securities, (ii) the ability of the Company
to perform its obligations hereunder or under the Note or the Registration
Rights Agreement or (iii) the business, operations, properties, prospects or
financial condition of the
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<PAGE>
Company and its Subsidiaries, taken as a whole. "SUBSIDIARY" shall have the
meaning set forth in Regulation S-X promulgated by the SEC.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Note, the Warrants and the Registration Rights Agreement, to
issue and sell the Note in accordance with the terms hereof, to issue the
Conversion Shares upon conversion of or otherwise pursuant to the Note in
accordance with the terms thereof, to issue the Warrants in accordance with the
terms of the Note and to issue the Warrant Shares in accordance with the terms
of the Warrants; (ii) the execution, delivery and performance of this Agreement,
the Note, the Warrants and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Note and the Warrants and
the issuance and reservation for issuance of the Conversion Shares and the
Warrant Shares, subject to the terms and conditions set forth in the Note) have
been duly authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors or its stockholders is
required, except as contemplated by Article II.A.2 of the Note and Section
7(g)(ii) of the Warrants; (iii) this Agreement has been duly executed and
delivered by the Company; and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement, the
Note and the Warrants, such agreements will constitute, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Note and the Warrants)
exercisable for, or convertible into or exchangeable for any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of or
otherwise pursuant to the Note and upon exercise of or otherwise pursuant to the
Warrants is set forth on Schedule 3(c). All of such outstanding shares of
capital stock have been, or upon issuance will be, validly issued, fully paid
and nonassessable. No shares of the authorized and unissued capital stock of the
Company (including the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as disclosed in
Schedule 3(c), as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights convertible into
or exercisable or exchangeable for, any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement) and (iii) there are no anti-
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<PAGE>
dilution or price adjustment provisions contained in any security issued by the
Company (or in any agreement providing rights to security holders). Except as
set forth on Schedule 3(c), there are no securities or instruments containing
antidilution or similar provisions that will be triggered by the issuance of the
Securities in accordance with the terms of this Agreement, the Note or the
Warrants. The Company has furnished to the Purchaser true and correct copies of
the Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's Bylaws as in effect on the date
hereof (the "BY-LAWS"), and all other instruments and agreements to which the
Company is a party governing securities convertible into or exercisable or
exchangeable for capital stock of the Company other than (i) agreements under
the Company's option and stock plans for its directors, officers and employees
in accordance with such plans, (ii) the Jamco Warrant (defined below), and (iii)
warrants the Company has agreed to issue to investment banking firms exercisable
for up to 200,000 shares of Common Stock at an exercise price per share of
Common Stock equal to or greater than the closing sale price of the Common Stock
on the trading day immediately preceding the date such warrants are issued.
d. Issuance of Shares. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance and, (i) upon conversion of the Note
in accordance with the terms thereof and (ii) exercise of the Warrants in
accordance with the terms thereof and the terms of the Note, will be validly
issued, fully paid and non-assessable, and free from all taxes (other than taxes
payable by the Company), liens, claims and encumbrances (other than such as may
arise from obligations or agreements of the Purchaser) and will not be subject
to preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Note and the Warrants by the
Company, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Note, the Warrants and the Conversion Shares
and the Warrant Shares) will not (i) conflict with or result in a violation of
any provision of the Certificate of Incorporation or By-laws or (ii) conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which with notice or lapse of time or both could become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
U.S. federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
(except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, could put the Company or any of its
Subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any
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agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or any
of its Subsidiaries is bound or affected, except for actual or possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
Subsidiaries are not being conducted, and shall not be conducted so long as the
Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for actual or possible violations,
if any, the sanctions for which either singly or in the aggregate would not have
a Material Adverse Effect. Subject to the accuracy of the representations and
warranties of the Purchaser set forth herein, except as specifically
contemplated by this Agreement and the Note and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency, the NASDAQ National Market ("NASDAQ") or any third party
in order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Note or the Warrants, in each
case in accordance with the terms hereof or thereof, other than such as will
have been made or obtained by the Closing. Except as disclosed in SCHEDULE 3(E),
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company is not in violation of the maintenance
requirements of NASDAQ and does not reasonably anticipate that the Common Stock
will be delisted by NASDAQ for the foreseeable future.
f. SEC Documents, Financial Statements. Since July 27, 1998, the date
on which the Company completed its initial public offering (the "IPO DATE"), the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the United States Securities and
Exchange Commission ("SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of the
foregoing filed prior to the date hereof and on or after the IPO Date and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to the Purchaser true
and complete copies of the SEC Documents, except for the exhibits and schedules
thereto and the documents incorporated therein. As of their respective dates,
the SEC Documents complied in all material respects with the applicable
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited
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interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to immaterial year-end audit adjustments). Except as set forth in
the financial statements of the Company included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements, (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, (iii)
liabilities related to the proposed acquisition of MPG-Net, Inc. and (iv)
liabilities related to borrowings under lines of credit in existence on the date
of such financial statements (which liabilities and obligations referred to in
clauses (i) and (ii), individually or in the aggregate, are not material to the
financial condition or operating results of the Company).
g. Absence of Certain Changes. Since December 31, 1997, there has been
no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company and its Subsidiaries, except as disclosed
in or as contemplated by the SEC Documents.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, claim, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, any of its Subsidiaries, or any of
their respective directors or officers in their capacities as such that could
have a Material Adverse Effect. There are no facts which, if known by a
potential claimant or governmental authority, could give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its Subsidiaries, could have a Material Adverse Effect.
i. Intellectual Property. Each of the Company and its Subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTELLECTUAL
PROPERTY") necessary for the conduct of its business as now being conducted and
as described in the Company's Prospectus dated July 21, 1998 included in the
Company's Registration Statement on Form SB-2, SEC File No. 333-53755. To the
knowledge of the Company, neither the Company nor any of its Subsidiaries
infringes or is in conflict with any right of any other person with respect to
any Intellectual Property which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has received
written notice of any pending conflict with or infringement upon such third
party Intellectual Property. Neither the Company nor any of its Subsidiaries has
entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's or its Subsidiaries'
ownership or right to use its Intellectual Property and,
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to the knowledge of the Company, there is no reasonable basis for any such claim
to be successful. The Intellectual Property is valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. The Company and its
Subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intellectual Property
used pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intellectual Property owned or used by the
Company of its Subsidiaries. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
j. No Materially Adverse Contracts, Etc. Except as disclosed in the SEC
Documents, neither the Company nor any of its Subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which, to the knowledge of the Company, has or could
reasonably be expected in the future to have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to any contract or agreement
which, to the knowledge of the Company, has or is expected to have a Material
Adverse Effect.
k. Year 2000 Compliance. All of the Company's computer software and
computer hardware, and other similar or related items of automated, computerized
or software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant, except to the extent any noncompliance would not have a Material
Adverse Effect. For purposes of this Agreement, the term "YEAR 2000 COMPLIANT"
means, with respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and the Information Technology used during each such
time period will accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of date or time data, to the
extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it.
l. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
m. Disclosure. All information relating to or concerning the Company or
its Subsidiaries set forth in this Agreement or provided to the Purchaser
pursuant to Section 2(d) hereof or in the
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SEC Documents and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to a primary
issuance of the Company's securities other than (i) the proposed acquisition by
the Company of MPG-Net, Inc., (ii) financial information relating to the
Company's fiscal year ended December 31, 1998, (iii) events or circumstances
contemplated by the SEC Documents and (iv) such events or circumstances that
have occurred or exist in the ordinary course of the Company's business.
n. Acknowledgment Regarding the Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of an arm's- length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement or the transactions
contemplated hereby and that any statement made by the Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Purchaser's purchase of Securities and, except for the representations
and warranties of the Purchaser set forth in Section 2 hereof, has not been
relied upon by the Company, its officers or directors in any way. The Company
further represents to the Purchaser that the Company's decision to enter into
this Agreement has been based solely on an independent evaluation by the Company
and its representatives.
o. Form SB-2 and S-1 Eligibility. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form SB-2
or S-1 under the Securities Act. There exist no facts or circumstances known to
the Company that would prohibit the preparation and filing of a registration
statement on Form SB-2 or S-1 with respect to the Registrable Securities (as
defined in the Registration Rights Agreement) within the time periods referred
to therein.
p. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
q. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any other offering of securities of the
Company (past, current or future) for purposes of any stockholder approval
provisions applicable to the Company or its securities.
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r. Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Jamco Holding, Inc. ("JAMCO"),
whose commissions and fees will be paid by the Company. The Company has agreed
to issue a warrant to Jamco (the "JAMCO WARRANT") exercisable for up to 200,000
shares of Common Stock in connection with this Agreement and the transactions
contemplated hereby and no other securities of the Company will be issued to
Jamco in connection with this Agreement and the transactions contemplated
hereby. The Jamco Warrant shall contain terms and conditions satisfactory to
Purchaser.
s. Acknowledgment of Dilution. The Company understands and acknowledges
the potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of or otherwise pursuant to the Note and upon
issuance of the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. The Company has studied and fully understands the nature of the
Securities being sold hereunder. The Company acknowledges that its obligation to
issue Conversion Shares in accordance with the terms of the Note and to issue
the Warrant Shares in accordance with the terms of the Warrants is absolute and
unconditional, regardless of the dilution that such issuance may have on the
ownership interests of other stockholders. Taking the foregoing into account,
the Company's Board of Directors has determined in its good faith business
judgment that the issuance of the Note hereunder and the issuance of the
Warrants in accordance with the terms of the Note and the consummation of the
other transactions contemplated hereby and thereby are in the best interests of
the Company and its stockholders.
t. Tax Status. Except as set forth in the SEC Documents or on Schedule
3(t), the Company and each of its Subsidiaries has made or filed all federal,
state, foreign and local income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any federal, state or local tax. None of the Company's tax returns
has been or is being audited by any taxing authority.
u. Certain Transactions. Except as set forth in the SEC Documents, and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees,
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officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
v. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(v) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its Subsidiaries. Any real property and facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
w. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "COMPANY PERMITS"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits, except for such
Company Permits the absence of which would not have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since the IPO
Date, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
x. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
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4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees, if required, to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to the Purchaser promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Purchaser pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States or obtain exemption therefrom, and shall
provide evidence of any such action so taken to the Purchaser on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Forms SB-2, S-1 and S-3. The
Company's Common Stock is registered under Section 12(g) of the Exchange Act. So
long as the Purchaser beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination. The Company
meets the "registrant eligibility" requirements set forth in the general
instructions to Forms SB-2 and S-1 and will take all action necessary to
continue to meet such requirements. From and after such time as the Company
meets the "registrant eligibility" requirements set forth in the general
instructions to Form S-3 or any successor form, the Company will use its best
efforts to continue to meet such requirements.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Note in the manner set forth in Schedule 4(d) attached hereto and shall not,
except as set forth in such Schedule 4(d), directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries).
e. Additional Equity Capital; Right of First Offer. Subject to the
exceptions described below, the Company agrees that during the period (the
"LOCK-UP PERIOD") beginning on the date hereof and ending on the date that is
180 days after the effective date of the Registration Statement (as defined in
the Registration Rights Agreement) required pursuant to Section 2(a) of the
Registration Rights Agreement, the Company will not, without the prior written
consent of the Purchaser, contract with any party to obtain additional financing
in which any equity or equity- linked securities are issued (including any debt
financing with an equity component) ("FUTURE OFFERINGS"). In addition, the
Company will not conduct any Future Offering during the 180-day period
immediately following the expiration of the Lock-Up Period, unless it shall have
first delivered to the Purchaser, at least 15 days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing the Purchaser and its
affiliates an option during the ten-day period following delivery of such notice
to purchase all of the securities being offered in the Future Offering on the
same terms
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as contemplated by such Future Offering (the limitations referred to in this and
the immediately preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). The Capital Raising Limitations shall not apply to (i)
any transaction involving issuances of securities as consideration in a merger,
consolidation or acquisition of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or as consideration for the acquisition of a business, product
or license by the Company, (ii) the issuance of securities pursuant to a firm
commitment underwritten public offering (other than a continuous offering
pursuant to Rule 415 of the SEC), (iii) the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof and/or disclosed on Schedule 3(c) hereto, (iv)
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the stockholders of the Company, (v) the issuance of Common Stock or securities
convertible into or exchangeable for Common Stock in a private placement by the
Company (A) that is consummated within the Lock-Up Period, and (B) wherein the
cash consideration received by the Company for each share of Common Stock issued
in such private placement, or for each security (or portion thereof) convertible
or exchangeable into one share of Common Stock, is equal to or greater than the
product of (x) two multiplied by (y) the Fixed Conversion Price (as defined in
the Note) or (vi) the issuance of warrants by the Company to an institutional
lender in connection with a commercial loan facility permitted by Article III.C
of the Note at an exercise price equal to or greater than the closing sale price
of the Common Stock on the trading day immediately preceding the date such
warrants are issued.
