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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
CREATIVE GAMING, INC.
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(Name of Issuer)
COMMON STOCK
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(Title of Class of Securities)
22528E 30 4
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(CUSIP Number)
STEPHEN A. ZRENDA, JR., STEPHEN A. ZRENDA, JR., P.C.,
100 NORTH BROADWAY, SUITE 1520,
OKLAHOMA CITY, OKLAHOMA 71302-8601; (405) 235-2111
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
SEPTEMBER 29, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
Check the following box if a fee is being paid with the statement. [ ]
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent of
the class of securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five percent or less of
such class.) (See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Exhibit Index on Page 7
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SCHEDULE 13D
CUSIP NO. 22528E 30 4
ARTHUR L. MALONE, JR. SSN ###-##-####
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(1) Names of Reporting Person. S.S. or I.R.S. Identification No.
of Above Person
NOT APPLICABLE
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(2) Check the Appropriate Box if a Member (a) [ ]
of a Group* (b) [ ]
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(3) SEC Use Only
PF
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(4) Source of Funds*
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(5) Check Box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e) [ ]
UNITED STATES
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(6) Citizenship or Place of Organization
Number of Shares (7) Sole Voting Power
Beneficially Owned 1,344,000 SHARES, 12% CONVERTIBLE REDEEMABLE PREFERRED
by Each Reporting ------------------------------------------------------
Person With STOCK, SERIES C
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(8) Shared Voting Power
N/A
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(9) Sole Dispositive Power
1,344,000 SHARES, SERIES C PREFERRED STOCK, AND
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(10) Shared Dispositive Power
N/A
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1,344,000 SHARES OF 12% CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES C
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
EXCLUDES A WARRANT TO PURCHASE 875,000 SHARES OF COMMON STOCK
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(12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares*
67.2% OF 12% CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES C, and 2.7% OF
COMMON STOCK ASSUMING EXERCISE OF A WARRANT
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(13) Percent of Class Represented by Amount in Row (11)
IN
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(14) Type of Reporting Person*
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*SEE INSTRUCTION BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
2
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ITEM 1. SECURITY AND ISSUER
This statement relates to the 12% Convertible Redeemable Preferred Stock,
Series C and the Common Stock, no par value (the "Common Stock"), and other
securities of Creative Gaming, Inc., a New Jersey corporation (the "Issuer"),
which has its principal executive offices at 150 Morris Avenue, Suite 205,
Springfield, New Jersey 07081.
ITEM 2. IDENTITY AND BACKGROUND
This statement relates to the securities of the Issuer that were acquired
by Arthur L. Malone, Jr. ("Malone"). The principal occupation of Malone is a
business consultant regarding public relations, corporate finance, and business
acquisitions. His business address is 638 Lindero Canyon Road, P.O. Box 386,
Agoura Hills, California 91301.
Mr. Malone has not, during the last five years, been convicted in any
criminal proceeding (excluding traffic violations or similar misdemeanors) or
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and, as a result of such proceeding, was or is subject to
a judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
Malone is a citizen of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Malone purchased 1,344,000 shares of the 12% Convertible Redeemable
Preferred Stock, Series C, $0.02 par value ("Series C Preferred Stock"), and a
warrant to purchase 875,000 shares, of the Common Stock of the Issuer, for the
total amount of $33,000, effective September 29, 1997. Each share of Series C
Preferred Stock is convertible into 2.325 shares of the Common Stock of the
Issuer. The purchase was made from the personal funds of Malone, without loans
or other financing arrangements.
Malone previously acquired 700,000 shares of Common Stock of the Issuer
prior to September 29, 1997, for $20,000 and for consulting services.
ITEM 4. PURPOSE OF TRANSACTION
The purpose of the acquisition of the securities of the Issuer by Malone
was for investment purposes.
(a) There are no current plans or proposals by Malone to acquire any
additional securities of the Issuer, or to dispose of any securities of the
Issuer.
(b) There are no current plans or proposals regarding an extraordinary
transaction, such as a merger, reorganization, or liquidation involving the
Issuer or its subsidiaries.
(c) There are no current plans or proposals involving a sale or transfer of
a material amount of the assets of the Issuer or its subsidiaries.
(d) There is a proposal to fill the three present vacancies on the Board of
Directors of the Issuer, which has an authorized number of five members. There
are no plans to change the total authorized number of directors
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(5) on the Board of Directors, or to change their term of office. No persons
have been selected or appointed to serve as new directors to fill the existing
vacancies at this time.
(e) There are no current plans or proposals to cause any material change in
the present capitalization or dividend policy of the Issuer.
(f) There are no current plans or proposals to makes material changes in
the Issuer's business or corporate structure; except that the Board of Directors
recently authorized a one-for-thirty reverse stock split.
(g) There are no current plans or proposals to make any changes in the
Issuer's charter, bylaws or similar instruments, or other actions that may
impede the acquisition of control of the Issuer by any person.
(h) There are no current plans or proposals to cause the Common Stock of
the Issuer to be delisted from NASDAQ. However, the NASD has recently notified
the Issuer that it does not presently meet its minimum trading price listing
requirement, and has been notified of a hearing to be held on October 16, 1997,
to consider the delisting of the Common Stock from the NASDAQ market. The
Issuer recently authorized a 1 for 30 reverse stock split in an effort to remedy
the minimum trading price issue with the NASD.
(i) There are no current plans or proposals to cause the Common Stock of
the Issuer to become eligible for termination of registration pursuant to
Section 12(g)(4) of the Securities Exchange Act of 1934.
(j) There are no current plans or proposals regarding any action similar to
those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) As of the date hereof, Malone is the direct beneficial owner of
1,344,000 shares of the Series C Preferred Stock of the Issuer; and of a warrant
to purchase 875,000 shares of Common Stock of the Issuer at an exercise price of
$.10 per share for a two-year term ending September 29, 1999.
Malone purchased the 1,344,000 shares of Series C Preferred Stock and
Warrant for $33,000, and used his personal funds without any loans or other
financing arrangements.
Each share of Series C Preferred Stock is convertible into 2.325 shares of
the Common Stock of the Company. As a result, the 1,344,000 shares of the Series
C Preferred Stock held by Malone is convertible into 3,124,000 shares of the
Common Stock of the Company. The holders of Series C Preferred Stock are
entitled to the number of votes equal to the number of shares of Common Stock in
which the Series C Preferred Stock could be converted.
Based upon his ownership of 1,344,000 shares of Series C Preferred Stock,
Malone presently holds 10.1% of the voting securities of the Company (12.5%
assuming the exercise of the Warrant to purchase 875,000 shares of Common
Stock).
The Company has recently authorized a one-for-thirty reverse stock split.
Because the terms of the acquisition of the Series C Preferred Stock and Warrant
provide that the shares of Common Stock into which such securities are
convertible are not subject to the reverse stock split (anti-dilution
provision), the percentage of voting securities held by Malone will increase to
56.5% of the Company's voting securities after the reverse stock split (62.5%
assuming the exercise of the Warrant to purchase 875,000 shares of Common
Stock).
Under the terms of the purchase, Malone has registration rights and the
right to nominate at least two directors to be appointed to the Board of
Directors of the Company.
(b) Malone has the sole power to vote and to dispose of the securities of
the Issuer described herein.
(c) No purchases or sales of the Common Stock of the Issuer have been made
by Malone during the past 60 days, except that Malone purchased and sold 9,000
shares of Common Stock and transferred 16,000 shares of Common Stock within the
previous 60 days.
(d) To the best knowledge of Malone, no other person has the right to
receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, the securities beneficially owned Malone.
(e) Not Applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
Except as described below, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) to the best of his
knowledge, concerning the transfer or the voting of any securities of the
Issuer, finder's fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of profits, division of profits or loss, or the giving or
withholding of proxies regarding the securities of the Issuer owned by Malone.
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Malone is entitled to certain rights regarding the registration of the
securities of the Issuer held by Malone.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. 12% Convertible Redeemable Preferred Stock, Series C Purchase
Agreement dated September 29, 1997.
2. Warrant dated September 29, 1997.
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SIGNATURE
After reasonable inquiry and to the best of his knowledge and belief, he
certifies that the information set forth in this statement is true, correct and
complete.
October 8, 1997 /s/ Arthur L. Malone, Jr.
---------------------------------
Arthur L. Malone, Jr.
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EXHIBIT INDEX
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1. 12% Convertible Redeemable Preferred Stock, Series C Purchase Agreement
dated September 29, 1997.
2. Warrant dated September 29, 1997.
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EXHIBIT 1
12% CONVERTIBLE REDEEMABLE PREFERRED STOCK
SERIES C, PURCHASE AGREEMENT
THIS 12% CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES C, PURCHASE
AGREEMENT (the "Agreement") is made as of the 29/th/ day of September, 1997 by
and among Creative Gaming, Inc., a New Jersey corporation with its principal
place of business located at 150 Morris Avenue, Suite 205, Springfield, New
Jersey 07081 (the"Company"), Arthur L. Malone, Jr., 638 Lindero Canyon Road,
Agoura Hills, California 91301 ("Malone), and each of the other parties listed
on Schedule 2.1 attached hereto and incorporated by reference who have executed
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this Agreement or a counterpart hereof. Other than the Company, each party
hereto, including Malone, is hereinafter referred to as an "Investor" or
collectively as the "Investors."
WITNESSETH
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WHEREAS, the Company desires to obtain funds from the Investors in order to
further its business operations; and
WHEREAS, in order to obtain such funds, the Company desires to issue and
each Investor desires to purchase from the Company on the terms and subject to
the conditions set forth in this Agreement, 2,000,000 shares of the Company's
12% Convertible Redeemable Preferred Stock, Series C (the "Series C Preferred
Stock"), as set forth in Schedule 2.1.
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NOW, THEREFORE, in consideration of the premises and in consideration of
the agreements and benefits set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Company and each
Investor agree as follows:
ARTICLE I.
DEFINITIONS
For purposes hereof, the following terms shall have the meanings set forth
below unless defined otherwise herein:
1.1 "Affiliates" shall have the meaning given such term in Rule 405 under
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the Securities Act.
1.2 "Best Knowledge" or "Best of Knowledge" shall mean the due inquiry of
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the person making such statement of its officers, directors, appropriate
employees and advisors who would be anticipated to have knowledge of such matter
in a manner sufficient to reach an informed opinion.
1.3 "Budget" shall have the meaning set forth in Section 8.19.
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1.4 "Capital Stock" shall mean collectively, the Common Stock and the
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Series C Preferred Stock of the Company.
Exhibit 1 - Page 1
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1.5 "Closing" shall have the meaning given in Article III.
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1.6 "Closing Date" shall have the meaning given in Article III.
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1.7 "Common Stock" shall mean the common stock of the Company, no par
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value per share.
1.8 "Company" shall mean Creative Gaming, Inc., a New Jersey corporation
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with its principal place of business located at 150 Morris Avenue, Suite 205,
Springfield, New Jersey 07081.
1.9 "Employment Agreements" shall mean the employment agreements between
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the Company and each of Peter J. Jegou and Walter J. Kazanowski described in
Section 10.1(a).
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1.10 "Event of Default" shall have the meaning set forth in Section 11.1.
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1.11 "Financial Statements" shall have the meaning set forth in Section
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4.20.
1.12 "Holders" shall have the meaning set forth in Article VIII.
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1.13 "Investor" or "Investors" shall mean individually or collectively,
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each of the parties to this Agreement other than the Company.
1.14 "Minimum Percentage" shall have the meaning set forth in Article VIII.
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1.15 "Qualified Holder" shall mean a Holder of at least 15 % of the
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Underlying Common Stock.
1.16 "Reports" shall mean the Form 10-KSB report of the Company for its
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fiscal year ended May 31, 1996, and its Form 10-QSB report for its fiscal period
ended February 28, 1997.
1.17 "Restated Certificate" shall mean the Certificate of Incorporation of
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the Company as amended and restated to include the amendments necessary to give
effect to this Agreement, a copy of which Restated Certificate, along with the
By-Laws of the Company, is attached hereto as Exhibit "F."
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1.18 "Securities" shall have the meaning given in Section 2.l.
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1.19 "Securities Act" shall mean the Securities Act of 1933, as amended.
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1.20 "Series C Certificate of Designations" shall mean the Company's
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Certificate of Designations of its Series C Preferred Stock, attached hereto as
Exhibit "A."
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1.21 "Series C Preferred Stock" shall mean shares of the Company's 12%
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Convertible Redeemable Preferred Stock, Series C, par value $.02 per share.
Exhibit 1 - Page 2
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1.22 "Underlying Common Stock" shall have the meaning given in Article
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VIII.
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ARTICLE II.
PURCHASE AND SALE OF SERIES C PREFERRED STOCK AND WARRANTS
2.1 Sale and Issuance of Series C Preferred Stock and Warrants.
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Subject to the terms and conditions of this Agreement, each Investor agrees,
severally and not jointly and severally, to purchase at the Closing, and the
Company agrees to sell and issue to each Investor at the Closing, that number of
shares of the Company's Series C Preferred Stock and warrants set forth opposite
each Investor's name on Schedule 2.1 attached hereto, for an aggregate purchase
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price of $100,000 (such shares of Series C Preferred Stock and warrants are
hereinafter collectively referred to as the "Securities"). At the Closing, the
Company shall deliver to each Investor certificates representing the number of
shares of Series C Preferred Stock and warrants that such Investor is purchasing
payment of the purchase price therefor by certified check, wire transfer, or any
combination thereof. Any Investor purchasing the Securities pursuant to this
Agreement shall become a party to this Agreement, all dated as of the date
hereof.
2.2 Certificate of Designations and Restated Certificate. The Company
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shall adopt and file with the Secretary of State of the State of New Jersey a
Certificate of Designations of the 12% Convertible Redeemable Preferred Stock,
Series C (the "Certificate of Designations"), setting forth the terms and
conditions of the Company's Series C Preferred Stock, such Certificate of
Designations to be in the form and substance of the Certificate of Designations
attached hereto as Exhibit "A." Such Certificate of Designations will further
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amend the Company's Restated Certificate.
ARTICLE III.
THE CLOSING
The purchase and sale of the Securities as specified in Section 2.1 shall
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take place at the offices of the Company's counsel, Wachtel & Masyr, LLP, 110 E.
59/th/ Street, New York, New York 10022 effective on September 29, 1997, (the
"Closing" or "Closing Date") or at such other time and place as the Company and
Investors mutually agree upon orally or in writing (which time and place are
designated as the "closing"). If at the Closing any of the conditions specified
in Article VI shall not have been fulfilled, each of the Investors shall, at his
or its election, be relieved of all of his or its obligations under this
Agreement without thereby waiving any other rights he or it may have by reason
of such failure or such non-fulfillment.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Investors to enter into this Agreement and
to purchase the Securities, the Company represents and warrants that each of the
following statements are true and correct as the date hereof and will be true
and correct at Closing, except as expressly qualified or modified herein.
Exhibit 1 - Page 3
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4.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
4.2 Capitalization and Voting Rights. (a) The authorized capital of the
--------------------------------
Company consists, or will consist immediately prior to the Closing, of:
(i) Series C Preferred Stock. 2,000,000 shares of Series C Preferred
------------------------
Stock, of which no shares are issued and outstanding;
(ii) Common Stock. 100,000,000 shares of Common Stock, of which
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approximately 26,000,000 shares are issued and outstanding as of September
30, 1997.