f. Expenses. The Company shall pay to Rose Glen Capital Management,
L.P. at the Closing a non-accountable expense allowance equal to $30,000
($10,000 of which has been previously paid by the Company) for the expenses
incurred by it in connection with the negotiation, preparation, execution and
delivery of this Agreement and the other agreements to be executed in connection
herewith, including, without limitation, attorneys' and consultants' fees and
expenses.
g. Financial Information. The Company agrees to send the following
reports to the Purchaser until the Purchaser transfers, assigns or sells all of
its Securities: (i) within ten days after the filing with the SEC, a copy of its
Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, its proxy
statements and any Current Reports on Form 8-K; (ii) within one day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving to
the stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the Note and
issuance of the Conversion Shares in connection therewith (based on the lesser
of the Market Price in effect from time to time and the Fixed Conversion Price
(each as defined in the Note)) and as otherwise required by, and subject to the
terms and conditions of, the Note and the full exercise of the Warrants and the
issuance of the Warrant Shares in connection therewith (based on the Exercise
Price (as defined in the Warrants) in effect from time to time
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thereunder) and as otherwise required by the Warrant. The Company shall not
reduce the number of shares reserved for issuance upon conversion of or
otherwise pursuant to the Note and upon exercise of or otherwise pursuant to the
Warrants (except as a result of any such conversion or exercise thereof) without
the consent of the Purchaser. The Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for issuance
at no less than two times the number that is then actually issuable upon full
conversion of the Note (based on the lesser of the Market Price in effect from
time to time and the Fixed Conversion Price) and full exercise of the Warrants
(based on the Exercise Price (as defined in the Warrants) in effect from time to
time thereunder), subject to the limitations on issuance contained in Article
II.A(2) of the Note and Section 7(g)(ii) of the Warrants until such time as a
Triggering Event (as defined in the Note) occurs, and thereafter without regard
to such limitations. If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the aggregate number of Conversion
Shares issued and issuable upon conversion of or otherwise pursuant to the Note
(based on the lesser of the Market Price in effect from time to time and the
Fixed Conversion Price) and the aggregate number of Warrant Shares issued and
issuable upon exercise of or otherwise pursuant to the Warrants (based on the
Exercise Price (as defined in the Warrants) in effect from time to time
thereunder), subject to the limitations on issuance contained in Article II.A(2)
of the Note and Section 7(g)(ii) of the Warrants until such time as a Triggering
Event occurs, and thereafter without regard to such limitations, the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain shareholder approval of
an increase in such authorized number of shares.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and the Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of or otherwise
pursuant to the Note and all Warrant Shares from time to time issuable upon
exercise of or otherwise pursuant to the Warrants, subject to the limitations on
issuance contained in Article II.A(2) of the Note and Section 7(g)(ii) of the
Warrants until such time as a Triggering Event occurs and thereafter without
regard to such limitations. The Company will use its best efforts to continue
the listing and trading of its Common Stock on the NASDAQ, the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers, Inc. ("NASD")
and such exchanges, as applicable. In the event the Common Stock is not eligible
to be traded on any of the NASDAQ, the NYSE or the AMEX and the Common Stock is
not eligible for listing on any such exchange or system, the Company shall use
its best efforts to cause the Common Stock to be eligible for trading on the
NASDAQ SmallCap Market or the over-the-counter bulletin board at the earliest
practicable date and remain eligible for trading while any Conversion Shares are
outstanding. The Company shall provide to the Purchaser and any holder of the
Note copies of any notices it receives from NASDAQ and any other exchanges or
quotation system on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on
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such exchanges and quotation systems simultaneously with or promptly after such
notices are publicly available.
j. [Intentionally Omitted]
k. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
l. Redemptions and Dividends. So long as the Purchaser beneficially
owns the Note, the Company shall not, without first obtaining the written
approval of the Purchaser, redeem, or declare or pay any cash dividend or
distribution on, any shares of capital stock of the Company.
m. Trading Limitations. So long as the Purchaser owns any Securities,
the Purchaser shall not sell shares of Common Stock in any calendar month in
excess of the product of (i) 25% multiplied by (ii) the total trading volume of
the Common Stock for the immediately preceding calendar month as reported by the
principal securities exchange or trading market on which the Common Stock is
then listed or admitted for trading; provided, however, the foregoing limitation
shall not (A) restrict the Purchaser from selling in any trading day a number of
shares not exceeding 15% of the total trading volume of the Common Stock (as so
reported) for such trading day or (B) apply to block sales of at least 10,000
shares of Common Stock to a single purchaser. The Purchaser will conduct all
transactions in the Common Stock in compliance with applicable securities laws
and will not execute a trade at or below the then low trading price of the
Common Stock.
n. Voting Agreements; Waivers.
(i) The Company shall cause each of James W. Stealey, David H.
Kestel, as trustee of certain trusts for Mr. Stealey's children, and Vertical
Financial Holdings (each a "STOCKHOLDER" and collectively, the "STOCKHOLDERS")
to execute and deliver to the Purchaser, prior to or simultaneously with the
Closing hereunder, irrevocable voting agreements (the "VOTING AGREEMENTS")
pursuant to which each such Stockholder agrees to vote all shares of the capital
stock of the Company (A) which are identified under the caption "Principal
Shareholders" in the Company's Registration Statement on Form SB-2, SEC File No.
333-53755, as being beneficially owned by such Stockholder or over which such
Stockholder has voting power and (B) which such Stockholder may subsequently
acquire beneficial ownership of, or voting power with respect to, in favor of
this Agreement, the Note, the Warrants and the transactions contemplated hereby
and thereby (including, without limitation, the issuance of the Note and the
Warrants, the issuance of Conversion Shares upon conversion of or otherwise
pursuant to the Note and the issuance of Warrant Shares upon exercise of or
otherwise pursuant to the Warrants) at any meeting of the stockholders of the
Company or any other circumstance when such stockholders are entitled to vote
with respect thereto, whether pursuant to the Company's obligation to seek and
obtain the Stockholder Approval (as defined in the Note) or otherwise. The
Voting Agreements shall also
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contain waivers by the Stockholders of their right to require the Company to
include any shares of the capital stock of the Company which they beneficially
own, or have voting power with respect to, in any Registration Statement (as
defined in the Registration Rights Agreement) required to be filed by the
Company pursuant to the Registration Rights Agreement.
(ii) The Company agrees that any registration rights to be
granted to the shareholders of MPG-Net, Inc. in connection with the Company's
acquisition of MPG-Net, Inc. shall exclude the right to have the shares of the
Company's capital stock to be issued to such shareholders in connection with
such acquisition included in any Registration Statement (as defined in the
Registration Rights Agreement) required to be filed by the Company pursuant to
the Registration Rights Agreement.
(iii) The Company shall cause each of Bluestone Capital
Partners, L.P. and Royce Investment Group, Inc. (each an "UNDERWRITER" and
collectively, the "UNDERWRITERS") to execute and deliver to the Purchaser, prior
to or simultaneously with the Closing hereunder, waivers (the "WAIVERS") by the
Underwriters of their right to require the Company to include any shares of the
capital stock of the Company which they beneficially own or have voting power
with respect to in any Registration Statement (as defined in the Registration
Rights Agreement) required to be filed by the Company pursuant to the
Registration Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates, registered in the name of the Purchaser or its nominee,
for the Conversion Shares and the Warrant Shares in such amounts as specified
from time to time by the Purchaser to the Company upon conversion of the Note
and upon exercise of the Warrants in accordance with the terms thereof (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares and the Warrant Shares under the Securities Act or the date on
which such shares may be sold pursuant to Rule 144(k) (or any successor rule),
all such certificates shall bear the restrictive legend specified in Section
2(g) of this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Sections 2(f) and 2(g) hereof (in the
case of the Conversion Shares and the Warrant Shares, prior to registration of
the Conversion Shares and the Warrant Shares under the Securities Act or the
date on which the Conversion Shares and the Warrant Shares may be sold pursuant
to Rule 144(k) (or any successor rule), will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company to the extent provided, and subject to the
terms and conditions of, this Agreement, the Note and the Registration Rights
Agreement. Nothing in this Section shall affect in any way the Purchaser's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon resale of the
Securities. If the Purchaser provides the Company with (i) an opinion of
counsel, in form, substance and scope customary for opinions in comparable
transactions and given by counsel reasonably acceptable to the Company, to the
effect that a public sale or transfer of such Securities may be made without
registration under the Securities Act and such sale or transfer is effected or
(ii) the Purchaser provides reasonable assurances that the
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Securities can be sold pursuant to Rule 144 and such sale is effected, the
Company shall permit the transfer, and, in the case of the Conversion Shares and
the Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates, free from any restrictive legend, in such name and in such
denominations as specified by the Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Note to
the Purchaser hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
a. The Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered such pages to the
Company.
b. The Purchaser shall have delivered the Purchase Price in accordance
with Section 1(b).
c. The representations and warranties of the Purchaser shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the Purchaser shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Purchaser at
or prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of any of the transactions contemplated by this Agreement.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of the Purchaser hereunder to purchase the Note
hereunder is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in the
Purchaser's sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered such pages to the
Purchaser.
b. The Company shall have delivered to the Purchaser the duly executed
Note (in such denominations as such Purchaser shall request) in accordance with
Section 1(b).
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c. The Common Stock shall be authorized for quotation on NASDAQ and
trading in the Common Stock (or NASDAQ generally) shall not have been suspended
by the SEC or NASDAQ.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Purchaser.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
f. The Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto.
g. The Irrevocable Transfer Agent Instructions, in the form attached
hereto as Exhibit D, shall have been delivered to and acknowledged in writing by
the Company's transfer agent and a copy of such instructions and acknowledgment
shall have been delivered to the Purchaser.
h. No material adverse change or development in the business,
operations, properties, prospects, financial condition, or results of operations
of the Company shall have occurred since the date hereof.
i. The Company shall have delivered to the Purchaser the Voting
Agreement(s) in form and substance satisfactory to the Purchaser, duly executed
by each of the Stockholders, and the Waiver(s) in form and substance
satisfactory to the Purchaser, duly executed by each of the Underwriters.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York (without regard to
principles of conflict of laws). The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
New York County, New York in any suit or proceeding based on or arising under
this
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Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agrees that all
claims in respect of such suit or proceeding may be determined in such courts.
The Company irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company further agrees that service
of process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of the Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which 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. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
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If to the Company:
Interactive Magic, Inc.
215 Southport Drive, Suite 1000
Morrisville, NC 27560
Facsimile: (919) 461-0723
Attention: Chief Executive Officer
If to the Purchaser, to the address set forth under the Purchaser's
name on the signature page hereto executed by the Purchaser. Each party shall
provide notice to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor the Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing,
the Purchaser may assign its rights hereunder to any person that purchases
Securities in a private transaction from the Purchaser in accordance with the
securities laws or to any of the Purchaser's "affiliates," as that term is
defined under the Exchange Act, without the consent of the Company or to any
other person or entity with the consent of the Company. This provision shall not
limit the Purchaser's right to transfer the Securities pursuant to the terms of
this Agreement, the Note, the Warrants or the Registration Rights Agreement or
to assign the Purchaser's rights hereunder or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder until the Purchaser no longer beneficially owns any Securities
notwithstanding any due diligence investigation conducted by or on behalf of the
Purchaser. Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies the Purchaser may
have under applicable federal or state securities laws. The Company agrees to
indemnify and hold harmless the Purchaser and each of the Purchaser's officers,
directors, employees, partners, members, agents and affiliates for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties or covenants set forth herein
or in the Registration Rights Agreement, including advancement of expenses as
they are incurred.
j. Publicity. The Company and the Purchaser shall have the right to
review a reasonable period of time before issuance any press releases, SEC,
NASDAQ or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be
entitled, without the prior approval of the Purchaser, to make any press release
or SEC, NASDAQ or NASD filings with respect to such transactions as is required
by
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applicable law and regulations (although the Purchaser shall be consulted by the
Company in connection with any such press release prior to its release and shall
be provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Note, the
Warrants and the Registration Rights Agreement. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
m. Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that the
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
INTERACTIVE MAGIC, INC.
By: /s/ J. W. Stealey
----------------------
Name: J. W. Stealey
---------------------
Title: Chairman and Chief Executive Officer
------------------------------------
PURCHASER:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Steve Katznelson
----------------------------
Name: Steve Katznelson
-----------------------
Managing Director
RESIDENCE: Cayman Islands
ADDRESS: c/o Rose Glen Capital Management, L.P.
Three Bala Plaza East
Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: 610-617-0570
Telephone: 610-617-5900
with copies of all notices to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Robert W. Cleveland, Esquire
EXHIBIT 10.29
EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
THIS CONVERTIBLE NOTE AND THE SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH
ACT.
CONVERTIBLE NOTE
----------------
January 26, 1999 $4,000,000
FOR VALUE RECEIVED, INTERACTIVE MAGIC, INC., a corporation
organized under the laws of the State of North Carolina (hereinafter called the
"BORROWER" or the "CORPORATION") hereby promises to pay to the order of RGC
INTERNATIONAL INVESTORS, LDC or registered assigns (the "HOLDER") the sum of
Four Million Dollars ($4,000,000) on January 26, 2002 (the "AUTOMATIC CONVERSION
DATE") and to pay interest on the unpaid principal balance hereof at the rate of
six percent (6%) per annum from the date hereof (the "ISSUE DATE") until the
same becomes due and payable (which interest shall accrue on a daily basis),
whether at maturity or upon conversion, redemption, acceleration or otherwise.
Any amount of principal of or interest on this Note which, to the extent not
converted in accordance with the provisions hereof, is not paid when due shall
bear interest at the rate of fifteen percent (15%) per annum from the due date
thereof until the same is paid. Interest shall be calculated based on a 360-day
year and shall commence accruing on the Issue Date and, to the extent not
converted in accordance with the provisions hereof, shall be payable in arrears
at such time as the outstanding principal balance hereof with respect to which
such interest has accrued becomes due and payable hereunder. All payments of
principal and interest (to the extent not converted into shares of the
Corporation's common stock, par value $.10 per share ("COMMON STOCK"), in
accordance with the terms hereof) shall be made in, and all references herein to
monetary denominations shall refer to, lawful money of the United States of
America. All payments shall be made at such address as Holder shall hereafter
give to the Borrower by written notice made in accordance with the provisions of
this Note. The Automatic Conversion Date is subject to extension as provided in
Article IV hereof.
<PAGE>
This Note is being issued by the Borrower pursuant to the Securities
Purchase Agreement, dated as of January 25, 1999, between the Borrower and
Holder (the "PURCHASE AGREEMENT"). Each capitalized term used, but not otherwise
defined, herein shall have the meaning ascribed thereto in the Purchase
Agreement. For purposes hereof, the term "NOTES" shall be deemed to refer to
this Note, all other convertible notes issued pursuant to the Purchase Agreement
and all convertible notes issued in replacement hereof or thereof or otherwise
with respect hereto or thereto.
I. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each,
a "MANDATORY REDEMPTION EVENT") shall occur:
(1) The Corporation (i) fails to issue shares of Common Stock
or Warrants to the holders of the Notes upon exercise by the holders of their
conversion rights in accordance with the terms of the Notes (for a period of at
least 60 days if such failure is solely as a result of the circumstances
governed by the second paragraph of Article II.F below and the Corporation is
using its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable), (ii) fails to transfer or to cause its transfer
agent to transfer (electronically or in certificated form) any certificate for
shares of Common Stock issued to the holders upon conversion of or otherwise
pursuant to the Notes or upon exercise of or otherwise pursuant to the Warrants
(as defined in Article II.E below) as and when required by the Notes, the
Warrants or the Registration Rights Agreement, dated as of January 25, 1999, by
and among the Corporation and the other signatories thereto (the "REGISTRATION
RIGHTS AGREEMENT"), (iii) fails to remove any restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate or any
shares of Common Stock issued to the holders of the Notes upon conversion of or
otherwise pursuant to the Notes or upon exercise of or otherwise pursuant to the
Warrants as and when required by the Notes, the Warrants, the Purchase Agreement
or the Registration Rights Agreement, or (iv) fails to fulfill its obligations
pursuant to Sections 4(c), 4(e), 4(h), 4(i), 4(l) or 5 of the Purchase Agreement
(or makes any announcement, statement or threat that it does not intend to honor
the obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten days after the Corporation shall have
been notified thereof in writing by any holder of the Notes;
(2) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") prior to June 25, 1999 of the
Registration Statement(s) (as defined in the Registration Rights Agreement, the
"REGISTRATION STATEMENT(S)") required to be filed pursuant to Section 2(a) of
the Registration Rights Agreement, or fails to obtain the effectiveness of any
additional Registration Statement (required to be filed pursuant to Section 3(b)
of the Registration Rights Agreement) within 120 days after the Registration
Trigger Date (as defined in the Registration Rights Agreement), or any such
Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement, the "REGISTRABLE SECURITIES") otherwise cannot be
made thereunder (whether by reason of the
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<PAGE>
Corporation's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement, the Corporation's failure to
file and obtain effectiveness with the SEC of an additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than 30 consecutive days or more than 60 days in any 12-
month period after such Registration Statement becomes effective;
(3) The Corporation or any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for all or substantially all of
its property or business; or such a receiver or trustee shall otherwise be
appointed and shall not be discharged within 30 days;
(4) Bankruptcy, insolvency, reorganization 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 Corporation or
any material subsidiary of the Corporation and, if not instituted by the
Corporation or any such subsidiary, shall be consented to or acquiesced in by
the Corporation or such subsidiary, shall be converted to a voluntary case or
shall remain for 60 days undismissed;
(5) The Corporation shall fail to maintain the listing of the
Common Stock on one of the Nasdaq National Market ("NASDAQ"), the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX");
(6) The sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of (other than
transactions described in subparagraph (7) or (8) below, which shall be governed
by such subparagraphs);
(7) the consolidation, merger or other business combination of
the Corporation with or into any other individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization (each a "PERSON") or Persons when the Corporation is not the
Survivor (as defined below) and either (i) the Survivor is not subject to the
periodic filing requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "SEC FILING REQUIREMENTS"), or (ii) the Survivor is subject to
the SEC Filing Requirements and the consideration to be paid to the stockholders
of the Corporation in such transactions consists of cash or a combination of
cash and securities or other property;
(8) the consolidation, merger or other business combination of
the Corporation with or into any other Person or Persons when the Corporation is
not the Survivor and (i) the Survivor is subject to the SEC Filing Requirements,
(ii) the consideration to be paid to the stockholders of the Corporation in such
transaction consists solely of capital stock of the Survivor and (iii) (A) the
average of the Closing Bid Prices of the Common Stock for the 20 consecutive
Trading Days (as defined in Article II.B) ending on the later of (I) the third
Trading Day immediately preceding the closing of such transaction, and (II) the
date such transaction is approved
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by the holders of the requisite percentage of outstanding capital stock of the
Corporation (such later date, the "MEASUREMENT DATE") (such average being
hereinafter referred to as the "AVERAGE PRICE") is less than the product of (x)
two, multiplied by (y) the Conversion Price in effect on the Measurement Date or
(B) if the Average Price is equal to or greater than the product of (x) two,
multiplied by (y) the Conversion Price in effect on the Measurement Date, the
Closing Bid Price of the Common Stock on the Trading Day immediately preceding
the Measurement Date is less than the Average Price; or
(9) The Corporation breaches in any material respect any
covenant contained in Article III hereof and such breach continues uncured for a
period of ten days after written notice thereof to the Corporation from any
holder of Notes;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (1), (2), (5), (6), (8) or (9) at
the option of the holders of at least 50% of the then outstanding principal
amount of the Notes exercisable by the delivery of written notice (the
"MANDATORY REDEMPTION NOTICE") to the Corporation of such Mandatory Redemption
Event, or upon the occurrence of any Mandatory Redemption Event specified in
subparagraphs (3), (4) or (7) the Notes shall become immediately redeemable and
the Corporation shall purchase each holder's Notes for an amount equal to the
greater of (i) 120% multiplied by the sum of (a) the then outstanding principal
amount of the Notes, plus (b) all accrued and unpaid interest thereon for the
period beginning on the Issue Date and ending on the date of payment of the
Mandatory Redemption Amount (the "MANDATORY REDEMPTION DATE"), plus (c) all
Conversion Default Payments (as defined in Article II.F below), Delivery Default
Payments (as defined in Article II.D(3) below) and any other amounts owed to
such holder pursuant to Section 2(c) of the Registration Rights Agreement, and
(ii) the "PARITY VALUE" of the Notes to be redeemed, where parity value means
(except as provided below with respect to a Mandatory Redemption Event described
in subparagraph (7) above) the product of (a) the highest number of shares of
Common Stock issuable upon conversion of such Notes in accordance with Article
II below (without giving any effect to any limitations on conversions of Notes
contained herein, and treating the Trading Day immediately preceding the
Mandatory Redemption Date as the "CONVERSION DATE" (as defined in Article
II.B(1)) for purposes of determining the lowest applicable Conversion Price,
unless the Mandatory Redemption Event arises as a result of a breach in respect
of a specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Bid Price (as defined in
Article II.B(1)) for the Common Stock during the period beginning on the date of
first occurrence of the Mandatory Redemption Event and ending one day prior to
the Mandatory Redemption Date (the greater of such amounts being referred to as
the "MANDATORY REDEMPTION AMOUNT"). In the case of a Mandatory Redemption Event
described in subparagraph (7) above, "parity value" means the product of (a) the
highest number of shares of Common Stock issuable upon conversion of the Notes
to be redeemed in accordance with Article II below (without giving effect to any
limitations on conversions of Notes contained herein) based on the lowest
Conversion Price that would have been in effect for a conversion occurring on
any Trading Day during the period beginning on the Announcement Date (as defined
in Article II.B(2)) with respect to the transaction giving rise to such
Mandatory Redemption Event and ending on the Measurement Date (the "MEASUREMENT
PERIOD"), multiplied by (b) the highest Closing Bid Price for the Common
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Stock during the Measurement Period. The Mandatory Redemption Amount, together
with all other ancillary amounts payable hereunder, shall immediately become due
and payable, all without demand, presentment or notice, all of which hereby are
expressly waived, together with all costs, including, without limitation,
reasonable legal fees and expenses of collection, and Holder shall be entitled
to exercise all other rights and remedies available at law or in equity. For
purposes of this Agreement, "Survivor" means, with respect to any consolidation,
merger or other business combination to which the Corporation is a party, the
surviving entity of such transaction; provided, however, if the Corporation
merges with and into another Person and more than 50% of the outstanding voting
stock of the Corporation (if the Corporation is the surviving entity), or more
than 50% of the outstanding voting stock of such Person (if such Person is the
surviving entity), is owned by another Person that is subject to the SEC Filing
Requirements, then the Person subject to such requirements shall be deemed the
Survivor.
B. TRADING MARKET REDEMPTION. If any Notes cease to be
convertible by any holder as a result of the limitations described in Article
II.A(2) below (a "TRADING MARKET REDEMPTION EVENT"), and the Corporation has
not, prior to the date that such Trading Market Redemption Event arises, (1)
either (i) obtained the Stockholder Approval (as defined in Article II.A(2)) or
(ii) eliminated any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any of
its securities on the Corporation's ability to issue shares of Common Stock in
excess of the Maximum Share Amount (as defined in Article II.A(2)) and (2)
delivered to the holders of the Notes a Share Limit Waiver (as defined in
Article II.A), then the Corporation shall be obligated to redeem immediately all
of the then outstanding principal amount of the Notes, in accordance with this
Article I.B. An irrevocable redemption notice (the "TRADING MARKET REDEMPTION
NOTICE") shall be delivered promptly to the holders of the Notes in accordance
with the terms hereof and shall state (i) that the Maximum Share Amount (as
defined in Article II.A(2)) has been issued upon conversion of the Notes, (ii)
that the Corporation is obligated to redeem all of the outstanding Notes and
(iii) the Mandatory Redemption Date, which shall be a date within five business
days of the earlier of (a) the date of the Trading Market Redemption Notice or
(b) the date on which the holders of the Notes notify the Corporation of the
occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Corporation shall make payment of the Mandatory Redemption Amount (as
defined in Article I.A above) in cash.
C. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a
Mandatory Redemption Event, if the Corporation fails to pay the Mandatory
Redemption Amount within five business days of written notice that such amount
is due and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, Holder shall have the right at any
time, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to issue as soon as practicable thereafter (in
accordance with and subject to the terms of Article II below, including
paragraph A(2) thereof), in lieu of the Mandatory Redemption Amount, the number
of shares of Common Stock of the Corporation equal to such applicable redemption
amount divided by any Conversion Price, as chosen in the sole discretion of
Holder, in effect from the date of the Mandatory Redemption Event until the date
Holder elects to exercise its rights pursuant to this Article I.C. In the case
of a Trading Market Redemption Event, if the
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Corporation fails to pay the Mandatory Redemption Amount within five business
days after the occurrence of the Trading Market Redemption Event, the
Corporation shall be required to immediately deliver to the holders of the Notes
the Share Limit Waiver, provided that the conditions set forth in Article
I.B(1)(i) or (ii) have been satisfied.