(b) Capital Stock Validly Issued. The outstanding shares of Capital
----------------------------
Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and free of preemptive rights except as set forth herein and
were issued in accordance with the registration or qualification provisions
of the Securities Act and any relevant state securities laws or pursuant to
valid exemptions therefrom.
(c) Rights to Capital Stock. Except for (i) the conversion
-----------------------
privileges of the C Preferred Stock to be issued under this Agreement, and
(ii) the Warrants issuable pursuant to Section 12.2 of this Agreement,
there are not, and will not be as of the Closing Date, outstanding any
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares
of its Capital Stock other than set forth in the Reports of the Company.
Other than this Agreement, the Certificate of Incorporation (including
the Series C Certificate of Designations), and the Bylaws of the Company,
the Company is not a party or subject to any agreement or understanding and
there is no agreement or understanding between any persons and/or entities
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company under which there
may become outstanding any right to purchase, or security convertible into
or exchangeable for, any Capital Stock of the Company, including, but not
limited to, options, warrants, or rights except those described in the
Reports of the Company. Further, except as provided in this Agreement and
the Series C Certificate of Designations, the Company is under no
obligation (contingent or otherwise) to purchase or otherwise acquire or
retire any of its securities. Except as set forth in this Agreement and the
Series C Certificate of Designations, there are no agreements in existence
which (i) require the Company to elect any person to its Board of
Directors, or (ii) pertain to the voting of any Capital Stock.
4.3 Subsidiaries. The Company does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, association, or other
business entity except as disclosed in its Reports. The Company is not a
participant in any joint venture, partnership, or similar arrangement.
Exhibit 1 - Page 4
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4.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and stockholders necessary for the authorization, execution
and delivery of each document executed and delivered in connection with this
transaction, including but not limited to this Agreement, the performance of all
obligations of the Company hereunder and thereunder; and the authorization,
issuance (reservation for issuance), sale and delivery of the Series C Preferred
Stock being sold hereunder and the Common Stock issuable upon conversion of the
Series C Preferred Stock has been taken prior to the Closing, and this Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors, rights generally, and (ii) as
limited relating to the availability of specific performance, injunctive relief,
or other equitable remedies.
4.5 Valid Issuance of Series C Preferred Stock, Common Stock, and
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Warrants. The Series C Preferred Stock that is being purchased by each Investor
- --------
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Series C Preferred Stock and upon the exercise of the Warrants
purchased under this Agreement has been duly and validly reserved for issuance
and, upon issuance in accordance with the terms of the Restated Certificate,
will be duly and issued, fully paid, and nonassessable and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws.
4.6 Governmental Consents. No consent, approval, order or authorization
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of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement.
4.7 Offering. Subject in part to the truth and accuracy of each Investor's
--------
representations set forth in Article V of this Agreement, the offer, sale and
---------
issuance of the Securities as contemplated by this Agreement is exempt from the
registration requirements of the Act, and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
4.8 Litigation. There is no action, suit, proceeding or investigation
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pending or currently threatened against the Company that questions the validity
of this Agreement or the right of the Company to enter into such agreements, or
to consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
Exhibit 1 - Page 5
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instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
4.9 Patents and Trademarks. The Company has sufficient title and
----------------------
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted as described in its
Reports without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated.
4.10 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provision of
its Restated Certificate or By-Laws, or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that
results in the creation of any lien, charge or encumbrance upon any assets
of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets
or properties.
(b) The Company has avoided every condition, and has not performed
any act, the occurrence of which would result in the Company's loss of any
right granted under any license, distribution or other agreement.
Exhibit 1 - Page 6
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4.11 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated hereby, there are
no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of
$25,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right to or from the Company, (iii) provisions restricting or
affecting the development or distribution of the Company's products or
services or (iv) indemnification by the Company with respect to
infringements of proprietary rights, except as disclosed in the Reports of
the Company.
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or
series of its Capital Stock, (ii) made any loans or advances to any person,
other than ordinary advances for travel expenses, or (iii) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale
of its inventory in the ordinary course of business, except as disclosed in
the Reports of the Company.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(e) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Restated
Certificate or By-Laws that adversely affects its business as now conducted
or as proposed to be conducted, its properties or its financial condition,
except as disclosed in the Reports of the Company.
(f) The Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of,
or (iii) regarding any other form of acquisition, liquidation, dissolution
or winding up of the Company.
4.12 Related-Party Transactions. No employee, officer, or director of the
--------------------------
Company or member of his or her immediate family (a "Related Party") is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of them. To
Exhibit 1 - Page 7
<PAGE>
the best of the Company's knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that a Related Party may own
stock in publicly traded companies that may compete with the Company. Other than
the Employment Agreements, no Related Party is directly or indirectly interested
in any material contract with the Company.
4.13 Permits. The Company has all franchises, permits, licenses, and any
-------
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other authority.
4.14 Environmental and Safety Laws. To the best of its knowledge, the
-----------------------------
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
4.15 Disclosure. The Company has fully provided the Investors with all the
----------
information that such Investors have requested for deciding whether to purchase
the Securities and all information that the Company believes is reasonably
necessary to enable such Investors to make such decision. Neither this
Agreement, nor any other statements or certificates made or delivered in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
4.16 Registration Rights. The Company has not granted or agreed to grant
-------------------
any registration rights, including piggyback rights, to any person or entity,
except as disclosed in the Reports of the Company.
4.17 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein, the Restated
Certificate and By-Laws of the Company are in the form previously provided to
the Investors.
4.18 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets,
except as disclosed in the Reports of the Company. With respect to the property
and assets it leases, the Company is in compliance with such leases and, to the
best of its knowledge, holds a valid leasehold interest free of any liens,
claims or encumbrances.
4.19 Financial Statements. The Company has delivered to the Investors
--------------------
its audited financial statements (balance sheet and profit and loss statement,
statement of stockholders' equity and statement of cash flows, including notes
thereto) for the its fiscal year ended May 31, 1996, and its unaudited financial
statements as and for the nine month period ended February 28, 1997 (the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally
Exhibit 1 - Page 8
<PAGE>
accepted accounting principles applied on a consistent basis throughout the
periods indicated and with each other, except that unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject in the case of unaudited Financial
Statements to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to February 28, 1997, and (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 the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
4.20 Changes. Since February 28, 1997, there has not been:
-------
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the
Company (as such business is presently conducted and as it is proposed to
be conducted);
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course
of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business
is presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is
bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key officer
of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
Exhibit 1 - Page 9
<PAGE>
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other distribution
in respect of any of the Capital Stock, or any direct or indirect
redemption, purchase or other acquisition of any of such Capital Stock by
the Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results or business of
the Company (as such business is presently conducted and as it is proposed
to be conducted); or
(n) any agreement or commitment by the Company to do any of the
things described in this section.
4.21 Employee Benefit Plans. The Company does not have any Employee Benefit
----------------------
Plan as defined in the Employee Retirement Income Security Act of 1974.
4.22 Tax Returns, Payments and Elections. The Company has filed all tax
-----------------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due. The provision for taxes of the Company as shown in the
Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets. The Company has never had any tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial Statements,
the Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
Exhibit 1 - Page 10
<PAGE>
4.23 Minute Books. The minute books of the Company to be provided to the
------------
Investors will contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
4.24 Labor Agreements and Actions. The Company is not bound by or subject
----------------------------
to (and none of its assets or properties is bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the best of the Company's
knowledge, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the best of the Company's knowledge, threatened, that
could have a material adverse effect on the assets, properties, financial
condition, operating results, or business of the Company (as such business is
presently conducted and as it is proposed to be conducted), nor is the Company
aware of any labor organization activity involving its employees. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and employee of the Company is terminable at the
will of the Company. To the best of its knowledge, the Company has complied in
all material respects with all applicable state and federal equal employment
opportunity and other laws related to employment.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR
Each Investor hereby represents and warrants that:
5.1 Authorization. All action on the part of each Investor necessary for
-------------
the authorization, execution and delivery of each document executed and
delivered in connection with this transaction, including but not limited to,
this Agreement; the performance of all obligations of the Investor hereunder and
thereunder; and the purchase of the Securities hereunder has been taken or will
be taken prior to the Closing, and this Agreement constitutes valid and legally
binding obligations of the Investors, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
5.2 Purchase Entirety for Own Account. This Agreement is made by the
---------------------------------
Company with each Investor in reliance upon such Investor's representation to
the Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Securities to be received by such Investor and the
Common Stock issuable upon conversion or exercise thereof, as the case may be
(collectively, the "Securities"), are being acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person
Exhibit 1 - Page 11
<PAGE>
to sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities.
5.3 Disclosure of Information. Such Investor believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Securities. Such Investor further represents that he or she has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Securities and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Article IV of this Agreement or the right of each Investor to rely
----------
thereon.
5.4 Investment Experience. Such Investor is an investor in securities of
---------------------
companies in the development stage and acknowledges that he or she is able to
fend for himself or herself, can bear the economic risk of the investment, and
has such knowledge and experience in financial or business matters that he or
she is capable of evaluating the merits and risks of the investment in the
Securities. Such Investor represents that he or she has not been organized for
the purpose of acquiring the Securities.
5.5 Restricted Securities. Such Investor understands that the Securities
---------------------
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company 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 Act only in certain limited circumstances. In this connection, such Investor
represents that he or she is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
5.6 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Article V and to the extent this section and such agreements are then
---------
applicable, and:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement
of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company
that such disposition will not require registration of such shares under
the Act. It is agreed that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for
a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership
Exhibit 1 - Page 12
<PAGE>
who retires after the date hereof, or to the estate of any such partner or
retired partner or the transfer by gift, will or intestate succession of
any partner to his or her spouse or to the siblings, lineal descendants or
ancestors of such partner or his or her spouse, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he or
she were an original Investor hereunder.
5.7 Legends. It is understood that the certificates evidencing the
-------
Securities shall bear the following restrictive legend: "THE SHARES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS, AND NEITHER THE SHARES NOR ANY
INTEREST THEREIN MAY BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION UNDER
SUCH ACT."
5.8 Confidentiality of Information. Each Holder agrees that any
------------------------------
information obtained by such Holder pursuant to Sections 8.1, 8.2, 8.3 and 8.4
------------------------------
hereof which is proprietary to the Company or otherwise confidential will not be
disclosed without the prior written consent of the Company except as required by
law or legal process; provided, that each Holder may disclose such information
without the prior written consent of the Company to their partners, associates,
representatives or employees for purposes of evaluating or otherwise taking
action in respect of its investment.
ARTICLE VI.
CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING
6.1 Conditions Precedent. The obligations of Investors under this
--------------------
Agreement to consummate the Closing hereunder and to purchase the shares of the
Securities set forth in Section 2.1 shall be subject to the satisfaction of the
-----------
following conditions precedent at or before the Closing:
(a) The Company shall have amended or be committed to amend its
Certificate of Incorporation to authorize a sufficient number of shares for
consummation of the transactions contemplated hereunder, and to include the
provisions of the Series C Certificate of Designations.
(b) There shall have been no material adverse change in the financial
position or business of the Company from February 28, 1997 through Closing.
(c) The Company shall have paid the legal fees (not to exceed
$10,000) and disbursements of counsel to Investors with respect to this
Agreement and the transactions contemplated hereby.
(d) The Company's Board of Directors shall consist of not more than
five members, two of which shall be appointed by the present members of the
Board of Directors, or elected by the holders of the Series C Preferred
Stock, voting separately as a class, with the remaining three members
elected by the holders of the Common Stock as a single class. The
candidates shall be selected as directed by Malone.
Exhibit 1 - Page 13
<PAGE>
(e) All documents, instruments and agreements to be delivered by the
Company or the Company's stockholders at Closing in accordance with Article
-------
X and all corporate and other proceedings of the Company in connection with
-
this transaction and as have been reasonably requested by Investors shall
have been so delivered and performed and shall be reasonably satisfactory
to Investors and their legal counsel.
(f) The Investors shall receive the opinion of Wachtel & Masyr, LLP,
counsel to the Company, dated as of the Closing Date, including, but not
limited to, that (i) the Company has proper authority to enter into and has
duly entered into this Agreement; (ii) the Company is in good standing and
qualified to do business in every state in which the Company has business,
except where the failure to be so qualified would not have a material
adverse effect on the Company or its operations; (iii) to the best of
counsel's knowledge, all consents and approvals required to consummate the
transaction have been obtained by the Company; and (iv) this Agreement,
when signed by the Company, will be enforceable against the Company. Such
opinion shall be in form and substance reasonably satisfactory to the
Investors.
(g) The Company shall have performed all of its covenants and
obligations under this Agreement.
(h) The representations and warranties of the Company contained in
Article IV of this Agreement shall be true and correct in all material
----------
respects when made and shall be deemed repeated at and as of the Closing
and shall be correct in all material respects at and as of such time,
except as directly affected by the consummation of the transaction hereby
or expressly consented to in writing by each Investor.
(i) The Company shall have tendered to each Investor participating in
the Closing duly executed certificates representing the Securities, as
specified in Section 2.l and Schedule 2.1 hereof.
-----------
(j) The Company shall have obtained, and have in full force and
effect (i) fire and casualty insurance policies, with extended coverage,
sufficient in amount (subject to reasonable deductibles) to allow it to
replace any of its properties that might be damages or destroyed, (ii) and
products liability and errors and omissions insurance in amounts customary
for companies similarly situated.
(k) The Investors shall have received a review of the Company's tax
position prepared by the Company's independent accountants or tax counsel,
which review shall be in form and substance satisfactory to the Investors.
(l) At Closing, the Company shall have cash and working capital in
amounts which are acceptable to the Investors.
Exhibit 1 - Page 14
<PAGE>
ARTICLE VII.
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to Investors under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by the Investors:
7.1 Representations and Warranties. The representations and warranties of
------------------------------
Investors contained in Article IV shall be true on and as of the Closing with
----------
the same effect as though such representations and warranties had been made on
and as of the Closing.
7.2 Performance of Agreement. Each Investor shall have performed all of
------------------------
its covenants and obligations under this Agreement.
7.3 Documents and Proceedings. All documents and instruments to be
-------------------------
delivered by the Investors at Closing and all corporate and other proceedings of
the Investors in connection with this transaction, shall have been so delivered
and performed and shall be reasonably satisfactory to the Company and its legal
counsel.
ARTICLE VIII.
AFFIRMATIVE COVENANTS OF THE COMPANY
From and after the Closing Date, until the Company has closed on a
Qualified Public Offering (or after completing an offering which is registered
under the Securities Act but which does not qualify as a Qualified Public
Offering, the Company's market capitalization is at least $3,000,000 for a
period of 3 consecutive months), unless it receives the prior written consent of
either (i) the Investors, or (ii) the owners of record ("Holders") of Underlying
Common Stock (as defined below) that is at least 50.01% of all the Underlying
Common Stock to act to the contrary, which percentage must include the consent
of the Investors to the extent that the Investors are Holders (in either case,
the "Minimum Percentage"), the Company shall comply with the covenants contained
in this Article VIII. Notwithstanding the foregoing, the obligation of the
------------
Company to comply with the covenants contained in Sections 8. 1(a) and 8.1(b)
---------------------------
shall continue for so long as any Holder owns or has rights to acquire any
Underlying Common Stock. "Underlying Common Stock" for purposes of this
Agreement shall mean the total of (i) the Common Stock issuable or issued upon
(A) conversion of the Series C Preferred Stock or (B) exercise of the Warrants
issued in connection with Section 12.2 hereof, (ii) all shares of Common Stock
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the shares referenced in (A) and
(B) above, and (iii) all shares of Common Stock issuable in respect of the
Series C Preferred Stock referred to in clauses (i) and (ii) by reason of stock
splits, combinations, mergers, exchanges or other reclassifications or
recapitalizations, but excluding all shares of Common Stock that have been sold
pursuant to any Qualified Public Offering. Subject to the foregoing, the
Company agrees as follows:
Exhibit 1 - Page 15
<PAGE>
8.1 Financial Information.
---------------------
(a) The Company will make and keep books, records and accounts,
which, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of its assets, and devise and maintain a system for
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such
statements and to maintain accountability for assets, (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
actions taken with respect to any differences.