II. CONVERSION AT THE OPTION OF HOLDER
A. OPTIONAL CONVERSION
(1) CONVERSION AMOUNT. Subject to Article II.A(2) below,
Holder may, at its option at any time and from time to time, upon surrender of
this Note, convert all or any portion of this Note into Common Stock as set
forth below (an "OPTIONAL CONVERSION"). This Note shall be convertible into such
number of fully paid and nonassessable shares of Common Stock as such Common
Stock exists on the Issue Date, or any other shares of capital stock or other
securities of the Corporation into which such Common Stock is thereafter changed
or reclassified, as is determined by dividing (a) the Conversion Amount (as
defined below) by (b) the Conversion Price (as defined in Article II.B below);
provided, however, that in no event (other than pursuant to the Automatic
Conversion (as defined in Article IV)) shall Holder be entitled to convert this
Note to the extent that the sum of (x) the number of shares of Common Stock
beneficially owned by Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of this Note, the unexercised Warrants or the unexercised or
unconverted portion of any other securities of the Corporation subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with respect to which the determination
of this proviso is being made, would result in beneficial ownership by Holder
and Holder's affiliates of more than 4.99% of the outstanding shares of Common
Stock. 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, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso. "CONVERSION AMOUNT"
means the portion of the principal amount of this Note being converted, plus all
accrued and unpaid interest thereon for the period beginning on the Issue Date
and ending on the Conversion Date (as defined in Article II(B)(1)), plus any
Conversion Default Payments (as defined in Article II.F) and Delivery Default
Payments (as defined in Article II.D(3)) payable with respect thereto, together
with any other amounts owed to Holder pursuant to Section 2(c) of the
Registration Rights Agreement.
(2) TRADING MARKET LIMITATION. Unless the Corporation (a)
either (i) is permitted by the applicable rules and regulations of the principal
securities market on which the Common Stock is listed or traded to issue shares
of Common Stock upon conversion of or otherwise pursuant to the Notes and upon
exercise of or otherwise pursuant to the Warrants in excess of the Maximum Share
Amount (as defined below) or (ii) has obtained stockholder approval of the
issuance of shares of Common Stock upon conversion of or otherwise pursuant to
the Notes and upon exercise of or otherwise pursuant to the Warrants in excess
of the Maximum Share Amount
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in accordance with applicable law and the rules and regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities (the
"STOCKHOLDER APPROVAL"), and (b) has provided written notice to the holders of
the Notes that it has waived the restrictions contained in this subparagraph (2)
on issuing shares of Common Stock upon conversion of or otherwise pursuant to
the Notes and upon exercise of or otherwise pursuant to the Warrants in excess
of the Maximum Share Amount (as defined below) (the "SHARE LIMIT WAIVER"), in no
event shall the total number of shares of Common Stock issued upon conversion of
or otherwise pursuant to the Notes and upon exercise of or otherwise pursuant to
the Warrants (including any shares of capital stock or rights to acquire shares
of capital stock issued by the Corporation which are aggregated or integrated
with the Common Stock issued or issuable upon conversion of the Notes and upon
exercise of or otherwise pursuant to the Warrants for purposes of any such rule
or regulation) exceed the maximum number of shares of Common Stock that the
Corporation can so issue pursuant to any rule of the principal United States
securities market on which the Common Stock trades (including Rule 4460(i) of
the Nasdaq Stock Market or any successor rule) (the "MAXIMUM SHARE AMOUNT")
which, as of the Issue Date, shall be 2,119,889 (19.99% of the total shares of
Common Stock outstanding on the Issue Date), subject to equitable adjustments
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the Issue Date. With respect to each Holder of Notes, the Maximum Share Amount
shall refer to such Holder's pro rata share thereof determined in accordance
with Article VI.K below. In the event that (a) the aggregate number of shares of
Common Stock actually issued upon conversion of or otherwise pursuant to the
Notes and upon exercise of or otherwise pursuant to the Warrants represents at
least 50% of the Maximum Share Amount and (b) the sum of (x) the aggregate
number of shares of Common Stock actually issued upon conversion of or otherwise
pursuant to the Notes and upon exercise of or otherwise pursuant to the Warrants
plus (y) the aggregate number of shares of Common Stock that remain issuable
upon conversion of the then outstanding Notes at the then effective Conversion
Price and upon exercise of or otherwise pursuant to the Warrants, represents at
least 100% of the Maximum Share Amount (the "TRIGGERING EVENT"), the Corporation
will use its best efforts to seek and obtain Stockholder Approval (or obtain
such other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event.
B. CONVERSION PRICE.
(1) CALCULATION OF CONVERSION PRICE. Subject to subparagraph
(2) below, the "CONVERSION PRICE" shall be the lesser of the Market Price and
the Fixed Conversion Price. The Conversion Price shall be subject to adjustments
pursuant to the provisions of Article II.C below. "MARKET PRICE" shall mean the
product of (x) the Applicable Percentage (as defined below) and (y) the average
of the lowest Closing Bid Prices on any two Trading Days (which days need not be
consecutive) (the "MARKET PRICE DAYS") during the 22 consecutive Trading Day
period ending one Trading Day prior to the date (the "CONVERSION DATE") the
Notice of Conversion (as defined in Article II.D) is sent by a holder to the
Corporation via facsimile (the "PRICING PERIOD"). The Market Price Days shall be
designated by the converting holder (from among the days comprising the Pricing
Period) in the Notice of Conversion. "FIXED CONVERSION PRICE" shall mean the
product of (x) the Applicable Percentage and (y) $4.0125 (subject to adjustment
for stock splits, stock
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dividends and similar events). The "APPLICABLE PERCENTAGE" shall initially mean,
in the case of the Market Price, 93%, and, in the case of the Fixed Conversion
Price, 120%; provided, however, that on each of the 151st, 211th, 271st, 331st,
391st, 451st, 511th and 571st day after the Issue Date, the Applicable
Percentage shall be reduced by two full percentage points (2%) for a total
reduction of sixteen full percentage points (16%) by such 571st day (for
example, on such 151st day, the Applicable Percentage shall be reduced to, in
the case of the Market Price, 91%, and, in the case of the Fixed Conversion
Price, 118%, in accordance with this proviso); provided, further, however, that
in the event the average daily trading volume of the Common Stock on the
principal market on which the Common Stock is traded (provided such market is at
least one of the Nasdaq, the NYSE or the AMEX) is less than 45,000 shares in any
given calendar month, the Applicable Percentage will be permanently reduced by
an additional two full percentage points (2%) beginning on the first day of the
next succeeding calendar month; provided, further, however, that the Applicable
Percentage shall be permanently reduced by an additional two full percentage
points (2%) (or a pro rata portion thereof) for each 30 day period (or any
portion thereof) with respect to which any Holder is entitled to payments
pursuant to Section 2(c) of the Registration Rights Agreement with such
reduction occurring on each date such payments are due pursuant to the
Registration Rights Agreement; provided, further, however, that in the event the
Corporation's Common Stock is no longer listed and authorized for trading on at
least one of the Nasdaq, the NYSE or the AMEX, the Applicable Percentage will be
permanently reduced by an additional ten full percentage points (10%). The
Applicable Percentage shall be subject to further adjustment as provided herein.
"CLOSING BID PRICE" means, for any security as of any date, the closing bid
price on Nasdaq as reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and hereafter designated by
the holders of a majority in interest of the Notes and the Corporation
("BLOOMBERG") or, if Nasdaq is not the principal trading market for such
security, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price of such
security is available in the over-the-counter market on the electronic bulletin
board for such security or in any of the foregoing manners, the average of the
bid prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of the Notes being
converted for which the calculation of the Closing Bid Price is required in
order to determine the Conversion Price of such Notes. "TRADING DAY" shall mean
any day on which the Common Stock is traded for any period on Nasdaq, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.
(2) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in subparagraph (1) of this Paragraph B to
the contrary, in the event the Corporation (a) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
its capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (b) any person, group or entity (including the
Corporation) publicly announces a
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tender offer to purchase 50% or more of the Corporation's Common Stock (or any
other takeover scheme) (the date of the announcement referred to in clause (a)
or (b) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the
Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal, for each such date, to the lower of (x) the Conversion Price which would
have been applicable for an Optional Conversion occurring on the Announcement
Date and (y) the Conversion Price that would otherwise be in effect on such
date. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in subparagraph (1) of this
Article II.B. For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE"
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this
subparagraph (2) has been made, the date upon which the Corporation (in the case
of clause (a) above) or the person, group or entity (in the case of clause (b)
above) consummates or publicly announces the termination or abandonment of the
proposed transaction or tender offer (or takeover scheme) which caused this
subparagraph (2) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall
be subject to adjustment from time to time as follows:
(1) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If at any time when this Note is outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification or other similar event, which
event shall have taken place during the reference period for determination of
the Conversion Price for any Optional Conversion or Automatic Conversion, then
the Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event. In
such event, the Corporation shall notify the Transfer Agent of such change on or
before the effective date thereof.
(2) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any
time when this Note is outstanding and prior to the conversion of all Notes,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (other than a transaction described in
Article V), as a result of which shares of Common Stock of the Corporation shall
be changed into the same or a different number of shares of another class or
classes of stock or securities of the Corporation or another entity, or in case
of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation, then Holder shall thereafter have the right to receive upon
conversion of this Note, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or assets which
Holder would have been entitled to receive in such transaction had this Note
been converted in full immediately prior to such transaction (without regard to
any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
Holder to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of shares of
Common Stock issuable upon conversion of this Note) shall thereafter be
applicable,
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as nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion of this Note. The Corporation shall
not effect any transaction described in this subparagraph (2) unless (a) it
first gives, to the extent practical, prior written notice of the record date of
the special meeting of stockholders to approve, or if there is no such record
date, the consummation of, such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets to the
extent required by law (during which time Holder shall be entitled to convert
this Note), which notice shall be given concurrently with the first public
announcement of such transaction, and (b) the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument the obligations of
the Corporation hereunder (including under this subparagraph (2)). The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
(3) ADJUSTMENT DUE TO DISTRIBUTION. If the Corporation shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then
Holder shall be entitled, upon any conversion of this Note after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to Holder with respect
to the shares of Common Stock issuable upon conversion had Holder converted the
Note and been the holder of the number of shares of Common Stock into which the
Note was convertible on the record date for the determination of shareholders
entitled to such Distribution.
(4) PURCHASE RIGHTS. If at any time when this Note is
outstanding the Corporation issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock, then Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which Holder could have acquired if Holder had held
the number of shares of Common Stock acquirable upon complete conversion of this
Note (without regard to any limitations on conversion contained herein and based
upon the lesser of the Market Price and the Fixed Conversion Price as would then
be in effect) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(5) ADJUSTMENT FOR RESTRICTED PERIODS. In the event that (a)
the Corporation fails to obtain effectiveness with the SEC of any Registration
Statement required to be filed pursuant to the Registration Rights Agreement on
or prior to the date on which such Registration Statement is required to become
effective pursuant to the terms of the Registration Rights Agreement, or (b) any
such Registration Statement, after its initial effectiveness and during the
Registration Period, lapses in effect, or sales of all of the Registrable
Securities (as defined in the Registration Rights Agreement) otherwise cannot be
made thereunder, whether by reason of the Corporation's failure or inability to
amend or supplement the prospectus (the "PROSPECTUS") included therein in
accordance with the Registration Rights Agreement or otherwise, then, at the
election of
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Holder, the Pricing Period shall be comprised of (x) in the case of an event
described in clause (a), the 22 Trading Days preceding the date on which such
Registration Statement is required to become effective pursuant to the terms of
the Registration Rights Agreement plus all Trading Days through and including
the third Trading Day following the actual date of effectiveness of the
Registration Statement and (y) in the case of an event described in clause (b),
the 22 Trading Days preceding the date on which Holder is first notified that
sales may not be made under the Registration Statement, plus all Trading Days
through and including the third Trading Day following the date on which Holder
is first notified that such sales may again be made under the Registration
Statement. If Holder determines that sales may not be made pursuant to the
Registration Statement (whether by reason of the Corporation's failure or
inability to amend or supplement the Prospectus or otherwise) it shall so notify
the Corporation in writing and, unless the Corporation provides such holder with
a written opinion of the Corporation's counsel to the contrary, such
determination shall be binding for purposes of this paragraph.
D. MECHANICS OF CONVERSION. In order to convert this Note into
shares of Common Stock, Holder shall: (1) submit a copy of the fully executed
notice of conversion in the form attached hereto as Exhibit A ("NOTICE OF
CONVERSION") to the Corporation by facsimile dispatched prior to Midnight, New
York City time (the "CONVERSION NOTICE DEADLINE"), on the date specified therein
as the Conversion Date (as defined in Article II.D(5)) (or by other means
resulting in, or reasonably expected to result in, written notice to the
Corporation on the date specified therein as the Conversion Date) to the office
of the Corporation, which notice shall specify the principal amount of this Note
to be converted, the applicable Conversion Price and a calculation of the number
of shares of Common Stock issuable upon such conversion; and (2) subject to
Article II.D(1) below, surrender this Note along with a copy of the Notice of
Conversion to the office of the Corporation as soon as practicable thereafter.
In the case of a dispute as to the calculation of the Conversion Price, the
Corporation shall promptly issue that number of shares of Common Stock as is not
disputed in accordance with subparagraph (3) below. The Corporation shall submit
the disputed calculations to its outside accountant via facsimile within two
business days of receipt of the Notice of Conversion. The accountant shall
review the calculations and notify the Corporation and Holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(1) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Note in accordance with the terms hereof, Holder shall
not be required to physically surrender this Note to the Corporation unless the
entire unpaid principal amount of this Note is so converted. Holder and the
Corporation shall maintain records showing the principal amount so converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to Holder and the Corporation, so as not to require physical
surrender of this Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any portion of this Note is converted as aforesaid, Holder may not transfer
this Note unless Holder first physically surrenders this Note to the
Corporation, whereupon the Corporation will forthwith issue and deliver upon the
order of Holder a new Note of like tenor, registered as Holder may request,
representing in the aggregate the remaining unpaid principal amount of this
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Note. Holder and any assignee, by acceptance of this Note, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this Note
may be less than the amount stated on the face hereof.
(2) LOST OR STOLEN NOTES. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of this Note, and (in the
case of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of this Note, if mutilated, the
Corporation shall execute and deliver a new Note of like tenor and date.
(3) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
submission of a Notice of Conversion, the Corporation shall, within three
business days after the Conversion Date (the "DELIVERY PERIOD"), issue and
deliver (or cause its Transfer Agent so to issue and deliver) in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement) to
or upon the order of Holder that number of shares of Common Stock for the
portion of this Note converted as shall be determined in accordance herewith. In
addition to any other remedies available to Holder, including actual damages
and/or equitable relief, the Corporation shall pay to Holder $2,000 per day in
cash for each day beyond a two-day grace period following the Delivery Period
that the Corporation fails to deliver Common Stock (a "DELIVERY DEFAULT")
issuable upon conversion of this Note pursuant to the Notice of Conversion until
such time as the Corporation has delivered all such Common Stock (the "DELIVERY
DEFAULT PAYMENTS"); provided, however, in the event of a failure by the
Corporation to deliver shares upon conversion as a result of a Conversion
Default (as defined below), Holder shall not be entitled to receive Delivery
Default Payments but shall be entitled to receive Conversion Default Payments in
accordance with Article II.F. Such Delivery Default Payments shall be paid to
Holder by the fifth day of the month following the month in which they have
accrued or, at the option of Holder (by written notice to the Corporation by the
first day of the month following the month in which they have accrued), shall be
convertible into Common Stock in accordance with the terms of this Article II.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon written request of Holder and its
compliance with the provisions contained in Article II.A and in this Article
II.D, the Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to Holder by
crediting the account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(4) NO FRACTIONAL SHARES. If any conversion of this Note would
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion of this Note shall
be the next higher number of shares.
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(5) CONVERSION DATE. The "CONVERSION DATE" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, written notice) to the Corporation or its Transfer Agent before
Midnight, New York City time, on the date so specified, otherwise the Conversion
Date shall be the first business day after the date so specified (provided that
the Notice of Conversion is actually received by the Corporation or its Transfer
Agent on such business day). The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such securities as of the Conversion
Date and all rights with respect to this Note (or portion thereof) surrendered
shall forthwith terminate except the rights set forth in Article VI.J.
E. WARRANTS. Subject to Article II.A(2), on any Conversion
Date relating to a conversion of this Note by Holder on which the Common Stock
trades at a price higher than the Fixed Conversion Price, the Corporation shall
deliver to Holder warrants (the "WARRANTS") in the form attached hereto as
Exhibit B exercisable for one share of Common Stock for every two shares of
Common Stock issued as a result of such conversion at an exercise price equal to
the applicable Conversion Price. Holder shall have the option to exercise such
Warrants, in whole or in part, on such Conversion Date, in which event Holder
shall so indicate on the Notice of Conversion in respect of such Conversion Date
and pay to the Corporation, in immediately available funds, on or within one
business day following the Conversion Date, the aggregate exercise price for the
shares of Common Stock issuable as a result of the exercise of such Warrants.
F. RESERVATION OF SHARES. A number of shares of the authorized
but unissued Common Stock sufficient to provide for the conversion in full of
the Notes outstanding (based on the lesser of the then current Market Price and
the Fixed Conversion Price) and the exercise in full of the Warrants shall at
all times be reserved by the Corporation, free from preemptive rights, for such
conversion or exercise. As of the Issue Date, 2,119,889 authorized and unissued
shares of Common Stock have been duly reserved for issuance upon conversion of
the Notes and upon exercise of the Warrants (the "RESERVED AMOUNT"). The
Reserved Amount shall be increased from time to time in accordance with the
Corporation's obligations pursuant to Section 4(h) of the Purchase Agreement. In
addition, if the Corporation shall issue any securities or make any change in
its capital structure which would change the number of shares of Common Stock
into which the Notes shall be convertible and for which the Warrants shall be
exercisable, the Corporation shall at the same time also make proper provision
so that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
Notes and exercise of the Warrants.
If at any time Holder submits a Notice of Conversion, and the
Corporation does not have sufficient authorized but unissued shares of Common
Stock duly reserved and available for issuance to effect such conversion in
accordance with the provisions of this Article II (a "CONVERSION DEFAULT"),
subject to Article VI.K, the Corporation shall issue to Holder all of the shares
of Common Stock which are available to effect such conversion. The portion of
the principal amount of this Note included in the Notice of Conversion which
exceeds the amount which is then convertible into available shares of Common
Stock (the "EXCESS AMOUNT") shall, notwithstanding
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anything to the contrary contained herein, not be convertible into Common Stock
in accordance with the terms hereof until (and at Holder's option at any time
after) the date additional shares of Common Stock are authorized and duly
reserved by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date elected by Holder in respect thereof. The
Corporation shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following the earlier of
(x) such time that Holder notifies the Corporation or that the Corporation
otherwise becomes aware that there are or likely will be insufficient authorized
and unissued shares to allow full conversion hereof and (y) a Conversion
Default. In addition, the Corporation shall pay to Holder payments ("CONVERSION
DEFAULT PAYMENTS") for a Conversion Default in the amount of (a) .24, multiplied
by (b) the Conversion Default Amount (as defined below), multiplied by (c)
(N/365), where N = the number of days from the day Holder submits a Notice of
Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE")
to the date (the "AUTHORIZATION DATE") that the Corporation, authorizes a
sufficient number of shares of Common Stock to effect conversion of the Notes.
"CONVERSION DEFAULT AMOUNT" means the then outstanding principal amount of all
Notes held by Holder plus the aggregate accrued interest thereon as of the first
day of the Conversion Default. The Corporation shall send notice to Holder of
the authorization of additional shares of Common Stock, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the Corporation's option, as follows:
(1) In the event the Corporation elects to make such payment
in cash, cash payment shall be made to Holder by the fifth day of the month
following the month in which it has accrued; provided, however, that if such
payment is not made on or before such day, the Corporation shall make such
payment in Common Stock (at the Conversion Price as in effect at the time of
Conversion) not later than the second business day after such cash payment was
due (so long as there is then a sufficient number of authorized shares of Common
Stock); and
(2) In the event the Corporation elects to make such payment
in Common Stock, Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article II (so long as there is then a sufficient number
of authorized shares of Common Stock).
The Corporation's election shall be made in writing to Holder
at any time prior to 9:00 p.m, New York City time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Corporation shall be deemed to have elected to make such
payment in shares of Common Stock. Nothing herein shall limit Holder's right to
pursue actual damages (to the extent in excess of the Conversion Default
Payments) for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and Holder shall have the right to pursue all
remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).
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<PAGE>
G. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Article II, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to Holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of Holder,
furnish or cause to be furnished to Holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of
this Note.
III. CERTAIN COVENANTS
A. DISTRIBUTIONS ON CAPITAL STOCK. So long as the Corporation
shall have any obligation under this Note, the Corporation shall not, without
the written consent of the holders of a majority of the then outstanding
principal amount of the Notes, (a) pay, declare or set apart for such payment,
any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock or (b) directly or indirectly through any
subsidiary make any other payment or distribution in respect of its capital
stock, in either case other than dividends on shares of Common Stock solely in
the form of additional shares of Common Stock.
B. RESTRICTION ON STOCK REPURCHASES. So long as the
Corporation shall have any obligation under this Note, the Corporation shall
not, without the written consent of the holders of a majority of the then
outstanding principal amount of the Notes, redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other securities or
otherwise) in any one transaction or series of related transactions any shares
of capital stock of the Corporation or any warrants, rights or options to
purchase or acquire any such shares, except pursuant to the "cashless exercise"
provisions of such securities.
C. BORROWINGS. So long as the Corporation shall have any
obligation under this Note, the Corporation shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Notes, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Corporation has informed Holder in writing prior to the date hereof,
(b) indebtedness to trade creditors incurred in the ordinary course of business,
(c) borrowings, the proceeds of which shall be used to repay this Note and (d)
borrowings under loan agreements or lines of credit entered into with banks or
other financial institutions engaged principally in commercial lending.
D. ADVANCES AND LOANS. So long as the Corporation shall have
any obligation under this Note, the Corporation shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Notes, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Corporation, except loans, credits
or advances (a) in
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existence or committed on the date hereof and which the Corporation has informed
Holder in writing prior to the date hereof, and (b) made in the ordinary course
of business.
E. CONTINGENT LIABILITIES. So long as the Corporation shall
have any obligation under this Note, the Corporation shall not, without the
written consent of the holders of a majority of the then outstanding principal
amount of the Notes, assume, guarantee, endorse, contingently agree to purchase
or otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Corporation has informed Holder in writing prior to the date
hereof, and (b) similar transactions in the ordinary course of business.
IV. AUTOMATIC CONVERSION
Subject to the limitations on conversion set forth in Article
II.A.(2), so long as (i) all of the shares of Common Stock issuable upon
conversion of or otherwise pursuant to all of the then outstanding Notes are
then (x) authorized and reserved for issuance, (y) registered for re-sale under
the Securities Act by the holders of the Notes (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on Nasdaq, the NYSE
or the AMEX and (ii) there is not then a continuing Mandatory Redemption Event
or Trading Market Redemption Event, the entire principal amount of the Notes
then outstanding (together with any accrued and unpaid interest thereon,
Conversion Default Payments, Delivery Default Payments and all other amounts due
and payable by the Corporation pursuant to Section 2(c) of the Registration
Rights Agreement) outstanding on the Automatic Conversion Date, automatically
shall be converted into shares of Common Stock on such date at the then
effective Conversion Price in accordance with, and subject to, the provisions of
Article II hereof (the "AUTOMATIC CONVERSION"). The Automatic Conversion Date
shall be delayed by one Trading Day for each Trading Day occurring prior thereto
and prior to the full conversion of the Notes that (i) any Registration
Statement required to be filed and to be effective pursuant to the Registration
Rights Agreement is not effective or sales of all of the Registrable Securities
otherwise cannot be made thereunder during the Registration Period (whether by
reason of the Corporation's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise), (ii) any Mandatory Redemption Event or Trading
Market Redemption Event exists, without regard to whether any cure periods shall
have run or (iii) the Corporation is in breach of any of its obligations
pursuant to Section 4(h) of the Purchase Agreement. The Automatic Conversion
Date shall be the Conversion Date for purposes of determining the Conversion
Price and the time within which certificates representing the Common Stock must
be delivered to the holder.