(b) The Company will furnish the following reports to the Holders at
the times indicated.
(i) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, a consolidated balance
sheet of the Company and its subsidiaries as of the end of such fiscal
year, and a consolidated statement of income and a consolidated
statement of changes in financial position of the Company for such
year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the
figures of the previous fiscal year, all in reasonable detail
including all supporting schedules and comments and accompanied by the
unqualified opinion of independent public accountants of recognized
standing selected by the Company, which opinion shall state that such
financial statements were prepared in accordance with generally
accepted accounting principles applied on a basis consistent with that
of the preceding year, fairly present the financial condition of the
Company and its subsidiaries (if any) as of the date thereof and the
period covered thereby, and that the audit by such accountants has
been made in accordance with generally accepted auditing standards.
(ii) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the
Company and in any event within 45 days thereafter, a consolidated
balance sheet of the Company and its subsidiaries (if any) as of the
end of each such quarterly period, and a consolidated statement of
income and a consolidated statement of changes in financial condition
of the Company and its subsidiaries (if any) for such period and for
the current fiscal year to date, prepared (although unaudited) in
accordance with generally accepted accounting principles, setting
forth in each case (unless such disclosure would violate applicable
federal or state securities laws) comparisons to the corresponding
period to the previous fiscal year, all in reasonable detail and
signed, subject to changes resulting from year-end audit adjustments,
by the Chief Financial Officer of the Company.
Exhibit 1 - Page 16
<PAGE>
(c) Unless such disclosure would violate applicable federal or state
securities laws, the Company will furnish to each Holder requesting the
same, as soon as practicable after the end of each month, and in any event
within 45 days thereafter, (i) a consolidated balance sheet of the Company
and its subsidiaries (if any) as of the end of such month, and a
consolidated statement of income, stockholders' equity and changes in
financial position for the month and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
setting forth in each case comparisons to the corresponding periods of the
previous fiscal year, and (ii) unless such disclosure would violate
applicable federal or state securities laws, a pro forma cash flow
statement of anticipated cash flow for the next succeeding 90 day period of
the Company and its subsidiaries (if any) prepared on a consolidated basis
setting forth in each case comparisons to the corresponding periods for the
previous fiscal year, all in reasonable detail and signed, subject to
changes resulting from year-end audit adjustments, by the Chief Financial
Officer of the Company and accompanied by the statement of such officer
explaining any material differences between budgeted and actual results.
8.2 Additional Information. Unless such disclosure would violate
----------------------
applicable federal or state securities laws, the Company will furnish to any
qualified Holder requesting the same:
(a) Concurrently with the delivery of each of the financial
statements referred to in Section 8.1 above, a certificate executed by the
-----------
Chief Financial Officer of the Company stating that neither the Company nor
any of its subsidiaries (if any) is in default under the Company's Restated
Certificate, its By-Laws, this Agreement or any other agreements to which
it is a party or to which it or any of its properties is subject.
(b) Promptly following receipt thereof, any letters furnished to the
Company by its independent public accountants which comment on the
accounting practices of the Company.
(c) Promptly (but in any event within 10 days) after the discovery of
any material adverse event or circumstance affecting the Company,
including, but not limited to, the filing of any material litigation
against the Company or any subsidiary and the discovery that the Company is
not, or with the passage of time will not, be in compliance with a
provision of this Agreement, the Series C Certificate of Designations, or
any other material agreement of the Company, a notice specifying the nature
and period of existence thereof, and the actions the Company has taken
and/or proposes to take with respect thereto. The Company shall furnish the
Qualified Holders receiving such letter with monthly reports updating and
describing any developments relating to matters described under this
Section 8.2 and will promptly notify the Qualified Holders of any material
-----------
developments or changes relating thereto.
(d) Promptly (but in any event within 10 days) after transmission
thereof , copies of any material communication of the Company to its
stockholders, directors or the financial community at large, and any
reports filed by the Company with any securities exchange, the National
Association of Securities Dealers, Inc., any state official or agency
charged with securities regulation, the Securities and Exchange Commission,
any other governmental agency, domestic or foreign, and any material
correspondence between the Company and any
Exhibit 1 - Page 17
<PAGE>
of the foregoing (including, without limitation, any correspondence from
any of the foregoing which contains information materially adverse to the
Company).
(e) Promptly following the preparation thereof, copies of the minutes
of proceedings (or consents) of the Company's Board of Directors and
stockholders.
(f) With reasonable promptness, such other information and data with
respect to the Company and its subsidiaries (if any) as any Qualified
Holder may from time to time reasonably request.
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each person entitled to receive
information regarding the Company pursuant to this Section 8.2 shall use
its best efforts to maintain the confidentiality of all nonpublic
information obtained by it hereunder which the Company has reasonably
designated as proprietary or confidential in nature; provided that each
such person may, to the extent required by law, disclose such information
in connection with the sale or transfer of any of the Securities if such
person's transferee agrees in writing to be bound by the provisions hereof.
8.3 Inspection. Any Qualified Holder or their representatives or agents
----------
shall have the right, as their expense, to visit and inspect any of the
properties of the Company or its subsidiaries (if any) and to discuss its
affairs, finances and accounts with its officers, all at such reasonable times
and as often as may be reasonably requested.
8.4 Observation Rights. Until such time as the Company has completed a
------------------
Qualified Public Offering, the Company will give each Qualified Holder at least
5 business days prior written notice of each meeting of the Board of Directors
of the Company, specifying the time and place of such meeting and, to the extent
then known, the matters to be discussed thereat and such Qualified Holder's
representatives shall be invited to attend all such meetings even if a
representative of such Qualified Holder does not at the time serve as a member
of the Board of Directors. The Company will not pay any expenses incurred or
paid by the Qualified Holder's representatives in connection with their
attendance at such meetings except for any representatives who are members of
the Board of Directors.
8.5 Property and Liability Insurance. The Company will cause to be kept
--------------------------------
insured all of the Company's assets which are of insurable character, and which
are customarily insured by companies engaged in the same or similar business by
financially sound and reputable insurers against loss or damage by Fire,
explosion or other hazards customarily insured against by such comparable
companies with extended coverage in amounts sufficient to prevent the Company
from becoming a co-insurer, except for normal deductibles.
8.6 Life Insurance and Officers and Directors Insurance. The Company will
---------------------------------------------------
use its best efforts to maintain life insurance policies in effect with a
financial sound and reputable insurer, with the Company as the beneficiary, on
the lives of Peter J. Jegou and Walter J. Kazanowski in the amount of at least
$500,000 each. The Company will pay or cause to be paid all premiums on such
life insurance as the same from time to time become payable. The Company shall,
within 30 days of
Exhibit 1 - Page 18
<PAGE>
the Closing, use its best efforts to maintain, renew or obtain a directors and
officers liability insurance policy in a form and amount acceptable to the
Investors. The Company will promptly provide notice to the Investors if the
Company receives notice from any such insurers of the cancellation of any such
policies.
8.7 Use of Proceeds. The Company will use the proceeds from the sale of
---------------
the Securities (i) pay the outstanding and anticipated accounting fees of BDO
Seidman, (ii) to pay Continental Stock Transfer and Trust Company and (iii) to
pay other payables designated by Malone.
8.8 Compliance with Agreements. The Company shall perform and observe, or
--------------------------
cause to be performed or observed as the case may be, all of its obligations
pursuant to the terms, agreements and covenants of its Restated Certificate, the
Certificate of Designations, its By-Laws, this Agreement, and all documents and
agreements executed or delivered in connection with the transactions
contemplated hereby.
8.9 Reservation. The Company, during the period within which the
-----------
conversion rights granted to the holders of the Series C Preferred Stock, shall
at all times have authorized and reserved, for the purposes of issuance upon the
conversion or exercise of any such rights, a sufficient number of shares of
Common Stock to provide for the exercise of such rights, and will amend its
Restated Certificate to the extent necessary and appropriate to ensure
sufficient authorized shares for such purposes.
8.10 Meetings of the Board of Directors. The By-Laws of the Company shall
----------------------------------
provide that the number of directors which can be elected shall be five, plus
any director elected under Section 11.4 hereof, and shall provide that (i) any
------------
two members of the Board of Directors shall have the right to call a meeting of
the Board of Directors at the principal office of the Company upon at least 5
business days prior notice; (ii) a majority of the members of the Board of
Directors shall constitute a quorum; and (iii) the Company shall hold regular
meetings of its Board of Directors at least every other month.
8.11 Election of Directors. The Company will use its best efforts to assure
---------------------
compliance with the required composition of its Board of Directors as herein
provided. The Company will cause its By-Laws to be amended from time to time to
reflect the current number of members of the Board of Directors as provided
herein. No fees shall be payable to any director who is an officer or employee
of the Company or a representative of any Investor for attendance at meeting of
the Board of Directors or any committee thereof, except that upon a
representative's request the Company shall reimburse him for all reasonable
travel, food and lodging expenses incurred or paid by him in connection with
attendance at such meetings.
8.12 Registration of Transfer. The Company shall keep at its principal
------------------------
office (or such place as the Company reasonably designates) a register for the
registration of the Series C Preferred Stock and the Underlying Common Stock.
Upon surrender of any certificate re resenting any shares of Series C Preferred
Stock or Underlying Common Stock, properly endorsed for transfer, the Company
shall, at the request of the holder of such certificate, execute and deliver a
new certificate or certificates, as the case may be, in exchange therefor,
representing in the aggregate the number of shares of stock represented by the
surrendered certificate, and the Company forthwith shall cancel
Exhibit 1 - Page 19
<PAGE>
such surrendered certificate. Each such new certificate shall be registered in
such name and shall (subject to the immediately preceding sentence) represent
such number of shares of stock as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates or new certificates for any issuance
tax in respect thereof or other cost incurred by the Company in connection with
such issuance or transfer.
8.13 Replacement. The Company shall issue a new stock certificate in place
-----------
of a previously issued certificates alleged to have been lost, stolen or
destroyed, upon such terms and conditions as the Board of Directors may
prescribe, including the presentation of reasonable evidence of such loss, theft
or destruction (provided that an affidavit of a holder will be satisfactory for
such purpose) and the giving of such indemnity as the Company's Board of
Directors may request for the protection of the Company or any transfer agent or
registrar (provided that as to any holder, its own indemnification agreement
shall under all circumstances be satisfactory and no bond shall be required).
Upon surrender of any previously issued certificate that has been mutilated, the
Company shall issue a new stock certificate in place thereof.
8.14 Preservation of Corporate Existence and Business. The Company will
------------------------------------------------
preserve intact the present business organization, rights and privileges and
present goodwill and, to the best of its ability, relationships existing with
other parties and will at all times cause to be done all things necessary to
maintain, preserve, and renew its corporate existence and will observe and
conform with all valid requirements of all governmental authorities relating to
the conduct of the business of the Company, the failure of which would have a
material adverse effect on the Company. The Company will maintain and keep in
force all material licenses, permits and agreements necessary to the conduct of
its businesses.
8.15 Maintenance of Properties. The Company will maintain and keep its
--------------------------
properties, real and personal, in good repair, working order, and condition.
8.16 Taxes and Other Obligations. The Company will pay and discharge all
---------------------------
taxes, assessments, interest and installments on mortgages and governmental
charges against it or against any of its properties, upon the respective dates
when due, except to the extent that (a such taxes, assessments, interest,
installments and governmental charges are contested in good faith and by
appropriate proceedings in such manner as not to cause any materially adverse
effect on its financial condition or loss of any right of redemption from any
sale, and (b) the Company shall have set aside on its books reserves (segregated
to the extent required by generally accepted accounting principles) adequate
with respect to such liabilities.
8.17 Compliance with Obligations, Laws, Etc. The Company shall comply with
--------------------------------------
all of the material obligations which it has incurred or to which it becomes
subject pursuant to any contract or agreement, whether oral or written, express
or implied, the breach of which would have a material adverse effect upon its
business or financial condition, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and adequate
reserves have been set aside on its books with respect thereto. The Company
shall comply with all applicable laws, rules and regulations of all governmental
authorities, the violation of which might have a material adverse effect upon
its business or financial condition.
Exhibit 1 - Page 20
<PAGE>
8.18 Agreements with Employees, Consultants and Stockholders. The Company
-------------------------------------------------------
will cause (a) each of the Company's executive officers, (b) each consultant and
(c) each other employee of the Company who may become materially involved in
confidential or proprietary matters relating to the Company's business or
operations to execute noncompetition and confidentiality agreements.
8.19 Budget.
------
(a) The Company shall prepare a Budget for each 12 month period
commencing each January starting with January 1998, and the Company shall
furnish to each Holder requesting the same a copy of such Budget at least
30 days prior to the beginning of such 12 month period; provided, however,
the Company shall prepare a Budget for the remainder of 1997 which shall be
delivered no later than 30 days after Closing. Such proposed Budget shall
become effective if approved by the Board of Directors of the Company
unless the Holders of the majority of the shares of Underlying Common Stock
have stated their objections to the Budget in writing within 30 days after
receipt. If the Holders of a majority of the shares of Underlying Common
Stock have so objected, then the Company shall, before the first day of
such 12 month period, use its reasonable best efforts to prepare a Budget
for such period that will be satisfactory to the Holders of a majority of
the shares of Underlying Common Stock. The term "Budget" shall include an
analysis of the then current business plan and marketing plans of the
Company and its subsidiaries (if any) for the 12 month period covered by
such Budget, including, but not limited to, a cash flow budget, profit and
loss statement and balance sheet.
(b) The Company may amend any Budget adopted pursuant to Section
-------
8.19(a) above by following the procedure set forth in Section 8.190(a).
------- ----------------
Such amended budget shall be deemed the "Budget" for all purposes of this
Agreement for the remainder of the 12 month period of the Budget so
amended.
8.20 Annual Presentation. The Company shall, at the request of a Holder
-------------------
holding more that 12.5 of the Underlying Common Stock, make a presentation to
any Holder and its partners or employees describing the Company and its past,
present and future objectives and strategies, provided that the Company shall
not be required to make such presentation to a Holder on more that one occasion
during any 12 month period, and provided further that if such presentation is
made outside of the state where the Company's principal place of business is
located, such Holder shall pay the Company for all reasonable travel, food and
lodging expenses incurred or paid by the Company s representatives in connection
with attendance at such presentation.
8.21 Chief Financial Officer. The Company has engaged and will continue to
-----------------------
engage a chief financial officer who in not objected to by the Holders of at
least the Minimum Percentage of Underlying Common Stock.