V. MANDATORY CONVERSION IN CERTAIN EVENTS
In the event that the Corporation enters into a consolidation, merger
or other business combination with any Person or Persons when the Corporation is
not the Survivor and (i) the
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Survivor is subject to the SEC Filing Requirements, (ii) the consideration to be
paid to the stockholders of the Corporation in such transaction consists solely
of capital stock of the Survivor ("SURVIVOR CAPITAL STOCK"), (iii) the Average
Price is equal to or greater than the product of (x) two, multiplied by (y) the
Conversion Price in effect on the Measurement Date, and (iv) the Closing Bid
Price of the Common Stock on the Trading Day immediately preceding the
Measurement Date is equal to or greater than the Average Price, then, so long as
the Survivor Capital Stock is then listed on Nasdaq, the NYSE or the AMEX and
the resale thereof by Holder has been registered under the Securities Act or
such stock may be resold by Holder without registration or restriction
(including volume limitations) under the Securities Act, the entire principal
amount of the Notes then outstanding (together with any accrued and unpaid
interest thereon, Conversion Default Payments, Delivery Default Payments and all
other amounts due and payable by the Corporation pursuant to Section 2(c) of the
Registration Rights Agreement) automatically shall be converted on the closing
date for such transaction into the number of shares of Survivor Capital Stock
that Holder would have received in such transaction if Holder had converted this
Note in full into Common Stock in accordance with, and subject to, the
provisions of Article II, but without regard to the limitations contained in
Article II.A.(2), at the lowest Conversion Price that would have been in effect
for a conversion occurring on any Trading Day during the Measurement Period. The
Corporation shall not effect any transaction described in this Article V unless
(a) it first gives, to the extent practical, prior written notice of the record
date of the special meeting of stockholders to approve, or if there is no such
record date, the consummation of, such transaction, to the extent required by
law, which notice shall be given concurrently with the first public announcement
of such transaction and (b) the Survivor assumes by written instrument the
obligations of the Corporation under this Article V. The Holder shall be
permitted to convert this Note in accordance with the terms of Article II at any
time following receipt of the notice described in clause (a) of the preceding
sentence.
VI. MISCELLANEOUS
A. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
B. NOTICES. Any notices required or permitted to be given
under the terms of this Note shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
If to the Corporation:
Interactive Magic, Inc.
215 Southport Drive, Suite 1000
Morrisville, North Carolina 27560
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Facsimile: 461-0723
Attention: Chief Executive Officer
If to Holder, to the address set forth immediately below Holder's name on the
signature pages to the Purchase Agreement or such other address as is
communicated to the Corporation by notice by Holder in accordance with the terms
hereof.
C. AMENDMENT PROVISION. The Notes may be amended only by an
instrument in writing signed by the Corporation and the holders of a majority of
the then outstanding principal amount of the Notes.
D. ASSIGNABILITY. This Note shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of
Holder and its successors and assigns. Holder may assign this Note, in whole or
in part, or any of its rights hereunder, subject to compliance with Sections
2(f), 2(g) and 8(g) of the Purchase Agreement. In the event Holder shall sell or
otherwise transfer any portion of this Note, each transferee shall be allocated
a pro rata portion of such transferor's Maximum Share Amount and Reserved
Amount. Any portion of the Maximum Share Amount or Reserved Amount which remains
allocated to any person or entity which does not hold any Notes shall be
allocated to the remaining holders of Notes, pro rata based on the total
principal amount of Notes then held by such holders.
E. COST OF COLLECTION. If default is made in the payment of
this Note, the Corporation shall pay Holder costs of collection, including
reasonable attorneys' fees.
F. GOVERNING LAW. This Note shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed in the State of New York (without regard to principles
of conflict of laws). The Corporation irrevocably consents to the jurisdiction
of the United States federal courts and state courts located in the New York
County, New York in any suit or proceeding based on or arising under this Note,
the agreements entered into in connection herewith or the transactions
contemplated hereby or thereby and irrevocably agrees that all claims in respect
of such suit or proceeding may be determined in such courts. The Corporation
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Corporation further agrees that service of process
upon the Corporation mailed by first class mail shall be deemed in every respect
effective service of process upon the Corporation in any such suit or
proceeding. Nothing herein shall affect Holder's right to serve process in any
other manner permitted by law. The Corporation agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
G. DENOMINATIONS. At the request of Holder, upon surrender of
this Note, the Corporation shall promptly issue new Notes in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $25,000 as Holder shall request.
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H. STATEMENTS OF AVAILABLE SHARES. The Corporation shall
deliver (or cause its transfer agent to deliver) to Holder a written report
notifying Holder of any occurrence which prohibits the Corporation from issuing
Common Stock upon any conversion of Notes. The Corporation (or its transfer
agent) shall also provide, within 15 days after delivery to the Corporation of a
written request by Holder, any of the following information as of the date of
such request: (i) the total outstanding principal amount of all Notes, (ii) the
total number of shares of Common Stock issued upon all conversions of all Notes
prior to such date, (iii) the total number of shares of Common Stock which are
reserved for issuance upon conversion of the Notes which are then outstanding,
and (iv) the total number of shares of Common Stock which may thereafter be
issued by the Corporation upon conversion of the Notes before the Corporation
would exceed the Maximum Share Amount and the Reserved Amount.
I. PAYMENT OF CASH; DEFAULTS. Whenever the Corporation is
required to make any cash payment to Holder under this Note (as a Conversion
Default Payment or otherwise but not including payments of principal and
interest hereunder), such cash payment shall be made to Holder within five
Trading Days after delivery by Holder of a notice specifying that Holder elects
to receive such payment in cash and the method (E.G., by check, wire transfer)
in which such payment should be made and appropriate delivery instructions,
including any necessary wire transfer instructions. If such payment is not
delivered within such five-Trading Day period, Holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the lower
of 24% and the highest interest rate permitted by applicable law until such
amount is paid in full to Holder.
J. STATUS AS NOTEHOLDER. Upon submission of a Notice of
Conversion by Holder, the principal amount of this Note and the interest thereon
covered thereby (other than any portion of this Note, if any, which cannot be
converted because the conversion thereof would exceed such holder's allocated
portion of the Maximum Share Amount or Reserved Amount) shall be deemed
converted into shares of Common Stock as of the Conversion Date and Holder's
rights as a holder of this Note shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the terms of this
Note. Notwithstanding the foregoing, if Holder has not received certificates for
all shares of Common Stock prior to the tenth business day after the expiration
of the Delivery Period with respect to a conversion for any reason, then (unless
Holder otherwise elects to retain its status as a holder of Common Stock by so
notifying the Corporation) the portion of the principal amount and interest
thereon subject to such conversion shall be deemed outstanding under this Note
and the Corporation shall, as soon as practicable, return this Note to Holder.
In all cases, Holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article II.F to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article II.F) for the Corporation's failure to convert this Note.
K. PRO RATA ALLOCATIONS. The Maximum Share Amount and the
Reserved Amount (including any increases thereto) shall be allocated by the
Corporation pro rata among the
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holders of the Notes based on the total principal amount of Notes originally
issued to each holder. Each increase to the Maximum Share Amount and the
Reserved Amount shall be allocated pro rata among the holders of the Notes based
on the total principal amount of Notes held by each holder at the time of the
increase in the Maximum Share Amount or Reserved Amount. In the event a holder
shall sell or otherwise transfer any of such holder's shares of the Notes, each
transferee shall be allocated a pro rata portion of such transferor's Maximum
Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any the Notes shall be allocated to the remaining holders of shares of the
Notes, pro rata based on the total principal amount of Notes held by such
holders.
L. REMEDIES CUMULATIVE. The remedies provided in this Note
shall be cumulative and in addition to all other remedies available under this
Note, at law or in equity (including a decree of specific performance and/or
other injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance giving rise to such remedy and nothing herein shall limit Holder's
right to pursue actual damages for any failure by the Corporation to comply with
the terms of this Note. The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to Holder and that the remedy
at law for any such breach may be inadequate. The Corporation therefore agrees,
in the event of any such breach or threatened breach, Holder shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed
in its name by its duly authorized officer as of the date first above written.
INTERACTIVE MAGIC, INC.
By: /s/ J.W. Stealey
-------------------------
Name: J. W. Stealey
Title: Chairman and Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Notes)
The undersigned hereby irrevocably elects to convert $________
principal amount of the Note (defined below) into shares of common stock, par
value $.10 per share ("Common Stock"), of Interactive Magic, Inc., a North
Carolina corporation (the "CORPORATION") according to the conditions of the
convertible notes of the Corporation dated as of [_________] (the "Notes"), as
of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Note is attached hereto (or evidence of loss, theft or
destruction thereof).
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
Transfer").
Name of DTC Prime Broker:___________________________________________
Account Number:_____________________________________________________
|_| In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for
the number of shares of Common Stock set forth below (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:_______________________________________________________________
Address:____________________________________________________________
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Notes shall be made pursuant to registration of the securities under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:___________________________
Market Price Days:____________________________
Applicable Conversion Price:__________________
Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Notes:__________
Signature:____________________________________
Name:_________________________________________
Address:______________________________________
AGREED and ACKNOWLEDGED:
INTERACTIVE MAGIC, INC.
By:__________________________________
Name and Title:______________________
*The Corporation is not required to issue shares of Common Stock until the
original Note(s) (or evidence of loss, theft or destruction thereof) to be
converted are received by the Corporation or its Transfer Agent. The Corporation
shall issue and deliver shares of Common Stock to an overnight courier not later
than three business days following receipt of the original Note(s) to be
converted, and shall make payments pursuant to the Notes for the number of
business days such issuance and delivery is late.
EXHIBIT 10.30
EXHIBIT B
TO
SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of January
25, 1999, by and among INTERACTIVE MAGIC, INC., a corporation organized under
the laws of the State of North Carolina (the "COMPANY"), and the undersigned
(together with its affiliates and any assignee or transferee of all of its
rights hereunder, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement, dated as of
January 25, 1999, between the parties hereto (the "SECURITIES PURCHASE
AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
convertible notes ( "NOTES") in the aggregate principal amount of Four Million
Dollars ($4,000,000), which (i) are convertible into shares of the Company's
common stock, par value $.10 per share (the "COMMON STOCK") and (ii) in certain
circumstances, entitle the holder to warrants (the "WARRANTS") to acquire a
number of shares of Common Stock determined in accordance with the terms of the
Notes.
B. To induce the Initial Investors 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"), and applicable state securities laws;
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 each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
<PAGE>
(i) "INVESTORS" means the Initial Investors and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "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").
(iii) "REGISTRABLE SECURITIES" means (i) the Conversion
Shares, (ii) the Warrant Shares and (iii) any shares of capital stock issued or
issuable, from time to time (with any adjustments), as a distribution on or in
exchange for or otherwise with respect to any of the foregoing (including,
without limitation, any shares issued or issuable pursuant to Section 2(c)
hereof).
(iv) "REGISTRATION STATEMENTS" means any registration
statements of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement or the Notes.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare and file
with the United States Securities and Exchange Commission ("SEC"), as soon as
practicable after the Closing Date a Registration Statement on Form SB-2 or S-1
covering the resale of the Registrable Securities, which Registration Statement,
to the extent allowable under the Securities Act and the rules and regulations
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of or otherwise pursuant to the
Notes and upon exercise of or otherwise pursuant to the Warrants to prevent
dilution resulting from stock splits, stock dividends or similar transactions or
by reason of changes in the Conversion Price and/or Exercise Price applicable
thereto in accordance with the terms thereof. The number of shares of Common
Stock initially included in such Registration Statement shall be no less than
2,119,889. The Company acknowledges that the number of shares initially included
in the Registration Statement represents a good faith estimate of the maximum
number of shares issuable upon the conversion of or otherwise pursuant to the
Notes and upon exercise of or otherwise pursuant to the Warrants. The
Registrable Securities included in the Registration Statement shall be allocated
to the Investors as set forth in Section 11(k) hereof. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval of) the Initial Investors and its counsel prior to its filing or other
submission.
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b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of the
Initial Investors, shall have the right to select one legal counsel to represent
the Investors and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. In the event that any
Investors elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities shall contain
appropriate plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing not to
participate in such underwritten offering (including, without limitation, the
ability of nonparticipating Investors to sell from time to time and at any time
during the effectiveness of such Registration Statement).
c. Payments by the Company. The Company shall use its best
efforts to cause the Registration Statement required to be filed pursuant to
Section 2(a) hereof to become effective as soon as practicable, but in no event
later than the 105th day after the Closing Date (the "REGISTRATION DEADLINE").
If (i) the Registration Statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC on or before the Registration Deadline, (ii) after
the Registration Statement has been declared effective by the SEC and prior to
the expiration of the Registration Period, sales of all the Registrable
Securities cannot be made pursuant to the Registration Statement or (iii) the
Common Stock is not listed or included for quotation on the Nasdaq National
Market (the "NNM"), the New York Stock Exchange (the "NYSE") or the American
Stock Exchange (the "AMEX") at any time after the Registration Deadline, then
the Company will make payments to the Investors in such amounts and at such
times as shall be determined pursuant to this Section 2(c) as partial relief for
the damages to the Investors by reason of any such delay in or reduction of
their ability to sell the Registrable Securities (which remedy shall not be
exclusive of any other remedies available at law or in equity). The Company
shall pay to each Investor an amount equal to the product of (i) the aggregate
principal amount of the Notes held by such Investor (including, without
limitation, any Notes that have been converted into Conversion Shares then held
by such Investor) (the "AGGREGATE PRINCIPAL AMOUNT"), multiplied by (ii) four
percent, multiplied by (iii) the sum of (x) the number of months (pro rated for
partial months) after the Registration Deadline and prior to the date the
Registration Statement filed pursuant to Section 2(a) is declared effective by
the SEC, plus (y) the number of months (prorated for partial months) prior to
the expiration of the Registration Period that sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement (including Section 3(b) hereof) or otherwise) or the
Common Stock is not listed or included for quotation on the NNM, the NYSE or
AMEX or that trading thereon is halted after the Registration Statement has been
declared effective; PROVIDED, HOWEVER, that there shall be excluded from each
such period any delays which are solely attributable to (i) the Investors'
failure to review any Registration Statement (or any amendment or supplement
thereto, or any request for acceleration of effectiveness thereof) and provide
comments to the Company within three business days of receipt thereof pursuant
to Section 2(a) hereof, (ii) the
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Investors' failure to timely provide information to the Company in accordance
with Section 4(a) hereof, or (iii) changes (other than corrections of Company
mistakes with respect to information previously provided by the Investors)
required by the Investors in the Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution. For example, if the Registration Statement is not
effective by the Registration Deadline, the Company would pay $40,000 for each
$1,000,000 of Aggregate Principal Amount for each month after the Registration
Deadline until the Registration Statement becomes effective (prorated for
partial months). Such amounts shall be paid in cash. Payments of cash pursuant
hereto shall be made within five days after the end of each period that gives
rise to such obligation, provided that, if any such period extends for more than
30 days, interim payments shall be made for each such 30-day period. If any such
payments of cash are not timely made, each Investor can elect to add the amount
of such payments to the principal amount of the Notes and such amounts shall
thereafter be convertible into Common Stock at the "CONVERSION PRICE" (as
defined in the Notes), subject to Article II.A(2) of the Notes. Any shares of
Common Stock issued upon conversion of such amounts shall be Registrable
Securities. If any Investor desires to convert the amounts due hereunder into
Registrable Securities (subject to Article II.A(2) of the Notes), it shall so
notify the Company in writing at any time after the date on which such amounts
become payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth under Article II of the Notes and in accordance with Article
II.A(2) of the Notes), beginning on the last day upon which the cash amount
would otherwise be due.
d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of such
determination and, if within 15 days after the effective date of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; PROVIDED, HOWEVER, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and PROVIDED
FURTHER that, after giving effect to the immediately
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preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any registration
required under Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering. Notwithstanding anything to the contrary set forth
herein, the registration rights of the Investors pursuant to this Section 2(d)
shall only be available in the event the Company fails to obtain effectiveness
or maintain effectiveness of any Registration Statement to be filed pursuant to
Section 2(a) in accordance with the terms of this Agreement.
e. Use of Form S-3. The Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
become eligible, and thereafter to maintain its eligibility, for the use of Form
S-3. Not later than ten days after the Company first meets the registrant
eligibility and transaction requirements for the use of Form S-3 (or any
successor form) for registration of the offer and sale by the Initial Investors
and any other Investors of Registrable Securities, the Company shall file on
Form S-3 (or such successor form), a post-effective amendment to the Form SB-2
or S-1 filed pursuant to Section 2(a), and shall use its best efforts to have
such post-effective amendment declared effective as soon as possible there
after.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly and use its best efforts
to file with the SEC the Registration Statement required by Section 2(a) as soon
as practicable after the Closing Date, and use its best efforts to (i) cause
such Registration Statement relating to Registrable Securities to become
effective as soon as practicable after such filing (but in no event later than
the Registration Deadline), and (ii) keep the Registration Statement (or,
following the declaration of effectiveness of the later Registration Statement
on Form S-3 referred to in Section 2(e), such later Registration Statement)
effective pursuant to Rule 415 at all times until such date as is the earlier of
(A) the date on which all of the Registrable Securities have been sold and (B)
the date on which all of the Registrable Securities (in the opinion of counsel
to the Initial Investors) may be immediately sold to the public without
registration or restriction (including, without limitation, as to volume by each
holder thereof) under the Securities Act (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
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
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to make the statements therein, in light of the circumstances under which they
were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such 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
Statements. After such time, if any, as a Triggering Event has occurred (as
defined in the Notes), in the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is, on any trading day
(such trading day being the "REGISTRATION TRIGGER DATE"), insufficient to cover
135% of the Registrable Securities issued or issuable upon conversion of or
otherwise pursuant to the Notes and upon exercise of or otherwise pursuant to
the Warrants (without giving effect to any limitations on conversion or exercise
contained in the Notes or the Warrants), the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover 200% of the
Registrable Securities so issued or issuable (without giving effect to any
limitations on conversion or exercise contained in the Notes or the Warrants) as
of the Registration Trigger Date, in each case, as soon as practicable, but in
any event within 15 days after the Registration Trigger Date (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof, but in any event within 90 days after
the Registration Trigger Date. The provisions of Section 2(c) above shall be
applicable with respect to the Company's obligations under this Section 3(b).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and one firm of
legal counsel designated by the Investors (i) promptly after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company, one copy of each Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
and, in the case of the Registration Statement referred to in Section 2(a), each
letter written by or on behalf of the Company to the SEC or the staff of the SEC
and each item of correspondence from the SEC or the staff of the SEC, in each
case relating to such Registration Statement (other than any portion, if any,
thereof which contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor. The
Company will immediately notify each Investor by facsimile of the effectiveness
of each Registration Statement or any post-effective amendment. The Company will
promptly respond to any and all comments received from the SEC, with a view
towards causing each Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as practicable and shall file an
acceleration request as soon as practicable following the resolution or
clearance of all SEC comments or, if
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<PAGE>
applicable, following notification by the SEC that any such Registration
Statement or any amendment thereto will not be subject to review.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests in writing, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest
of the Registrable Securities being offered in the offering (with the approval
of a majority in interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission 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 any Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, use its best efforts to
obtain the withdrawal of such order at the earliest possible moment and to
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance of
such order and the resolution thereof.
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h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review such Registration Statement and
all amendments and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investors' beneficial
ownership of securities of the Company or the Investors' intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company in writing by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall, on the
date that Registrable Securities are delivered to an underwriter for sale in
connection with any Registration Statement (i) furnish an opinion, dated as of
such date, from counsel representing the Company for purposes of such
Registration Statement in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters and the Investors
and (ii) use its best efforts to furnish a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters and the
Investors.
k. The Company shall make available for inspection on
reasonable notice and at reasonable times by (i) any Investor, (ii) any
underwriter participating in any disposition pursuant to a Registration
Statement, (iii) one firm of attorneys and one firm of accountants or other
agents retained by the Initial Investors and (iv) one firm of attorneys retained
by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; PROVIDED, HOWEVER, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially
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in the form of this Section 3(k). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors' ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts to (i) cause all the
Registrable Securities covered by the Registration Statement to be quoted on the
NNM or listed on the NYSE or the AMEX or another national securities exchange
and on each additional national securities exchange on which securities of the
same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange, or (ii) to the extent the securities of the same class or series are
not then quoted on the NNM or listed on a national securities exchange, secure
the designation and quotation, of all the Registrable Securities covered by the
Registration Statement on the Nasdaq SmallCap Market and, without limiting the
generality of the foregoing, to arrange for or maintain at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to any Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three business
days
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after a Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company 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 opinion of such counsel in the form attached hereto
as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply in all material respects with all
applicable laws related to a Registration Statement and offering and sale of
securities and all applicable rules and regulations of governmental authorities
in connection therewith (including without limitation the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated by the SEC).
r. The Company shall not, and shall not agree to, allow the
holders of any securities of the Company (other than the holders of the Jamco
Warrant (as defined in the Securities Purchase Agreement)) to include any of
their securities (other than up to 200,000 shares of Common Stock issuable upon
exercise of the Jamco Warrant) in any Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority in interest of the Registrable
Securities.
s. The Company shall take all other reasonable actions
necessary to effect the registration of Registrable Securities pursuant to a
Registration Statement in accordance with the plan of distribution therein and
applicable law.
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 in writing such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five business 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 and each Investor shall
respond within three business days after the date of receipt of such notice.
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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 Statements 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 Statements.
c. In the event Investors holding a majority in interest of
the Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statements.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof, shall be borne by the Company. In addition, the
Company shall pay all of the Investors' costs and expenses (including reasonable
legal fees) incurred in connection with the enforcement of the rights of the
Investors hereunder.
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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,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees and
agents of such Investor and each person who controls any Investor within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), if any, (iii) any underwriter (as defined in the
Securities Act) for the Investors, and (iv) the directors, officers, partners,
employees and each person who controls any such underwriter within the meaning
of the Securities Act or the Exchange Act, if any (each, an "INDEMNIFIED
PERSON"), against any joint or several losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or threatened, in
respect thereof, "CLAIMS") to which any of them may become subject insofar as
such Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Indemnified Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of such
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of such Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person,
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<PAGE>
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees, severally and not jointly,
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, and any other stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls such
stockholder or underwriter within the meaning of the Securities Act or the
Exchange Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the Securities Act, the Exchange Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation by such Investor, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by an Indemnified Party under this Section 6(b) in
connection with investigating or defending any such Claim; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. 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; PROVIDED, HOWEVER, that, if the defendants include both the
Indemnified Person or Indemnified Party, as the case may be, and the
indemnifying party, an Indemnified Person or Indemnified Party shall have the
right to retain its own counsel with the fees and expenses to be paid by the
indemnifying
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<PAGE>
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal counsel
for the Indemnified Persons or the Indemnified Parties, as applicable, and such
legal counsel shall be selected by Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates (with the approval of a majority in interest of the Initial
Investors, if the Investors are entitled to indemnification hereunder, or by the
Company, if the Company is entitled to indemnification hereunder, as applicable.
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
actually 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
(i) 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, (ii) 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 (iii) contribution
(together with any indemnification or other obligations under this Agreement) 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 THE 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 and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall
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<PAGE>
limit the Company's obligations under Section 4(c) of the Securities Purchase
Agreement) and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns the Notes,
Warrants or 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.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any permitted transferee of all or
any portion of the Notes, the Warrants or the Registrable Securities if: (i) 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, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) 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, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase Agreement
and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that term defined
in Rule 501 of Regulation D promulgated under the Securities Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions 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 written consent of the Company, each
of the Initial Investors (to the extent such Initial Investors still own Notes,
Warrants or Registrable Securities) and Investors who hold a majority in
interest of the Registrable Securities or, in the case of a waiver, with the
written consent of the party charged with the enforcement of any such provision.
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
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<PAGE>
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. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Interactive Magic, Inc.
215 Southport Drive
Suite 1000
Morrisville, NC 27560
Facsimile: (919) 461-0723
Attention: Chief Executive Officer
If to an Investor, at such address as such Investor shall have provided in
writing to the Company or such other address as such Investor 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 enforced, governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such state (without regard to
principles of conflict of laws). In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof. The parties hereto hereby submit to the exclusive jurisdiction of the
United States federal courts and the state courts located in New York County,
New York with respect to any dispute arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby. The Company irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company further agrees
that service of process upon the Company mailed by first class mail shall be
deemed in every respect effective service of process upon the Company in any
such suit or proceeding. Nothing herein shall affect an Investor's right to
serve process in any other manner permitted by law. The Company agrees that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
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<PAGE>
e. This Agreement, the Securities Purchase Agreement, the
Notes and the Warrants (including all schedules and exhibits thereto)
collectively constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Securities Purchase Agreement, the Notes
and the Warrants supersede all prior agreements and understandings among the
parties hereto and thereto with respect to the subject matter hereof and
thereof.
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. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents,
approvals and other determinations to be made by the Investors pursuant to this
Agreement shall be made by the Investors holding a majority in interest of the
Registrable Securities (determined as if all of the Notes then outstanding had
been converted into, and all of the Warrants then unexercised had been exercised
for, Registrable Securities) then held by all Investors, as the case may be.
k. The initial number of Registrable Securities included on
any Registration Statement and each increase to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by an Investor shall be
determined as if all of the Notes then outstanding and all of
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<PAGE>
the Warrants then unexercised and held by an Investor were converted into or
exercised for Registrable Securities.
l. For purposes of this Agreement, the term "business day"
means any day other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law,
regulation or executive order to close.
m. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for breach of its obligations
hereunder will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of any of the provisions hereunder, that each Investor
shall be entitled, in addition to all other available remedies in law or in
equity, to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof.
n. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
INTERACTIVE MAGIC, INC.
By: /s/ J.W. Stealey
----------------------
Name: J.W. Stealey
--------------------
Its: Chairman and Chief Executive Officer
---------------------------------------
Initial Investors:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Steve Katznelson
----------------------------
Name: Steve Katznelson
--------------------------
Managing Director
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<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: INTERACTIVE MAGIC, INC.