8.22 Patents, Trademarks and Copyrights.
----------------------------------
(a) Trademark Maintenance. The Company will not do any act or omit to
---------------------
do any act whereby any Company trademark or any trademark licensed by the
Company (if any) may become abandoned or rendered invalid and shall take
all such actions necessary to maintain
Exhibit 1 - Page 21
<PAGE>
the validity of all such trademarks. The Company will maintain its
trademarks in full force and effect and free from any claim of abandonment
or non-use.
(b) Copyright Maintenance. The Company will place appropriate notice
----------------------
of copyright on all copies embodying Company copyrighted works, if any,
which are publicly distributed and the Company will not do any acts or omit
to do any act whereby any Company copyright may become invalidated or
dedicated to the public domain.
(c) Application and Registration Maintenance. The Company will take
----------------------------------------
all steps necessary in the opinion of counsel in any proceeding before the
United States Patent and Trademark Office, United States Register of
Copyrights or similar office or agency of the United States or any office
of the Secretary of State (or equivalent) of any state thereof, to maintain
and prosecute each application and registration of Company patents,
trademarks and copyrights, including, without limitation, filing of
renewals, extensions, affidavits of use and incontestability, and
opposition, interference and cancellation proceedings.
(d) Infringement. In the event that any Company patent, trademark, or
------------
copyright is infringed, misappropriated or diluted by a third party, the
Company shall, unless the Company shall determine it its reasonable
business judgment that such trademark, patent or copyright is of negligible
economic value to the business of the Company, promptly sue for
infringement, misappropriation and/or dilution and to obtain injunctive
relief and recover damages therefor, and shall take such other actions to
protect such patent, trademark, or copyright, all as the Company shall deem
appropriate in its reasonable business judgment under the circumstances.
8.23 Related Party Transactions. All transactions or series of related
--------------------------
transactions with any Related Party involving more than $2,500, other than
approved employment agreements, shall be in compliance with a written policy
approved by the Board of Directors.
ARTICLE IX.
NEGATIVE COVENANTS OF THE COMPANY
9.1 Negative Covenants. In addition to any other rights provided by law or
------------------
agreement, for so long as any Holder owns or has rights to acquire any
Underlying Common Stock, the Company shall not, unless it receives the prior
written consent of either (i) the Investors, or (ii) the Holders of Underlying
Common Stock that is at least 80% of all the Underlying Common Stock to act to
the contrary, which percentage must include the consent of the Investors to the
extent that the Investors are Holders:
(a) pay or declare any dividend or distribution on any shares of
Common Stock or apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries
or otherwise, of any shares of Common Stock, except purchases pursuant to
any rights or obligations the Company may have under presently existing
agreements;
Exhibit 1 - Page 22
<PAGE>
(b) other than as otherwise provided for in this Agreement, issue,
sell or agree to issue any additional shares of its Common Stock, Series C
Preferred Stock, any other equity securities, including warrants, options
or other rights or instruments to acquire shares of Common Stock or other
debt, equity or other securities convertible into shares of Common Stock or
other equity securities or cause any division or splitting of any such
securities or any stock dividend, reclassification, exchange or
substitution thereof or approve or agree to any reorganization, merger,
consolidation or combination with any company or other entity or sell or
lease (as lessor) more than 10% of the Company's total consolidated assets
in any 12 month period (other than mortgages, deeds of trust, pledges or
other hypothecation of real or personal property otherwise permitted by
this Article IX and other than sales or other dispositions of inventory in
----------
the normal course of business), or liquidate, dissolve, recapitalize or
reorganize in any form of transaction;
(c) cause or permit, or agree or consent to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a lien
or liens except:
(i) liens securing taxes, assessments or governmental charges
or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons, none of which are in
default or delinquent,
(ii) liens incurred or deposits made in the ordinary course of
business (A) in connection with workmen's compensation, unemployment
insurance, social security and other like laws, or (B) to secure the
performance of letters of credit, bids, tenders, sales contracts,
leases, statutory obligations, surety, appeal and performance bonds
and other similar obligations not incurred in connection with the
borrowing of money, the obtaining of advances or the payment of the
deferred purchase price of property,
(iii) attachment, judgment and other similar liens arising in
connection with any court proceedings, provided the execution or other
enforcement of such liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by appropriate
proceedings,
(iv) reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, leases and other similar
title exceptions or encumbrances affecting real property provided they
do not in the aggregate materially detract from the value of said
properties or materially interfere with their, use in the ordinary
conduct of the Company's business, and
(v) liens arising out of debt authorized by the requisite vote
of the Board of Directors.
(d) in any manner become or be liable in respect of any indebtedness,
whether secured or unsecured, or become or be liable in respect of any
guaranty or endorsement, in an aggregate amount greater than $50,000,
except as follows:
Exhibit 1 - Page 23
<PAGE>
(i) unsecured current liabilities for accounts payable and
expense accruals incurred or assumed in the ordinary course of
business, not to exceed an amount equivalent to sixty (60) days
operating expenditures, calculated on the basis of the two immediately
preceding calendar months, and
(ii) indebtedness in respect of taxes, assessments and
governmental charges or levies.
(e) amend or repeal any provision of, or add any provision to, the
Company's Restated Certificate or By-Laws if such action would alter or
change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series C Preferred Stock;
(f) change the general character of its business as constituted as of
the Closing Date;
(g) except as otherwise provided herein, apply any of its assets to
redeem, retire, purchase or otherwise acquire any Capital Stock of the
Company;
(h) enter into any transaction, including, without limitation, the
purchase, sale, lease, rental or exchange of property or the rendering of
any service, with an affiliate, employee, officer, director or shareholder
or engage in any transaction not in the normal course of business with any
supplier, customer or any other person;
(i) approve or agree to any reorganization, merger, consolidation or
combination with any corporation or other entity or sell or lease (as
lessor) more than 10% of the Corporation's total consolidated assets in any
12 month period (other than mortgages, deeds of trust, pledges or other
hypothecation of real or personal property otherwise permitted by this
Section 14 and other than sales or other dispositions of inventory in the
normal course of business), or liquidate, dissolve, recapitalize or
reorganize in any form of transaction;
(j) grant to any future purchaser of its securities any rights to
register such securities under the Securities Act that are more favorable
than those provided to the Holders pursuant to this Agreement and will not
grant any registration rights to any future purchaser of its securities
unless such registration rights shall provide that (i) they are subject to
the rights of the holders of the Series C Preferred Stock to the extent
that if the managing underwriter of any offering which includes shares of
Common Stock into which the Series C Preferred Stock is convertible
determines that marketing factors require the limitation of the number of
shares of such Common Stock or other securities to be included in the
offering, the securities of the Company held by such future purchasers of
its securities shall be excluded from such registration to the extent
required by such limitation before the exclusion of any shares of Common
Stock into which the Series C Preferred Stock is convertible, and (ii) such
securities as are excluded from registration shall not be offered to the
public until at least 180 days following the completion of the offering of
the securities included in the registration;
Exhibit 1 - Page 24
<PAGE>
(k) acquire any Company or other entity or purchase or lease (as
lessee) all or a substantial portion of the assets, property, business,
stock or other securities or interests of another Company or entity;
(l) issue any of its equity securities for consideration other than
cash, other than (i) issuances of Common Stock in the form of dividends
payable on shares of outstanding Common Stock, (ii) issuances of Common
Stock upon conversion of the Series C Preferred Stock, (iii) issuances of
Series C Preferred Stock in the form of dividends payable on shares of
outstanding Series C Preferred Stock, and (iv) issuances of shares (which
number shall be proportionately adjusted in the case of recapitalizations,
stock splits, stock dividends or combinations of shares) of Common Stock
upon exercise of options therefor to officers, directors or employees of,
or consultants to, the Company pursuant to any approved stock option plan
or similar incentive plan;
(m) make or permit to remain outstanding any loan or advance to, or
extend credit other than credit extended in the normal course of business
to, any Person who is not an affiliate of the Company, or guarantee,
endorse or otherwise be or become contingently liable, directly or
indirectly, in connection with the obligations, stock or dividends of, or
own, purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to, any Person, except
------
that the Company or any subsidiary may:
(i) own, purchase or acquire (A) certificates of deposit of
commercial banks organized under the laws of the United States (having
capital resources in excess of $100 million) and (B) obligations of
the United States Government or any agency thereof, and obligations
guaranteed by the United States Government, in each case due within
one year from the date of purchase and payable in the United States in
United States dollars,
(ii) endorse negotiable instruments for collection or deposit
in the ordinary course of business, and
(iii) permit to make and remain outstanding indebtedness
permitted by clause (d) of this Article IX;
-----------
(n) other than as contemplated by this Agreement, enter into any
transactions or series of related transactions in excess of $10,000
involving any Related Party.
(o) other than as contemplated by this Agreement, create or maintain
any employee incentive programs, profit sharing plans or other benefit
programs.
Exhibit 1 - Page 25
<PAGE>
ARTICLE X.
ADDITIONAL AGREEMENTS AND CLOSING DELIVERIES
10.1 Execution of Other Agreements. The Company and the Investors agree to
-----------------------------
execute or cause to be executed and delivered the following:
(a) Employment Agreements. At or before Closing, each of Peter J.
---------------------
Jegou and Walter J. Kazanowski and the Company shall execute and deliver an
amendment to their Employment Agreements pursuant to which they agreed to
be employed by the Company in the capacities and on the terms set forth
therein.
(b) Noncompetition and Confidentiality Agreements. At or before
---------------------------------------------
Closing, the Company shall deliver each of the agreements required by
Section 8.18 hereof, executed by the parties identified therein.
10.2 Closing Deliveries. The Company and the Investors, as the case may be,
------------------
will execute and deliver the following:
(a) Certificate of Incorporation. At Closing, the Company shall
----------------------------
deliver a copy of the Restated Certificate as currently in force and effect
containing all provisions required by this Agreement certified by the
Secretary of State of the State of New Jersey, including evidence of filing
of the Certificate of Designations with the Secretary of State of the State
of New Jersey.
(b) By-Laws, Minutes, Memoranda of Action. At Closing, the Company
-------------------------------------
shall deliver copies of, certified by the Secretary of the Company as being
current, accurate, complete and in force and effect, (i) the By-Laws of the
Company containing all provisions required by this Agreement, and (ii) all
minutes, memoranda and actions of the Board of Directors and stockholders
of the Company.
(c) Certificate of Good Standing. At Closing, the Company shall
----------------------------
deliver a Certificate of the Secretary of State of the State of New Jersey
establishing that the Company is in existence and a certificate of the
proper official of the State of New Jersey establishing that the Company
has paid all franchise taxes and otherwise is in good standing to transact
business in the State of New Jersey, together with certificates of the
secretaries of state or other proper state officials of each state in which
the failure of the Company to qualify to do business would have a material
adverse effect upon the Company, certifying that the Company is qualified
to do business as a foreign corporation and establishing that the Company
has paid all franchise taxes and is otherwise in good standing to transact
business in such state.
(d) Series C Preferred Stock Certificates. At Closing, the Company
-------------------------------------
shall deliver the duly executed stock certificates evidencing the shares of
the Company's Series C Preferred Stock issuable pursuant to Section 2.1
-----------
hereof.
(e) Opinions of Counsel. At Closing, the appropriate parties shall
-------------------
deliver the opinion of counsel to the Company required by Section 7.4
-----------
hereof.
(f) Other Documents. If not provided at Closing, the appropriate
---------------
parties shall deliver all documents, agreements and instruments otherwise
required hereby, including but not limited to, the agreements and documents
enumerated in Section 10.1 and Section 10.2, promptly thereafter.
------------ ------------
Exhibit 1 - Page 26
<PAGE>
ARTICLE XI.
DEFAULT AND REMEDIES
11.1 Events of Default. Each of the events specified below (each, an
-----------------
"Event of Default") shall, as applicable, upon written notice of an Event of
Default from the Holders of at least the Minimum Percentage of the Underlying
Common Stock, be an Event of Default. An Event of Default may be waived in
writing by Holders of at least the Minimum Percentage of Underlying Common
Stock.
(a) the Company shall breach or default in the performance of or
compliance with, any representation or warranty, covenant, agreement,
condition or term contained in this Agreement which is then applicable or
the Certificate of Designations, including the payment of any dividend or
redemption amount hereunder, and such default shall not have been remedied
within 90 days after written notice thereof shall have been given to the
Company; or
(b) the Company shall default in the payment when due of any
principal or interest on any material debt instrument or shall default
under or fail to perform or observe any material terms, covenant or
agreement contained in, any agreement, document or instrument to which it
is a party or to which it or its assets are bound, including any obligation
for borrowed money or for the purchase price of property, and such default
or failure to perform shall continue and remain unwaived by the obligee for
more than 90 days or any shorter or longer applicable period of grace
therein specified, except where the Company is in good faith and through
appropriate proceedings contesting such default or failure to perform; or
(c) the Company or any operating subsidiary shall make an assignment
for the benefit of creditors, or shall admit in writing its inability to
pay its debts as they become due, or an order for relief is entered against
the Company or such operating subsidiary under any bankruptcy laws or the
Company or any such operating subsidiary shall file any petition or answer
seeking for itself any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or future
statute, law or regulation, or shall file an answer admitting the material
allegations of a petition filed against the Company or such operating
subsidiary in any such proceeding, or shall seek or consent to or acquiesce
in the appointment of any trustee, receiver or liquidator of the Company or
such operating subsidiary, or the Company or its board of directors or its
stockholders shall take any action looking to the dissolution or
liquidation of the Company or such operating subsidiary and such has not
been remedied within 30 days after written notice thereof shall have been
given to the Company; or
(d) within 60 days after the commencement of any proceeding against
the Company or such operating subsidiary seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such
proceeding shall not have been dismissed or, within 60 days after the
appointment without the consent or acquiescence of the Company of any
trustee, receiver or liquidator of the Company or such operating subsidiary
of all or any substantial part of the
Exhibit 1 - Page 27
<PAGE>
properties of the Company or such operating subsidiary, such appointment
shall not have been vacated; or
(e) a final judgment which, together with other outstanding final
judgments against the Company, exceeds an aggregate of $400,000, shall be
rendered against the Company and within 90 days after entry thereof, such
judgment shall not have been discharged or execution thereof stayed pending
appeal or, within 30 days after the expiration of any such stay, such
judgment shall not have been discharged; or
(f) Peter J. Jegou or Walter J. Kazanowski are no longer employed by
the Company (except by death or disability) or do not give their full-time
and attention to the Company's business; or
(g) the Company fails to make any redemption payment with respect to
the Series C Preferred Stock which it is obligated to make hereunder,
whether or not such payment is then legality permissible or is prohibited
by any agreement to which the Company is subject.
11.2 Increase In Dividend Rate. If an Event of Default has occurred, the
-------------------------
dividend rate on the Series C Preferred Stock shall increase immediately by one
(1) percentage point. Thereafter, until such time as no Event of Default exists,
the dividend rate shall increase automatically at the end of each succeeding
quarter by an additional increment of one (1) percentage point. Any increase of
the dividend rate resulting from the operation of this Section 11.2 shall
------------
terminate as of the close of business on the date on which no Event of Default
exists, subject to subsequent increases pursuant to this Section 11.2.
------------
11.3 Redemption. Notwithstanding any other rights to redemption they may
----------
have, if an Event of Default has occurred, the holders of not less than a
majority of the outstanding shares of Series C Preferred Stock may demand (by
written notice delivered to the Company) immediate redemption of all or any
portion of the Series C Preferred Stock owned by such holder at a price per
share equal to the Redemption Price then applicable payable in cash. The Company
will redeem all Series C Preferred Stock as to which rights under this Section
-------
11.3 have been exercised within 30 days after receipt of the demand for
- ----
redemption. Any unexercised rights the holders of the Series C Preferred Stock
may have under this Section 11.3 will expire as of the close of business on the
------------
date of which no Event of Default exists (whether through cure or otherwise),
subject to subsequent rights obtained pursuant to this Section 11.3.
------------
11.4 Special Board Representation.
----------------------------
(a) If an Event of Default has occurred and has not been waived in
writing by holders of at least a majority of the Series C Preferred Stock,
the number of directors constituting the Company's Board of Directors will,
at the request of such holders, be increased by two members, and the
holders of the Series C Preferred Stock will have the special right, voting
separately as a single class (with each share being entitled to one vote)
and to the exclusion of all other classes of the Company's Capital Stock,
to elect two individuals to fill such newly created directorship, to fill
any vacancy of such directorship and to remove any individual elected to
such directorship. The newly created directorships will
Exhibit 1 - Page 28
<PAGE>
constitute a separate class of directors, and the directors elected by the
holders of the Series C Preferred Stock pursuant to the Event of Default
will be entitled to cast a number of votes on each matter considered by the
Board of Directors such that the sum of the number of votes entitled to be
cast by this director exceeds by one vote the number of votes entitled to
be cast by all of the other directors. The election of the additional
directors pursuant to this Section 11.4 will be deemed to increase the
------------
number of directors then in office by a number equal to the number of votes
he may cast on each matter, and he shall be deemed to constitute the number
of directors by which the total number of directors then in office is
deemed increased. This special right of the Holders of Series C Preferred
Stock to elect members of the Board of Directors may be exercised at a
special meeting called pursuant to this Section 11.4 at any annual or
------------
special meeting of stockholders and, to the extent and in the manner
permitted by applicable law, pursuant to a written consent in lieu of a
meeting of stockholders. This special right to elect directors will
continue until such time as there no longer is in existence any Event of
Default (whether through cure or otherwise), at which time such special
right will terminate subject to revesting upon the occurrence and
continuation of any Event of Default which gives rise to the special right
hereunder. The term of any director elected pursuant to such special right
will continue for the period provided in this Section 11.4.
------------
(b) At any time when this special right created by Section 11.4 has
------------
vested in the holders of the Series C Preferred Stock, a proper officer of
the Company will. upon the written request of the holders of at least a
majority of the Series C Preferred Stock then outstanding, addressed to the
Secretary of the Company call a special meeting of the holders of the
Series C Preferred Stock for the purpose of electing directors pursuant to
this Section 11.4. Such meeting will be held at the earliest legally
------------
permissible date at the principal office of the Company, or at such other
place designated by the holders of at least a majority of the Series C
Preferred Stock then outstanding. If such meeting has not been called by a
secretary, assistant secretary, or other proper officer of the Company
within three days after personal service of such written request upon the
Secretary of the Company or within 10 days after mailing the same to the
Secretary of the Company at its principal office, then the holders of at
least 51 % of the Series C Preferred Stock then outstanding may designate
in writing one of their number to call such meeting at the expense of the
Company, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholder and will be held at
the Corporation's principal office, or at such other place designated by
the holders of at least 51% of the Series C Preferred Stock then
outstanding. Any holder of Series C Preferred Stock so designated will be
given access to the stock record books of the Company for the purpose of
causing a meeting of stockholders to be called pursuant to this Section
-------
11.4.
----
(c) At any meeting or at any adjournment thereof at which the holders
of Series C Preferred Stock have the special right to elect a director(s),
pursuant to this Section 11.4, the presence, in person or by proxy, of the
------------
holders of a majority of the Series C Preferred Stock then outstanding will
be required to constitute a quorum for the election or removal of the
directors by the holders of the Series C Preferred Stock exercising such
special right. The vote of a majority of such quorum will be required to
elect or remove any such director(s).
Exhibit 1 - Page 29
<PAGE>
(d) Any directors so elected by the holders of Series C Preferred
Stock will continue to serve as a director until the expiration of the
lesser of (i) a period of two months following the date on which there is
no longer any Event of Default in existence, or (ii) the remaining period
of the full term for which such director has been elected. After the
expiration of such two month period or when the full term for which such
director has been elected ceases (provided that the special right to elect
directors has terminated), as the case may be, the number of directors
constituting the Board of Directors of the Company will decrease to such
number constituting the whole Board of Directors of the Company immediately
prior to the occurrence of the Event of Default giving rise to the special
right to elect directors.
11.5 Other Remedies. The holders of a majority of the Series C Preferred
--------------
Stock outstanding at the time of any Event of Default may proceed to protect and
enforce the rights of said holders by a suit in equity, action at law or other
appropriate proceeding, including but not limited to the enforcement of any
rights under any of the other documents executed and delivered in connection
herewith, for the specific performance of any agreement contained herein or in
any other documents executed and delivered in connection herewith, or for any
injunction against a violation of any of the terms or provisions hereof or
thereof or in aid of the exercise of any power granted hereby or thereby or by
law. The Company will pay to the holders thereof such further amount as shall be
sufficient to cover the cost and expense of any action instituted by the holders
upon such Event of Default, including (without limitation) reasonable attorneys
fees. If the holders shall give any notice or take any action in respect of a
claimed default, the Company will forthwith give written notice thereof to all
other such holder at the time outstanding, describing the notices or action and
the nature of the claimed default. No course of dealing and no delay on the part
of any holders in exercising any right shall operate as a waiver thereof or
otherwise prejudice such holders' rights. No remedy conferred hereby or by any
of the other documents executed and delivered in connection herewith shall be
exclusive of-any other remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise.
ARTICLE XII.
REGISTRATION RIGHTS
12.1 Registration Rights. (a) The Company shall prepare and file with the
-------------------
Securities and Exchange Commission ("SEC"), on one occasion, at the sole expense
of the Company (except as provided herein), in respect of all holders of the
Securities, so as to permit a non-underwritten public offering and sale of the
underlying Common Stock of the Company (the "Conversion Shares") under the
Securities Act.
(b) The Company will maintain any Registration Statement or post-
effective amendment filed under this Article XII hereof current under the
Securities Act until the earlier of (i) the date that all of the Conversion
Shares have been sold pursuant to the Registration Statement, (ii) the date the
holders thereof receive an opinion of counsel that the Conversion Shares may be
sold under the provisions of Rule 144 or (iii) the second anniversary of the
effective date of the Registration Statement.
Exhibit 1 - Page 30
<PAGE>
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of any
Registration Statement under subparagraph 12.1(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Warrantholders shall bear
the cost of underwriting discounts and commissions, if any, applicable to the
Conversion Shares being registered and the fees and expenses of its counsel.
The Company shall use its best efforts to qualify any of the Securities for sale
in such states as such Investors reasonably designate. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the Investors. The Company at
its expense will supply the Investors with copies of such Registration Statement
and the prospectus or offering circular included therein and other related
documents in such quantities as may be reasonably requested by the Investors.
(d) The Company shall not be required by this Section 12.1 to include
a Conversion Shares in any Registration Statement which is to be filed if, in
the opinion of counsel for both the Investors and the Company (or, should they
not agree, in the opinion of another counsel experienced in securities law
matters acceptable to counsel for the Investors and the Company) the proposed
offering or other transfer as to which such registration is requested is exempt
from applicable federal and state securities laws and would result in all
purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the Securities Act.
ARTICLE XII
MISCELLANEOUS
12.1 Survival of Warranties. The warranties, representations and covenants
----------------------
of the Company and Investors contained in or made pursuant to this Agreement
shalt survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of each Investor or the Company.
12.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
12.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of New Jersey as applied to agreements among New
Jersey residents entered into and to be performed entirely within New Jersey.
12.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.5 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
Exhibit 1 - Page 31
<PAGE>
12.6 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party below, or at any other address as such party may designate by ten (10)
days' advance written notice to the other parties.
If to the Investors:
c/o Arthur L. Malone, Jr.
638 Lindero Drive
P.O. Box 386
Agoura Hills, California 91301
with a copy to:
Stephen A. Zrenda, Jr., Esq.
Stephen A. Zrenda, Jr., P.C.
1520 Liberty Tower
100 North Broadway
Oklahoma City, Oklahoma 73102
If to the Company:
Creative Gaming, Inc.
Suite 205
150 Morris Avenue
Springfield, New Jersey 07081
Attn: Peter J. Jegou
with a copy to:
Robert W. Berend, Esq.
Wachtel & Masyr, LLP
110 East 59/th/ Street
New York, New York 10022
12.7 Finder's Fee. Each party represents that it neither is nor will be
------------
obligated for finders' fee or commission in connection with this transaction.
Investors agree to indemnify to hold harmless the Company from any liability for
any commission or compensation in nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Investors or any of its officers, partners, employees, or representatives
is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending
Exhibit 1 - Page 32
<PAGE>
against such liability or asserted liability) for which the Company or any of
its officers, employees or representatives is responsible.
12.8 Expenses.
--------
(a) Irrespective of whether the Closing is effected, the Company
shall pay all costs and expenses that it and the Investors incur with
respect to the negotiation, execution, delivery and performance of this
Agreement; provided, however, that the Company shall have the right to
preapprove any expense of Investors that exceeds in the aggregate $10,000.
(b) If the Closing is consummated, the Company shall, at the
Closing, reimburse the reasonable fees of counsel for the Investors, not to
exceed $5,000 and shall, upon receipt of a bill therefor, reimburse the
reasonable out of pocket expenses of such counsel. If any action at law or
in equity is necessary to enforce or interpret the terms of this Agreement,
or the Certificate of Designations, the prevailing party shall be entitled
to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
12.9 Amendments and Waivers. Any term of this Agreement may be amended and
----------------------
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the Common
Stock issued or issuable upon conversion of the Series C Preferred Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company.
12.10 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
12.11 Aggregation of Stock. All shares of the Series C Preferred Stock held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
12.12 Entire Agreement. This Agreement and the documents referred to herein
----------------
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
12.13 Arbitration.
-----------
(a) Unless otherwise provided in this Agreement, the parties hereto agree
that any claim, controversy or dispute arising out of or relating to this
Agreement or the performance, enforcement, breach, termination or validity
thereof, or the Company's operation of its business (each, a "Dispute")
Exhibit 1 - Page 33
<PAGE>
under this Agreement including, without limitation, those Disputes occurring
subsequent to the termination or expiration of this Agreement, which cannot be
amicably settled shall be determined by arbitration in Agoura Hills, California.
Arbitration proceedings shall be conducted solely in Agoura Hills, California.
The parties consent to the personal jurisdiction of the state and Federal courts
of California for purposes of commencing arbitration of any Dispute.
(b) Arbitration of Disputes shall be conducted in accordance with the
Commercial Arbitration rules of the American Arbitration Association ( "AAA") in
effect on the date of this Agreement and shall be held before a panel of three
arbitrators who shall be selected as provided in paragraph (c) of this Section
13.13
(c) The three member arbitration panel will consist of (i) one arbitrator
selected by one of the parties to the Dispute, (ii) one arbitrator selected by
the other party to the Dispute, and (iii) one arbitrator who is selected by the
two arbitrators selected in accordance with provisions (i) and (ii) above (each,
an "Arbitrator" and collectively, the "Arbitrators" or the "Arbitration Panel")
and shall be otherwise selected in accordance with the AAA's Commercial
Arbitration rules in effect on the date of this Agreement. Notwithstanding the
foregoing, the Arbitrators shall be neutral, independent, disinterested,
unbiased Arbitrators bound by the Rules of Ethics of the AAA for neutral
arbitrators, and none shall have ex parte communications with the parties.
(d) The Arbitrators shall be bound by the laws of the State of New Jersey
and the statues of limitations applicable to contracts trade and to be performed
therein, without regard to conflicts of law rules, and by the procedural and
arbitration law of the Federal Arbitration Act (Federal Arbitration Act, 9
U.S.C. (S)1 et seq.). The Arbitrators shall base their award on the terms of
this Agreement., and they shall endeavor to follow the law and judicial
precedents which a United States District Judge sitting in the district that
covers Agoura Hills, California, would apply in the event the Dispute were
litigated in such court; provided, however, that nothing contained herein shall
be deemed to enlarge the grounds for vacating arbitral awards even if, despite
such endeavors, the Arbitrators fail to correctly follow applicable law. The
Arbitrators shall render an award within 10 days after the close of evidence.
Unless both parties agree otherwise, the award shall be in writing and shall set
forth findings of fact and conclusions of law upon which the award is based. The
parties hereto consent that judgment upon an arbitration award may be entered in
any federal or state court having jurisdiction thereof.
(e) Any claim by either party shall be time-barred unless the asserting
party makes a demand for arbitration with respect to such claim within the
applicable statute of limitations except to the extent otherwise provided in
this Agreement; provided, however, that all applicable statutes of limitations
and defenses based upon the passage of time shall be tolled white the procedures
specified in this Section 13.13 are pending, and the parties shall take such
action, if any, required to effectuate such tolling. Any dispute as to the
timeliness of such demand or other timeliness or statute of limitations issues
shall be decided by the Arbitrators. All statutes of limitation applicable to
any Dispute shall apply to any proceeding with this Section 13.13.
With respect to any Dispute, each party agrees that all discovery
activities shall be expressly limited to matters directly relevant to the
Dispute, and any Arbitrator, Arbitration Panel and the AAA shall be required to
fully enforce this requirement. Consistent with the expedited nature of
arbitration,
Exhibit 1 - Page 34
<PAGE>
each party will provide the other with copies of all non-privileged documents
relevant to the issues raised by any claim or counterclaim, including copies of
all documents in their possession or control on which they rely in support of
their position or which they intend to introduce as exhibits at the arbitration
hearing. In addition, each party shall provide the other with the names of all
persons who it may call as witnesses or experts to testify at the arbitration
hearing. Unless otherwise agreed, each party shall be entitled to take one
deposition of an opposing party or a person under the opposing party's control
prior to the arbitration hearing. The time, place and duration of each
deposition shall be agreed to by the parties or determined by the Arbitration
Panel if the parties cannot agree. Other discovery may be ordered by the
Arbitration Panel to the extent the Arbitration Panel determines additional
discovery relevant and appropriate, and any dispute regarding discovery,
including disputes as to the need therefor or the relevance or scope thereof,
shall be determined by the Arbitration Panel, which determination shall be
conclusive. The parties expressly agree that exclusion of evidence by the
Arbitrators on grounds of irrelevance or redundance shall not be grounds for
failure to confirm and enforce the award.
(g) The parties hereto expressly agree that the prevailing party shall be
entitled to the recovery of all costs and fees (including reasonable attorneys'
fees, administrative fees, arbitrators' fees, and out-of pocket expenses).
(h) The prompt resolution of Disputes is important to the parties.
Therefore, the parties agree to take any actions necessary (and empower the AAA
and the Arbitrators to take any action necessary) to require that an arbitration
proceeding hereunder be concluded within 120 days of the filing of the Dispute
with the AAA. The Arbitration Panel is instructed and directed to assume case
management initiative and control of the dispute resolution process and to
initiate early scheduling of all events to assure resolution of any Dispute as
expeditiously as is practical but in no event more than 120 days from the filing
of a Dispute with the AAA.