Ladies and Gentlemen:
We are counsel to INTERACTIVE MAGIC, INC., a corporation organized
under the laws of the State of North Carolina (the "COMPANY"), and we understand
that RGC International Investors, LDC (the "HOLDER") has purchased from the
Company convertible notes due ___________, 2002 (the "NOTES"), which (i) are
convertible into shares of the Company's common stock, $.10 par value per share
(the "COMMON STOCK") and (ii) in certain circumstances, entitle the holder to
warrants (the "WARRANTS") exercisable for shares of the Common Stock. The Notes
were issued by the Company pursuant to a Securities Purchase Agreement, dated as
of January 25, 1999, between the Company and the Holder (the "AGREEMENT"). Under
certain circumstances, the Company is obligated to issue shares of Common Stock
in connection with the conversion of the Notes and the exercise of the Warrants.
Pursuant to a Registration Rights Agreement dated as of January 25, 1999 between
the Company and the Holder (the "REGISTRATION RIGHTS AGREEMENT"), the Company
agreed, among other things, to register the resale of the Registrable Securities
(as that term is defined in the Registration Rights Agreement) under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), upon the terms
provided in the Registration Rights Agreement. The shares of Common Stock
issuable upon conversion of the Notes and exercise of the Warrants are included
in the Registrable Securities. In connection with the Company's obligations
under the Registration Rights Agreement, on [_______________], the Company filed
a Registration Statement on Form [S-1][SB-2] (File No. 333- [____________]) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities, which names the Holder as a
selling stockholder thereunder, which Registration Statement has been declared
effective by the SEC.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [The Investors]
EXHIBIT 10.31
EXHIBIT B
TO
CONVERTIBLE
NOTE
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON [THIRD ANNIVERSARY HEREOF]
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SUCH ACT,
OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
Right to Purchase [________] Shares of
Common Stock, par value $.10 per share
Date: [Issue Date]
INTERACTIVE MAGIC, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS,
LDC, or its registered assigns, is entitled to purchase from INTERACTIVE MAGIC,
INC., a corporation organized under the laws of the State of North Carolina (the
"COMPANY"), at any time or from time to time during the period specified in
Section 2 hereof, [_______________] fully paid and nonassessable shares of the
Company's common stock, par value $.10 per share (the "COMMON STOCK"), at an
exercise price per share (the "EXERCISE PRICE") equal to [Conversion Price on
Issue Date]. The number of shares of Common Stock purchasable hereunder (the
"WARRANT SHARES") and the Exercise Price are subject to adjustment as provided
in Section 4 hereof. The term "WARRANTS" means this Warrant and the other
warrants of the Company issued pursuant to the convertible note, dated as of
January 26, 1999 (the "NOTE"), issued by the Company pursuant to the Securities
Purchase Agreement, dated as of January 25, 1999, by and among the Company and
the other signatories thereto (the "SECURITIES PURCHASE AGREEMENT"). All
monetary denominations set forth herein shall refer to the lawful currency of
the United States of America.
<PAGE>
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the holder is permitted to
effect a Cashless Exercise (as defined in Section 11(c) hereof) pursuant to
Section 11(c) hereof, delivery to the Company of a written notice of an election
to effect a Cashless Exercise for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above or, if such date
is not a business day, on the next succeeding business day. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding three business days, after this Warrant
shall have been so exercised (the "DELIVERY PERIOD"). The certificates so
delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement, and the Company fails
for any reason to deliver, on or prior to the fourth business day following the
expiration of the Delivery Period for such exercise, the number of shares of
Common Stock to which the holder is entitled upon such exercise (an "EXERCISE
DEFAULT"), then the Company shall pay to the holder payments ("EXERCISE DEFAULT
PAYMENTS") for an Exercise Default in the amount of (a) (N/365), multiplied by
(b) the difference between the Market Price (as defined in Section 4(j) below)
on the date the Exercise Agreement giving rise to the Exercise Default is
transmitted in accordance with Section 1 (the "EXERCISE DEFAULT DATE") less the
Exercise Price, multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default, multiplied by (d) .24,
where N = the number of days from the Exercise Default Date to the date that the
Company effects the full exercise of this Warrant which gave rise to the
Exercise Default. The accrued Exercise Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock at the Exercise
Price, at the Company's option, as follows:
2
<PAGE>
(a) In the event the Company elects to make such
payment in cash, cash payment shall be made to holder by the fifth day of the
month following the month in which it has accrued; provided, however, that if
such payment is not made on or before such day, the Company shall make such
payment in Common Stock (converting such payment into Common Stock (in
accordance with the terms contained in Article II of the Note) at the lower of
the Exercise Price or the Conversion Price (as defined in the Note) as in effect
at the time of such conversion) not later than the second business day after
such cash payment was due; and
(b) In the event the Company elects to make such
payment in Common Stock, the holder may convert such payment amount into Common
Stock (in accordance with the terms contained in Article II of the Note) at the
lower of the Exercise Price or the Conversion Price (as in effect at the time of
such conversion) at any time after the fifth day of the month following the
month in which it has accrued (so long as there is then a sufficient number of
authorized shares of Common Stock).
Nothing herein shall limit the holder's right to pursue actual
damages (to the extent in excess of the Exercise Default Payments) for the
Company's failure to maintain a sufficient number of authorized shares of Common
Stock as required pursuant to the terms of Section 3(b) or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
Notwithstanding anything to the contrary set forth herein, in
the period beginning on the date this Warrant is to be issued to the holder in
accordance with the terms of the Note and ending on the date the holder hereof
physically receives this Warrant, the holder shall not be required to physically
surrender this Warrant to the Company in connection with any exercise thereof in
such period and thereafter the holder shall not be required to physically
surrender this Warrant to the Company unless this Warrant has been exercised in
full. The holder and the Company shall maintain records showing the number of
shares subject to such exercise and the dates of such exercise or shall use such
other method, reasonably satisfactory to the holder and the Company, so as not
to require physical surrender of this Warrant upon each such exercise. In the
event of any dispute or discrepancy, such records of the Company shall be
controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if any portion of this Warrant is exercised as aforesaid, the
holder may not transfer this Warrant unless the holder first physically
surrenders this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder a new Warrant of like tenor,
registered as the holder may request, representing in the aggregate the
remaining unexercised portion of this Warrant. The holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the exercise of a portion of this
Warrant the unexercised portion of this Warrant may be less than the number of
shares stated on the face hereof.
2. Period of Exercise. This Warrant is immediately exercisable, at any
time or from time to time on or after the date of initial issuance hereof (the
"ISSUE DATE") and before 5:00 p.m.,
3
<PAGE>
New York City time on the third anniversary of the original date of issuance of
this Warrant (the "EXERCISE PERIOD").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a suf ficient number of shares of Common
Stock to provide for the exercise in full of this Warrant (without giving effect
to the limitations on exercise set forth in Section 7(g) hereof).
(c) Listing. The Company shall use its best efforts to
promptly secure the listing of the shares of Common Stock issuable upon exercise
of this Warrant upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed or become
listed (subject to official notice of issuance upon exercise of this Warrant)
and shall use its best efforts to maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
use its best efforts to so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such listing
of, any other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.
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4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares issuable hereunder shall be subject to
adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Subdivision or Combination of Common Stock. If the
Company, at any time during the Exercise Period, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time during the Exercise Period, combines (by reverse stock
split, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.
(b) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(c) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time during the Exercise Period, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities, cash or assets as were issued or
payable with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Section 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(d) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, stock repurchase, by
way of return of capital or otherwise (including any
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<PAGE>
dividend or distribution to the Company's shareholders of cash or shares (or
rights to acquire shares) of capital stock of a subsidiary) (a "DISTRIBUTION"),
at any time during the Exercise Period, then the holder of this Warrant shall be
entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(e) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(f) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(g) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
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<PAGE>
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date or estimated date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or subscription rights or
for determining the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable estimate
thereof by the Company) when the same shall take place. Such notice shall also
specify the date, if known, on which the holders of Common Stock shall be
entitled to receive such dividend, distribution, or subscription rights or to
exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given on the date such transaction or event is first publicly
announced. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(i) Certain Events. If, at any time during the Exercise
Period, any event occurs of the type contemplated by the adjustment provisions
of this Section 4 but not expressly provided for by such provisions, the Company
will give notice of such event as provided in Section 4(e) hereof, and the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of shares of Common Stock acquirable upon exercise of this
Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.
(j) Certain Definitions.
(i) "COMMON STOCK," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(c) hereof, the stock or other securities or
property provided for in such Section.
(ii) "MARKET PRICE," as of any date, (i) means the
average of the closing bid prices for the shares of Common Stock as reported on
the Nasdaq National Market for the five trading days immediately preceding such
date, or (ii) if the Nasdaq National Market is not the principal trading market
for the shares of Common Stock, the average of the last reported bid prices on
the principal trading market for the Common Stock for the five trading days
immediately preceding such date or, if there is no bid price for such period,
the last reported sales price for such period, or (iii) if market value cannot
be calculated as of such date on any of the foregoing bases, the Market Price
shall be the average fair market value as reasonably determined by an investment
banking firm selected by the Company and reasonably acceptable to the holder,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common
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<PAGE>
Stock set forth in the foregoing definition shall apply with respect to any
other security in respect of which a determination as to market value must be
made hereunder.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below; PROVIDED, HOWEVER, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(f) hereof and to the provisions
of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of January 25, 1999, by and among the Company and the other signatories
thereto (the "REGISTRATION RIGHTS AGREEMENT").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
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<PAGE>
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7. The Company
shall indemnify and reimburse the holder of this Warrant for all costs and
expenses (including legal fees) incurred by such holder in connection with the
enforcement of its rights hereunder.
(e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "ACCREDITED INVESTOR" as defined
in Rule 501(a) promulgated under the Securities Act; provided that no such
opinion, letter, status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise.
(i) Notwithstanding anything contained herein to the
contrary, in no event shall the holder hereof exercise Warrants to the extent
that (A) the number of shares of Common Stock beneficially owned by such holder
and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised portion of the
Warrants or the unexercised or unconverted portion of any other securities of
the Company subject to a limitation on conversion or exercise analogous to the
limitation contained herein) and (B) the number of shares of Common Stock
issuable upon exercise of the Warrants (or portion thereof) with respect to
which the determination described herein is being made, would result in
beneficial ownership by such holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (A) hereof. The
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<PAGE>
restrictions contained in this Section 7(g)(i) may not be amended without the
consent of the holder of this Warrant and the holders of a majority of the
Company's then outstanding Common Stock.
(ii) In addition to the restrictions on exercise
contained in subsection (i) above, the ability of the holder hereof to exercise
this Warrant is further subject to the limitations set forth in Article II.A(2)
of the Notes.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, including the right to assign such rights to certain assignees as set
forth therein.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
If to the Company:
Interactive Magic, Inc.
215 Southport Drive, Suite 1000
Morrisville, NC 27560
Facsimile: (919) 461-0723
Attention: Chief Executive Officer
If to the holder hereof, to the address set forth immediately below such
holder's name on the signature pages to the Securities Purchase Agreement or
such other address as is communicated to the Company by notice by the holder
hereof in accordance with the terms hereof.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within such State (without regard to
principles of conflict of laws). The Company irrevocably consents to the
jurisdiction of the United States federal courts and state courts located in New
York County, New York in any suit or proceeding based on or arising under this
Warrant and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
holder's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any
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<PAGE>
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised at any time by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the last reported sale price per share of the
Common Stock on the date of exercise (as reported on the Nasdaq National Market,
or if not so reported, as reported on the principle United States securities
market on which the Common Stock is then traded) and the Exercise Price, and the
denominator of which shall be such last reported sale price per share of Common
Stock.
(d) Business Day. For purposes of this Warrant, the term
"business day" means any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
INTERACTIVE MAGIC, INC.
By: _________________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
To: Interactive Magic, Inc.
215 Southport Drive, Suite 1000
Morrisville, NC 27560
Facsimile: (919) 461-0723
Attention: Chief Executive Officer
The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of Interactive Magic, Inc., a
corporation organized under the laws of North Carolina (the "COMPANY"),
evidenced by the attached Warrant, and herewith makes payment of the Exercise
Price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if an exemption from
registration is unavailable:
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER SUCH ACT, OR AN OPINION OF
COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS
OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT.
ii. The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_________________ _____________________________________
Signature of Holder
_____________________________________
Name of Holder (Print)
Address:
_____________________________________
_____________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
__________________
Name: ____________________________
Signature: _______________________
Title of Signing Officer or Agent (if any):
________________________
Address: ________________________
________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