(i) The arbitration proceedings conducted pursuant hereto shall be
confidential. Neither party shall disclose or permit the disclosure of any
information about the evidence adduced or the documents produced by the other
party in the arbitration proceedings or about the existence, contents or results
of the arbitration award without the prior written consent of such other party
except in the course of a judicial, regulatory or arbitration proceeding or as
may be requested by a governmental authority. Before making any disclosure
permitted by the preceding sentence, the party intending to make such disclosure
shall give the other party reasonable written notice of the intended disclosure
and afford the other party a reasonable opportunity to protect its interests.
(j) No provision of, nor the exercise of any rights under, this Section
13.13 shall limit the right of any party, during any Dispute, to seek, use and
employ ancillary or preliminary remedies, judicial or otherwise, for the
purposes of realizing upon, preserving, protecting, foreclosing or proceeding
under forcible entry and detainer for possession of any real or personal
property, and any such action shall not be deemed an election of remedies. Such
rights shall include, without limitation, rights and remedies relating to (1)
foreclosing against any real property or personal property collateral or other
security by the exercise of power of sale under a deed of trust, mortgage or
other security agreement or instrument, or applicable law, (2) exercising self
help remedies (including set off rights) or (3) obtaining provisional or
ancillary remedies such as injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver from a court having jurisdiction.
Such rights can be
Exhibit 1 - Page 35
<PAGE>
exercised at any time except to the extent such action is contrary to a final
award or decision in any Arbitration proceeding. The institution and maintenance
of an action for judicial relief or pursuit of provisional or ancillary remedies
or exercise of self help remedies shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the Dispute to arbitration, nor
render inapplicable the compulsory arbitration provisions hereof. In Disputes
involving indebtedness or other monetary obligations, each party agrees that the
other party may proceed against all liable persons, jointly or severally, or
against one or more of them, or less than all, without impairing rights against
other liable persons; a party shall not be required to join the principal
obligor or any other liable persons (e.g., sureties or guarantors) in any
proceeding against a particular person. A party may release or settle with one
or more liable persons as the Company deems fit without releasing or impairing
rights to proceed against any persons not so released.
(k) Arbitrators shall be empowered to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could pursuant
to the Federal Rules of Civil Procedure, the California rules of civil procedure
and applicable law. The Arbitrators shall have no authority to award punitive
damages or any other damages not measured by the prevailing party's actual
compensatory damages, and may not, in any event, make any ruling, finding or
award that does not conform to the terms and conditions of the Agreement. Each
party hereby irrevocably waives any right to recover punitive damages with
respect to any Dispute.
(l) In proceeding with Arbitration and in making determinations
hereunder, the Arbitrators shall not extend, modify or suspend any terms of this
Agreement or the reasonable standards of business performance and operation
established by the Investors in good faith. Notice of or demand for Arbitration
shall not stay, postpone or rescind the effectiveness of any termination of this
Agreement. This Section 13.13 regarding Arbitration constitutes the entire
agreement of the parties with respect to its subject matter and supersedes all
prior discussions, arrangements, negotiations and other communications on
dispute resolution. The provisions of this Section 13.13 shall survive any
termination, amendment or expiration of this Agreement or any other agreements,
documents or relationships of the parties related to this Agreement, unless the
parties otherwise expressly agree in writing. This Section 13.13 may be amended,
changed or modified only by the express provisions of a writing which
specifically refers to this Section 13.13 and which is signed by all the parties
hereto. If any term, covenant, condition or provision of this Section 13.13 is
found to be unlawful, invalid or unenforceable, such illegality or invalidity or
unenforceability shall not affect the legality, validity or enforceability of
the remaining parts of this Section 13.13 and all such remaining parts hereof
shall be valid and enforceable and have full force and effect as if the illegal,
invalid or unenforceable part had not been included.
Exhibit 1 - Page 36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE COMPANY:
CREATIVE GAMING, INC.
By:
----------------------------------------------------
Peter J. Jegou, President
INVESTORS:
------------------------------------------------
Arthur L. Malone, Jr.
------------------------------------------------
Gene A. Hochevar
------------------------------------------------
Paul H. Ring
------------------------------------------------
Eric Ray Turner
------------------------------------------------
Stephen A. Zrenda, Jr.
------------------------------------------------
Joan S. Mathis Bailey
Exhibit 1 - Page 37
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I.
DEFINITIONS............................................................. 1
ARTICLE II.
PURCHASE AND SALE OF SERIES C PREFERRED STOCK........................... 3
2.1 Sale and Issuance of Series C Preferred Stock and Warrants......... 3
2.2 Certificate of Designations and Restated Certificate............... 3
ARTICLE III.
THE CLOSING............................................................. 3
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 3
4.1 Organization, Good Standing and Qualification...................... 4
4.2 Capitalization and Voting Rights................................... 4
(i) Series C Preferred Stock...................................... 4
(ii) Common Stock.................................................. 4
(b) Capital Stock Validly Issued....................................... 4
(c) Rights to Capital Stock............................................ 4
4.3 Subsidiaries....................................................... 4
4.4 Authorization...................................................... 5
4.5 Valid Issuance of Series C Preferred Stock, Common Stock,
and Warrants....................................................... 5
4.6 Governmental Consents.............................................. 5
4.7 Offering........................................................... 5
4.8 Litigation......................................................... 5
4.9 Patents and Trademarks............................................. 6
4.10 Compliance with Other Instruments.................................. 6
4.11 Agreements; Action................................................. 7
4.12 Related-Party Transactions......................................... 7
4.13 Permits............................................................ 8
4.14 Environmental and Safety Laws...................................... 8
4.15 Disclosure......................................................... 8
4.16 Registration Rights................................................ 8
4.17 Corporate Documents................................................ 8
4.18 Title to Property and Assets....................................... 8
4.19 Financial Statements............................................... 8
4.20 Changes............................................................ 9
4.21 Employee Benefit Plans............................................. 10
4.22 Tax Returns, Payments and Elections................................ 10
4.23 Minute Books....................................................... 11
4.24 Labor Agreements and Actions....................................... 11
-i-
<PAGE>
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR......................... 11
5.1 Authorization...................................................... 11
5.2 Purchase Entirety for Own Account.................................. 11
5.3 Disclosure of Information.......................................... 12
5.4 Investment Experience.............................................. 12
5.5 Restricted Securities.............................................. 12
5.6 Further Limitations on Disposition................................. 12
5.7 Legends............................................................ 13
5.8 Confidentiality of Information..................................... 13
ARTICLE VI.
CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING......................... 13
6.1 Conditions Precedent............................................... 13
ARTICLE VII.
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING...................... 15
7.1 Representations and Warranties..................................... 15
7.2 Performance of Agreement........................................... 15
7.3 Documents and Proceedings.......................................... 15
ARTICLE VIII.
AFFIRMATIVE COVENANTS OF THE COMPANY.................................... 15
8.1 Financial Information.............................................. 16
8.2 Additional Information............................................. 17
8.3 Inspection......................................................... 18
8.4 Observation Rights................................................. 18
8.5 Property and Liability Insurance................................... 18
8.6 Life Insurance and Officers and Directors Insurance................ 18
8.7 Use of Proceeds.................................................... 19
8.8 Compliance with Agreements......................................... 19
8.9 Reservation........................................................ 19
8.10 Meetings of the Board of Directors................................. 19
8.11 Election of Directors.............................................. 19
8.12 Registration of Transfer........................................... 19
8.13 Replacement........................................................ 20
8.14 Preservation of Corporate Existence and Business................... 20
8.15 Maintenance of Properties.......................................... 20
8.16 Taxes and Other Obligations........................................ 20
8.17 Compliance with Obligations, Laws, Etc............................. 20
8.18 Agreements with Employees, Consultants and Stockholders............ 21
8.19 Budget............................................................. 21
8.20 Annual Presentation................................................ 21
8.21 Chief Financial Officer............................................ 21
8.22 Patents, Trademarks and Copyrights................................. 21
(a) Trademark Maintenance.......................................... 21
-ii-
<PAGE>
(b) Copyright Maintenance.......................................... 22
(c) Application and Registration Maintenance....................... 22
(d) Infringement................................................... 22
8.23 Related Party Transactions......................................... 22
ARTICLE IX.
NEGATIVE COVENANTS OF THE COMPANY....................................... 22
9.1 Negative Covenants................................................. 22
ARTICLE X.
ADDITIONAL AGREEMENTS AND CLOSING DELIVERIES............................. 25
10.1 Execution of Other Agreements...................................... 25
(a) Employment Agreements.......................................... 26
(b) Noncompetition and Confidentiality Agreements.................. 26
10.2 Closing Deliveries................................................. 26
(a) Certificate of Incorporation................................... 26
(b) By-Laws, Minutes, Memoranda of Action.......................... 26
(c) Certificate of Good Standing................................... 26
(d) Series C Preferred Stock Certificates.......................... 26
(e) Opinions of Counsel............................................ 26
(f) Other Documents................................................ 26
ARTICLE XI.
DEFAULT AND REMEDIES..................................................... 27
11.1 Events of Default.................................................. 27
11.2 Increase In Dividend Rate.......................................... 28
11.3 Redemption......................................................... 28
11.4 Special Board Representation....................................... 28
11.5 Other Remedies..................................................... 30
ARTICLE XII.
REGISTRATION RIGHTS...................................................... 30
12.1 Registration Rights................................................ 30
ARTICLE XIII.
MISCELLANEOUS............................................................ 31
12.1 Survival of Warranties............................................. 31
12.2 Successors and Assigns............................................. 31
12.3 Governing Law...................................................... 31
12.4 Counterparts....................................................... 31
12.5 Titles and Subtitles............................................... 31
12.6 Notices............................................................ 32
12.7 Finder's Fee....................................................... 32
12.8 Expenses........................................................... 33
12.9 Amendments and Waivers............................................. 33
12.10 Severability....................................................... 33
-iii-
<PAGE>
12.11 Aggregation of Stock............................................... 33
12.12 Entire Agreement................................................... 33
12.13 Arbitration........................................................ 33
-iv-
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
OF
12% CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES C
OF
CREATIVE GAMING, INC.
Pursuant to the New Jersey General Corporation Law, the undersigned duly
authorized officer of Creative Gaming, Inc., a New Jersey corporation (the
"Company@), hereby certifies that the following resolution was duly adopted on
September 29, 1997, by the Board of Directors of the Company pursuant to
authority conferred on the Board of Directors by the provisions of the
Certificate of Incorporation of the Company (as amended) and in accordance with
the provisions of the New Jersey General Corporation Law, and that said
resolution has not been amended or rescinded and is in full force and effect at
the date hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Company by the Corporation's Certificate of
Incorporation, as amended to date, the Board of Directors hereby creates a new
series of the Corporation's authorized but unissued preferred stock, par value
$.02 per share, to be designated "12% Convertible Redeemable Preferred Stock,
Series C" and to consist of 2,000,000 shares, and hereby fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions thereof:
1. Number of Shares and Designation. The shares of this series of
--------------------------------
preferred stock shall be designated as "12% Convertible Redeemable Preferred
Stock, Series C," par value $.02 per share (the "Series C Preferred Stock"),
and the number of shares constituting this series shall be 2,000,000.
2. Definitions. For purposes of the Series C Preferred Stock, the
-----------
following terms shall have the meanings indicated:
"Board of Directors" shall mean the board of directors of the Company or
any committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series C Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the City of Springfield, New Jersey, are
authorized or obligated by law or executive order to close.
"Change in Control" shall have the meaning set forth in Subsection 9.4
hereof.
"Common Stock" shall mean the Common Stock of the Company, no par value per
share, and any capital stock of the Company which has the right to
participate in the distribution of earnings and assets of the
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EXHIBIT A
Company without limit as to amount or percentage, into which the Common
Stock may hereafter be classified by appropriate amendment to the
Corporation's Certificate of Incorporation.
"Conversion Price" shall mean the shares of Common Stock into which the
Series C Preferred Stock is convertible, as such Conversion Price may be
adjusted pursuant to Section 8 hereof. The initial Conversion Price will
be 2.325 shares of Common Stock for each share of Preferred Stock.
"Dividend Payment Date" shall have the meaning set forth in Subsection 3.2
hereof.
Dividend Payment Record Date" shall have the meaning set forth in
Subsection 3.2 hereof.
"Dividend Periods shall mean quarterly dividend periods commencing on the
first day of March, June, September and December of each year and ending on
and including the day preceding the first day of the next succeeding
Dividend Period (other than the initial Dividend Period which shall
commence on the Original Issue Date.
"Liquidation Value" shall mean, as to each share of Series C Preferred
Stock, the sum of $.05.
"Original Issue Date" shall mean the first date on which shares of Series C
Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture
or other entity, and shall include any successor (by merger or otherwise)
of such entity.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Transaction" shall have the meaning set forth in Subsection 8.6(a) hereof.
3. Dividends.
---------
3.1 General. The holders of shares of the Series C Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of assets legally available therefor, cumulative cash dividends at an annual
rate of 12% per share.
3.2 Dividend Preference and Payment Dates. Such dividends shall be
cumulative from the Original Issue Date, whether or not in any Dividend Period
or Periods there shall be assets of the Company legally available for the
payment of such dividends and whether or not such dividends are declared, and
shall be payable quarterly, when, as and if declared by the Board of Directors,
on March 1, June 1, September 1, and December 1 in each year (each a "Dividend
Payment Date"), commencing on December 1, 1997. If December 31, 1997, or any
other Dividend
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EXHIBIT A
Payment Date shall be on a day other than a Business Day, then the Dividend
Payment Date shall be on the next succeeding Business Day. Each such dividend
shall be payable in arrears to the holders of record of shares of the Series C
Preferred Stock, as they appear on the stock records of the Company at the close
of business on those dates (each such date, a "Dividend Payment Record Date"),
not less than 10 days nor more than 60 days preceding the dividend payment dates
thereof, as shall be fixed by the Board of Directors. Dividends on the Series C
Preferred Stock shall accrue (whether or not declared) on a daily basis from the
Original Issue Date and accrued dividends for each Dividend Period shall
accumulate to the extent not paid on the Dividend Payment Date first following
the Dividend Period for which they accrue. As used herein, the term "accrued"
with respect to dividends includes both accrued and accumulated dividends.
Accrued and unpaid dividends for any past Dividend Periods may be declared and
paid at any time, without reference to any regular Dividend Payment Date, to
holders of record on such date, not exceeding 45 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
3.3 Computation of Dividends for Partial Dividend Periods; Payment of
Dividends on Shares Called for Redemption. The amount of dividends payable for
each full Dividend Period for the Series C Preferred Stock shall be computed by
dividing the annual dividend rate by four (rounded down to the nearest cent).
The amount of dividends payable for the initial Dividend Period on the Series C
Preferred Stock, or any other period shorter or longer than a full Dividend
Period on the Series C Preferred Stock, shall be computed on the basis of a 360-
day year consisting of twelve 30-day months. Holders of shares of Series C
Preferred Stock called for redemption on a redemption date falling between the
close of business on a Dividend Payment Record Date and the opening of business
on the corresponding Dividend Payment Date shall, in lieu of receiving such
dividend on the Dividend Payment Date fixed therefor, receive such dividend
payment together with all other accrued and unpaid dividends on the date fixed
for redemption (unless such holder converts such shares in accordance with
Section 8 hereof). No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series C Preferred
Stock which are in arrears.
3.4 Priority and Dividend Participation/Parity Stock. (a) So long as any
shares of the Series C Preferred Stock are outstanding, no dividends, except as
described in the next succeeding sentence, shall be declared or paid or set
apart for payment on any class or series of stock of the Company ranking, as to
dividends, on a parity with the Series C Preferred Stock, for any period unless
full cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payment on the Series C Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment, or setting apart for payment, of such full
cumulative dividends on such parity stock. When dividends are not paid in full
or a sum sufficient for such payment is not set apart, as aforesaid, upon the
shares of the Series C Preferred Stock and any other class or series of stock
ranking on a parity as to dividends with the Series Preferred Stock, all
dividends declared upon shares of the Series Preferred Stock and all dividends
declared upon such other stock shall be declared pro rata so that the amounts of
dividends per share declared on the Series C Preferred Stock and such other
stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of the Series C Preferred Stock and on such
other stock bear to each other.
(b) So long as any shares of the Series C Preferred Stock are outstanding,
no other stock of the Company ranking on a parity with the Series C Preferred
Stock as to dividends or upon liquidation, dissolution or winding up
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EXHIBIT A
shall be redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund or otherwise for the
purchase or redemption of any shares of any such stock) by the Company (except
by conversion into or exchange for stock of the Company ranking junior to the
Series C Preferred Stock as to dividends and upon liquidation, dissolution or
winding up) unless (a) the full cumulative dividends, if any, accrued on all
outstanding shares of the Series C Preferred Stock shall have been paid or set
apart for payment for all past Dividend Periods and (b) sufficient funds shall
have been set apart for the payment of the dividend for the current Dividend
Period with respect to the Series C Preferred Stock.
3.5 Priority and Dividend Participation/Junior Stock. So long as any
shares of the Series C Preferred Stock are outstanding, no dividends (other than
dividends or distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Common Stock or other stock ranking junior
to the Series C Preferred Stock as to dividends and upon liquidation,
dissolution or winding up) shall be declared or paid or set apart for payment
and no other distribution shall be declared or made or set apart for payment, in
each case upon the Common Stock or any other stock of the Company ranking junior
to the Series C Preferred Stock as to dividends or upon liquidation, dissolution
or winding up, nor shall any Common Stock nor any other such stock of the
Company ranking junior to the Series C Preferred Stock as to dividends or upon
liquidation, dissolution or winding up be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund or otherwise for the purchase or redemption of any shares of any
such stock) by the Company (except by conversion into or exchange for stock of
the Company ranking junior to the Series C Preferred Stock as to dividends and
upon liquidation, dissolution or winding up) unless, in each case (a) the full
cumulative dividends, if any, accrued on all outstanding shares of the Series C
Preferred Stock and any other stock of the Company ranking on a parity with the
Series C Preferred Stock as to dividends shall have been paid or set apart for
payment for all past Dividend Periods and all past dividend periods with respect
to such other stock and (b) sufficient funds shall have been set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series C Preferred Stock and for the current dividend period with respect to any
other stock of the Company ranking on a parity with the Series C Preferred Stock
as to dividends.
3.6 Dividend Participation with Common Stock after Payment of Cumulative
Dividends. If the Company has paid the holders of the Series C Preferred Stock
the full amount of the cumulative dividends thereon as required by this Section
3, and shall elect to declare additional dividends in any fiscal year out of
funds legally available therefor, subject to the rights of the holders of shares
of any series or classes of stock ranking on a parity with or prior to the
Series C Preferred Stock as to dividends, such additional dividends shall be
declared and shall be paid on both the Series C Preferred Stock and the Common
Stock equally, with the Series C Preferred Stock for this purpose being deemed
converted into such number of shares of Common Stock (including fractions of a
share) as each such share of Series C Preferred Stock is convertible on the date
the dividend is declared.
4. Liquidation Value..
------------------
4.1 General. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or surplus)
4
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EXHIBIT A
shall be made to or set apart for the holders of Common Stock or any other
series or class or classes of stock of the Company ranking junior to the Series
C Preferred Stock upon liquidation, dissolution or winding up, the holders of
the shares of Series C Preferred Stock shall be entitled to receive $0.05 per
share (the "Liquidation Value") plus an amount per share equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such holders. No payment on account of any liquidation,
dissolution or winding up of the Company shall be made to the holders of any
class or series of stock ranking on a parity with the Series C Preferred Stock
in respect of the distribution of assets upon dissolution, liquidation or
winding up unless there shall likewise be paid at the same time to the holders
of the Series C Preferred Stock like proportionate amounts determined ratably in
proportion to the full amounts to which the holders of all outstanding shares of
Series C Preferred Stock and the holders of all outstanding shares of such
parity stock are respectively entitled with respect to such distribution. If,
upon any liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributable among the holders of the shares
of Series C Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares of
stock ranking, as to liquidation, dissolution or winding up, on a parity with
the Series C Preferred Stock, then such assets, or the proceeds thereof, shall
be distributed among the holders of shares of Series C Preferred Stock and any
such other stock ratably in accordance with the respective amounts which would
be payable on such shares of Series C Preferred Stock and any such other stock
if all amounts payable thereon were paid in full. For the purposes of this
Section 4, (a) a consolidation or merger of the Company with one or more
corporations or other entities, (b) a sale, lease, exchange or transfer of all
or any part of the Corporation's assets or (c) a statutory share exchange shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
4.2 Liquidation Participation with Common Stock after Payment of
Liquidation Preference. Upon any liquidation, dissolution or winding up of the
Company, subject to the rights of the holders of shares of any series or class
or classes of stock ranking on a parity with or prior to the Series C Preferred
Stock upon liquidation, dissolution or winding up, after payment shall have been
made in full to the holders of Series C Preferred Stock as provided in
Subsection 4.1, the remaining assets of the Company available for distribution
to stockholders shall be distributed among the holders of Series C Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming conversion of all such Series C Preferred Stock).
4.3 Notice of Liquidation, Dissolution or Winding Up. Written notice of
any liquidation, dissolution or winding up of the Company, stating the payment
date or dates when and the place or places where the amounts distributable in
such circumstances shall be payable, shall be given by first class mail, postage
prepaid, not less than 30 days prior to any payment date stated therein, to the
holders of record of the Series C Preferred Stock at their respective addresses
as the same shall appear on the books of the Company.
5. Transfers.
---------
5.1 Transfer Restrictions. Each certificate of Series C Preferred Stock
shall bear a securities law restrictive legend describing the transfer
restrictions to which it is subject.
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<PAGE>
EXHIBIT A
5.2 Delivery of Certificate, Transfer Instructions and Transfer
Certificate. Each certificate of Series C Preferred Stock presented for
transfer, exchange or conversion:
(a) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Company or to its registrar therefor
duly executed by such Holder or its attorney, duly authorized in writing;
and
(b) shall be accompanied by a customary Transferor Certificate.
6. Redemption.
----------
6.1 Redemption at the Option of Holder.
(a) Subject to the rights of any class or series of stock of the
Company ranking, as to dividends or upon dissolution, liquidation or
winding up, on a parity with the Series C Preferred Stock, at any time
after the second anniversary of the Original Issue Date, each holder of the
Series C Preferred Stock shall have the right to compel the Company to
redeem (the "Redemption Right"), to the extent funds are legally available
therefor, all but not less than all of such holder's shares of Series C
Preferred Stock at a price per share equal to the Redemption Price (as
adjusted for any stock dividends, combinations or splits [excluding the
reverse split contemplated by the Company to occur during 1997] with
respect to such shares) plus all declared or accumulated but unpaid
dividends on such shares.
(b) Any holder requesting redemption (the "Requesting Holder") shall
give written notice thereof (the "Redemption Notice") to the Company at
least 90 days prior to the requested date of the redemption (the
"Redemption Date"). Such Redemption Notice shall state the number of
shares of Convertible Preferred Stock to be redeemed.
(c) Within 10 days after receipt of the Redemption Notice, the Company
shall give notice of any requested redemption by mail, postage prepaid, to
all holders of record of the Series C Preferred Stock other than the
Requesting Holder, such notice to be addressed to each holder at the
address as it appears on the stock transfer books of the Company and to
specify the date of the redemption and the number of shares of the holder
requested to be redeemed. Each of the other holders of Series C Preferred
Stock shall have the right to exercise the Redemption Right and compel the
Company to purchase all of such holder's shares of Series C Preferred Stock
at the Redemption Price on the Redemption Date by delivery of a Redemption
Notice to the Company within 10 days after receipt of notice of the
requested redemption from the Company. On or prior to the Redemption Date,
each holder requesting redemption shall surrender his certificate for the
number of shares to be redeemed as stated in the Redemption Notice. If
less than all of the shares represented by such certificates are redeemed,
a new certificate shall forthwith be issued for the shares that are not
redeemed.
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EXHIBIT A
(d) For the purpose of determining whether funds are legally available
for redemption of shares of Series C Preferred Stock as provided in this
Subsection 6.1, the Company shall value its assets at the highest amount
permissible under applicable law. If the funds of the Company legally
available for redemption on any Redemption Date are insufficient to redeem
the total number of shares requested to be redeemed on such date, those
funds which are legally available shall, subject to the rights of any class
or series of stock of the Company ranking, as to dividends or upon
dissolution, liquidation or winding up, on a parity with the Series C
Preferred Stock, be used to redeem the maximum possible number of shares
requested to be redeemed ratably among the holders of shares of Series C
Preferred Stock requested to be redeemed based upon the aggregate Series C
Redemption Price of such shares held by each such holder. The shares of
Series C Preferred Stock not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. The redemption
requirements provided hereby shall be continuous, so that at any time
thereafter when additional funds of the Company are legally available for
redemption of Series C Preferred Stock, such funds shall immediately be
used to redeem the balance of any Series C Preferred Stock which the
Company has become obligated to redeem on any Redemption Date but which it
has not redeemed, without further action by any holder of Series C
Preferred Stock.
7. Shares to be Retired. All shares of Series C Preferred Stock
--------------------
purchased, redeemed, exchanged or converted by the Company shall be retired and
canceled and shall be restored to the status of authorized but unissued shares
of the Corporation's preferred stock, without designation as to Series and may
thereafter be reissued.
8. Conversion. Holders of shares of Series C Preferred Stock shall have
----------
the right to convert all or a portion of such shares (including fractions of
such shares) into shares of Common Stock, as follows:
8.1 Right to Convert. Subject to and upon compliance with the provisions
of this Section 8, a holder of shares of Series C Preferred Stock shall have the
right, at such holder's option, at any time to convert each of such shares (or
fractions thereof) into 2.325 shares of Common Stock and by surrender of such
shares, such surrender to be made in the manner provided in Subsection 8.3
hereof. No fractional shares or securities representing fractional shares of
Common Stock will be issued upon conversion, and instead such amounts as would
have been paid in fractional shares will be paid in cash as provided in
Subsection 8.4 hereof.
8.2 Mechanics of Conversion. (a) In order to exercise the conversion
right pursuant to Subsection 8.1 above, the holder of each share of Series C
Preferred Stock (or fraction thereof) to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the Company or
in blank, at the office of the Company, accompanied by written notice to the
Company that the holder thereof elects to convert Series C Preferred Stock or a
specified portion thereof. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such share of Series C Preferred
Stock is registered, each share surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Company, duly executed
by the holder or such holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax (or evidence reasonably satisfactory to the
Company demonstrating that such taxes have been paid or are not required to be
paid).
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EXHIBIT A
(b) Holders of shares of Series C Preferred Stock at the close of business
on a Dividend Payment Record Date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date (except that
holders of shares called for redemption on a redemption date falling between the
close of business on such Dividend Payment Record Date and the opening of
business on the corresponding Dividend Payment Date shall, in lieu of receiving
such dividend on the Dividend Payment Date fixed therefor, receive such dividend
payment together with all other accrued and unpaid dividends on the date fixed
for redemption, unless such holder converts such shares called for redemption
pursuant to the provisions of this Section 8) notwithstanding the conversion
thereof following such Dividend Payment Record Date and prior to such Dividend
Payment Date. However, shares of Series C Preferred Stock surrendered for
conversion during the period between the close of business on any Dividend
Payment Record Date and the opening of business on the corresponding Dividend
Payment Date (except shares called for redemption or exchange on a redemption
date or exchange date during such period) must be accompanied by payment of an
amount equal to the dividend payment with respect to such shares of Series C
Preferred Stock presented for conversion on such Dividend Payment Date. A
holder of shares of Series C Preferred Stock on a Dividend Payment Record Date
who (or whose transferee) tenders any such shares for conversion into shares of
Common Stock on the corresponding Dividend Payment Date will receive the
dividend payable by the Company on such shares of Series C Preferred Stock on
such date and the converting holder need not include payment in the amount of
such dividend upon surrender of shares of Series C Preferred Stock for
conversion on the Dividend Payment Date. Except as provided above, the Company
shall make no payment or allowance for unpaid dividends, whether or not in
arrears, on converted shares or for dividends on the shares of Common Stock
issued upon such conversion.
(c) As promptly as practicable after the surrender of certificates for
shares of Series C Preferred Stock as aforesaid, the Company shall issue and
shall deliver at such office to such holder, or on such holder's written order,
a certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such shares in accordance with the provisions of this
Section 8, and any fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in Subsection 8.4
hereof.
(d) Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Series C Preferred Stock shall have been surrendered and such notice received by
the Company as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date, and such conversion
shall be at the Conversion Price in effect at such time on such date, unless the
stock transfer books of the Company shall be closed on that date, in which event
such person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price in
effect on the date upon which such shares shall have been surrendered and such
notice received by the Company. All shares of Common Stock delivered upon
conversion of the Series C Preferred Stock will upon delivery be duly and
validly issued and fully paid and nonassessable.
8.3 Payment of Fractional Interests. Instead of any fractional interest
in a share of Common Stock which would otherwise be deliverable upon the
conversion of a share of Series C Preferred Stock (or fraction thereof), the
8
<PAGE>
EXHIBIT A
Company shall pay to the holder of such share an amount in cash equal to $0.05
multiplied by the fraction of a share of Common Stock represented by such
fractional interest. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series C Preferred Stock so surrendered.
8.4 Adjustments to Conversion Price for Diluting Issues.
(a) Special Definitions. For purposes of this Subsection 8.5, the
-------------------
following definitions shall apply:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued (or, pursuant to Subsection 8.5(c), deemed to be
issued) by the Company after the Original Issue Date other than shares
of Common Stock issued or issuable at any time:
(i) upon conversion of shares of Series C Preferred Stock; or
(ii) as a dividend or distribution on any other series C
Preferred Stock; or
(iii) by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional
Shares of Common Stock by the foregoing clauses (i) or (ii)
or this clause (iii).
"Convertible Securities" shall mean any evidences of indebtedness,
shares (other than Common Stock and Series C Preferred Stock) or other
securities directly or indirectly convertible into or exchangeable for Common
Stock.
"Option" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible Securities.
(b) No Adjustment of Conversion Price. No adjustment in the number of
---------------------------------
shares of Common Stock into which the Series C Preferred Stock is convertible
shall be made, by adjustment in the Conversion Price of Series C Preferred Stock
in respect of the issuance of Additional Shares of Common Stock or otherwise,
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the corporation is less than the book value of
the Common Stock in effect on the date of, and immediately prior to, the issue
of such Additional Share of Common Stock.
(c) Issue of Securities Deemed Issue of Additional Shares of Common Stock.
---------------------------------------------------------------------
(i) Options and Convertible Securities. In the event the Company at
----------------------------------
any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities
entitled to receive
9
<PAGE>
EXHIBIT A
any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Subsection 8.5(e)
hereof), of such Additional Shares of Common Stock would be less
than $1.00 per share:
(A) no further adjustment in the Conversion Price shall be made
upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any
increase or decrease in the consideration payable to the
corporation, or increase or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights
of conversion or exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities
which shall not have been exercised, the Conversion Price
computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock
issued were the shares of Common Stock, if any,
actually issued upon the exercise, of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor was
the consideration actually received by the Company for
the issue of all such Options, whether or not
exercised, plus the consideration actually received by
the Company upon such exercise, or for the issue of all
such Convertible Securities which were actually
converted or exchanged, plus the additional
consideration,
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<PAGE>
EXHIBIT A
if any, actually received by the Company upon such
conversion or exchange, and
(2) in the case of Options for Convertible Securities only
the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of
issue of such Options, and the consideration received
by the Company for the Additional Shares of Common
Stock deemed to have been then issued was the
consideration actually received by the Company for the
issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by
the Company (determined pursuant to Subsection 8.5(e)
upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall
have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (1) the Conversion Price
on the original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(E) in the case of any Options which expire by their terms not
more than 30 days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in
clause (C) above; and
(F) if such record date shall have been fixed and such Options
or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion
Price which became effective on such record date shall be
canceled as of the close of business on such record date,
and thereafter the Conversion Price shall be adjusted
pursuant to this Subsection 8.5(c)(i) as of the actual date
of their issuance.
(ii) Stock Dividends, Stock Distributions and Subdivisions. In the
event the Company at any time or from time to time after the
Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock,
or effect a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, Additional Shares
of Common Stock shall be deemed to have been issued:
11
<PAGE>
EXHIBIT A
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date
for the determination of holders of any class of securities
entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment
previously made in the Conversion Price which became effective on such
record date shall be canceled as of the close of business on such
record date, and thereafter the Conversion Price shall be adjusted
pursuant to this Subsection 8.5(c)(ii) as of the time of actual
payment of such dividend.
(d) Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock. In the event the Company shall issue or shall be deemed to issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Subsection 8.5(c), but excluding Additional
Shares of Common Stock issued pursuant to Subsection 8.5(c)(ii), which event is
dealt with in Subsection 8.5(f) hereof) without consideration or for a
consideration per share less than $1.00 per share on the date of and immediately
prior to such issue, then and in such issue, such Conversion Price shall be
reduced, concurrently with such issue in order to increase the number of shares
of Common Stock into which the Convertible Preferred Stock is convertible, to a
price determined by multiplying such Conversion Price by a fraction (x) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable upon
conversion of any outstanding Series C Preferred Stock or Convertible Securities
or upon exercise of any outstanding Options), plus (2) the number of shares of
Common Stock which the aggregate consideration received by the Company for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price, and (y) the denominator of which shall be (1) the number
of shares of Common Stock outstanding immediately prior to such issue (including
shares of Common Stock issuable upon conversion of any outstanding Preferred
Stock or Convertible Securities or upon exercise of any outstanding Options),
plus (2) the number of such Additional Shares of Common Stock so issued.
(e) Determination of Consideration. For purposes of this Subsection 8.5,
------------------------------
the consideration received by the corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(i) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Company excluding amounts
paid or payable for accrued interest or accrued dividends;
12
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EXHIBIT A
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of
Directors; and
(C) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of
the Company for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (A) and (B) above, as determined in good
faith by the Board of Directors.
(ii) Options and Convertible Securities. The consideration per share
----------------------------------
received by the Company for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 8.5(c)(i),
relating to Options and Convertible Securities, shall be
determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities,
the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, by (y) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities.
(f) Adjustment for Dividends, Distributions, Subdivisions, Combinations or
----------------------------------------------------------------------
Consolidation of Common Stock.
- -----------------------------
(i) Stock Dividends, Distributions or Subdivisions. In the event the
----------------------------------------------
Company shall issue Additional Shares of Common Stock pursuant to
Subsection 8.5(c)(ii) in a stock dividend, stock distribution or
subdivision, the Conversion Price in effect immediately prior to
such stock dividend, stock distribution or subdivision shall,
concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased.
(ii) Combinations or Consolidations. In the event the outstanding
------------------------------
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of
Common Stock, the Conversion Price in effect immediately prior to
such combination or consolidation shall, concurrently with the
effectiveness of such combination
13
<PAGE>
EXHIBIT A
or consolidation, be proportionately increased; except for the
reverse stock presently contemplated by the Company to occur
during 1997 for which no adjustment shall be made in the number
of shares of Common Stock into which the Series C Preferred Stock
is convertible or the Conversion Price.
(g) Adjustment for Merger or Reorganization, etc. (i) In case of any
---------------------------------------------
recapitalization, reorganization, reclassification, consolidation, merger or the
conveyance of all or substantially all of the assets of the Company pursuant to
which the holders of Common Stock are entitled to receive (either directly or on
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock (an "Organic Change"), each of the holders of Series C
Preferred Stock shall thereafter have the right to acquire and receive, in lieu
of or in addition to (as the case may be) the shares of Common Stock acquirable
and receivable upon conversion of such holder's Series C Preferred Stock, such
shares of stock, securities or assets as such holder would have received if such
holder had converted its Series C Preferred Stock immediately prior to such
Organic Change. In each such case, the Company shall also make appropriate
provisions to insure that each share of Series C Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Company deliverable upon conversion of such Series C Preferred Stock would have
been entitled upon such consolidation, merger or conveyance and that appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interest thereafter of the holders of the Series C Preferred Stock, to the end
that the provisions set forth herein (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series C
Preferred Stock. The Company shall not effect any such Organic Change unless
prior to the consummation thereof, the successor entity (if other than the
Company) assumes by written instrument the obligations set forth herein.
(ii) For purposes of this Subsection 8.5(g), any amounts of cash or other
consideration payable to any stockholder of the Company in connection with any
such Organic Change, such as, by way of example only, any employment contracts,
consulting contracts or noncompete payments which result in payments to such
stockholder in excess of 150% of his or her current compensation, shall be
deemed a part of the total consideration payable in connection with such Organic
Change.
8.5 No Impairment. The Company will not, by amendment of its Certificate
of Incorporation 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 hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 8 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series C Preferred Stock against impairment.
8.6 Certificate as to Adjustments. Whenever the Conversion Price is
adjusted as herein provided, the Company shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion Price,
the facts requiring such adjustment and upon which such adjustments are based
and the date on which such adjustment
14
<PAGE>
EXHIBIT A
becomes effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each share of Series C Preferred Stock at such
holder's last address as shown on the stock records of the Company.
8.7 Deferral of Issuance of Additional Shares. In any case in which
Subsection 8.5 provides that an adjustment shall become effective immediately
after a record date for an event and the date fixed for conversion pursuant to
Section 8 occurs after such record date but before the occurrence of such event,
the Company may defer until the actual occurrence of such event (a) issuing to
the holder of any share of Series C Preferred Stock surrendered for conversion
the additional shares of Common Stock issuable upon such conversion by reason
of the adjustment required by such event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment and (b)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Subsection 8.4 hereof.
8.8 Computation of Outstanding Common Stock. For purposes of this Section
8, the number of shares of Common Stock at any time outstanding shall not
include any shares of Common Stock then owned or held by or for the account of
the Company or any corporation controlled by the Company.
8.9 Multiple Adjustments in a Single Transaction. Notwithstanding any
other provision herein to the contrary, the issuance of any shares of Common
Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under any such plan shall not be
deemed to constitute an issuance of Common Stock. There shall be no adjustment
of the Conversion Price in case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 8. If any action or transaction would require
adjustment of the Conversion Price pursuant to more than one Section of this
Section 8, only one adjustment shall be made and such adjustment shall be the
amount of adjustment which has the highest absolute value.
8.10 Further Adjustment by the Board of Directors. In case the Company
shall take any action affecting the Common Stock, other than action described in
this Section 8, which in the opinion of the Board of Directors would materially
adversely affect the conversion rights of the holders of the shares of Series C
Preferred Stock, the Conversion Price for the Series C Preferred Stock may be
adjusted, to the extent permitted by law, in such manner, if any, and at such
time, as the Board of Directors may determine to be equitable in the
circumstances.
8.11 Payment of Documentary Stamp and Transfer Taxes. The Company will pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the shares of Series C Preferred Stock (or
any other securities issued on account of the Series C Preferred Stock pursuant
hereto) or shares of Common Stock on conversion of the Series C Preferred Stock
pursuant hereto; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of shares of Series C Preferred Stock (or any other securities
issued on account of the Series C Preferred Stock pursuant hereto) or shares of
Common Stock in a name other than the name in which the shares of Series C
Preferred Stock with respect to which such Common Stock shares are issued were
registered and the Company shall not be required to make any issue or delivery
unless and until the person requesting such issue or delivery has paid to the
Company the amount
15
<PAGE>
EXHIBIT A
of any such tax or has established, to the reasonable satisfaction of the
Company, that such tax has been paid or is not required to be paid.
8.12 Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Convertible Preferred Stock.
9. Special Right of Redemption Upon Change in Control.
--------------------------------------------------
9.1 Repurchase Right. If a Change in Control (as defined below) should
occur with respect to the Company, each holder of shares of the Series C
Preferred Stock shall have the right, at the holder's option, for a period of 45
days after the mailing of a notice by the Company that a Change in Control has
occurred, to require the Company to repurchase all, or any portion, of such
holder's shares of the Series C Preferred Stock for a price equal to $1.00 per
share, plus an amount equal to all dividends (whether or not earned or
declared), accrued and unpaid to the date fixed for repurchase (the "Repurchase
Price").
9.2 Notice. If a Change in Control shall occur, then, as soon as
practicable and in any event within 30 days after the occurrence of such Change
in Control, the Company shall mail to each registered holder of a share of
Series C Preferred Stock a notice (the "Special Right Notice") setting forth
details regarding the special right of the holders to have their shares of
Series C Preferred Stock repurchased as a result of such Change in Control. A
holder of a share of Series C Preferred Stock must exercise such repurchase
right within the 45 day period after the mailing of the Special Right Notice by
the Company or such special right shall expire. The repurchase date for shares
so repurchased shall be the 45th day after the mailing of the Special Right
Notice. Exercise of such repurchase right shall be irrevocable and no dividend
on the shares of Series C Preferred Stock tendered for repurchase shall accrue
from and after the repurchase date.
9.3 Contents of Notice. The Special Right Notice shall state:
(a) the event constituting the Change in Control;
(b) the last date upon which holders may submit shares of Series C
Preferred Stock for repurchase;
(c) the Repurchase Price of $1.00 per share;
(d) the Conversion Price then in effect under Section 8 and the
continuing conversion rights, if any, under Subsection 8.5;
(e) the name and address of any paying agent and conversion agent;
16
<PAGE>
EXHIBIT A
(f) that exercise of such conversion right shall be irrevocable and
no dividends on shares of Series C Preferred Stock tendered for
conversion shall accrue from and after the conversion date;
(g) that the consideration to be received shall be delivered within
five Business Days after the last date upon which holders may
submit Series C Preferred Stock for conversion.
9.4 Definition of "Change in Control." As used herein, a "Change in
Control" means (i) the acquisition by any person, entity or "group," within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange Act") (excluding, for this purpose, the Company or its
subsidiaries, or any employee benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the Company) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of either the then outstanding shares of Common
Stock or the combined voting power of the Corporation's then outstanding voting
securities entitled to vote generally in the election of directors; or (ii)
individuals, who, as of the date of original issuance of the Series C Preferred
Stock, constitute the Board (as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the date of original issuance of the
Series C Preferred Stock whose election, or nomination for election by the
Corporation's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be, for purposes of this
definition, considered as though such person were a member of the Incumbent
Board; or (iii) approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which persons who were
stockholders of the Company prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 50% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated corporation's then outstanding voting
securities; or (iv) a liquidation or dissolution of the Company (other than
pursuant to the United States Bankruptcy Code) or of the sale of all or
substantially all of the assets of the Company.
10. Ranking. Any class or classes of stock of the Company shall be deemed
-------
to rank:
(a) prior to the Series C Preferred Stock, as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up, if
the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of Series C Preferred Stock;
(b) on a parity with the Series C Preferred Stock, as to dividends or as
to the distribution of assets upon liquidation, dissolution or winding
up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different from
those of the Series C Preferred Stock, if the holders of such class of
stock and the Series C Preferred Stock shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their
respective amounts of accrued and unpaid dividends per share or
liquidation prices, without preference or priority of one over the
other; and
17
<PAGE>
EXHIBIT A
(c) junior to the Series C Preferred Stock, as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up, if
such stock shall be Common Stock or if the holders of Series C
Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of
such stock.
11. Voting.
------
11.1 Voting Rights with Common Stock. Except as described below or as
required by law, holders of Series C Preferred Stock shall be entitled to the
number of votes equal to the number of shares of Common Stock of the Company
into which such Series C Preferred Stock could be converted and shall have the
voting rights and powers equal to the voting rights and powers of the Common
Stock (voting together with the Common Stock as a single class) and shall be
entitled to notice of any stockholders' meeting in accordance with the By-Laws
of the Company. With respect to matters affecting only the Series C Preferred
Stock, each outstanding share of Preferred Stock will be entitled to one vote.
In either case described in this Section 12, shares held by the Company or any
entity controlled by the Company shall be excluded and shall have no voting
rights.
12. Events of Default.
-----------------
12.1 Events of Default Defined. Each of the events specified in the
following Subsections 13.1(a) through (g) shall, upon written notice of default
from holders of a majority of the outstanding shares of Series C Preferred
Stock, be an Event of Default, provided that an Event of Default may be waived
in writing by such holders.
(a) the Company shall breach or default in the performance of or
compliance with, any representation or warranty, covenant,
agreement, condition or term contained in the Series C Preferred
Stock Purchase Agreement which is then applicable or this
Certificate of Designations, including the payment of any
dividend or redemption amount hereunder, and such default shall
not have been remedied within [90] days after written notice
thereof shall have been given to the Company; or
(b) the Company shall default in the payment when due of any
principal or interest on any material debt instrument or shall
default under or fail to perform or observe any material terms,
covenant or agreement contained in, any agreement, document or
instrument to which it is a party or to which it or its assets
are bound, including any obligation for borrowed money or for the
purchase price of property, and such default or failure to
perform shall continue and remain unwaived by the obligee for
more than 90 days or any shorter or longer applicable period of
grace therein specified, except where the Company is in good
faith and through appropriate proceedings contesting such default
or failure to perform; or
18
<PAGE>
EXHIBIT A
(c) the Company or any operating subsidiary shall make an assignment
for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or an order for
relief is entered against the Company or such operating
subsidiary under any bankruptcy laws or the Company or any such
operating subsidiary shall file any petition or answer seeking
for itself any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file an answer
admitting the material allegations of a petition filed against
the Company or such operating subsidiary in any such proceeding,
or shall seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of the Company or such
operating subsidiary, or the Company or its board of directors or
its stockholders shall take any action looking to the dissolution
or liquidation of the Company or such operating subsidiary and
such has not been remedied within 30 days after written notice
thereof shall have been given to the Company; or
(d) within 60 days after the commencement of any proceeding against
the Company or such operating subsidiary seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have
been dismissed or, within 60 days after the appointment without
the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or such operating
subsidiary of all or any substantial part of the properties of
the Company or such operating subsidiary, such appointment shall
not have been vacated; or
(e) a final judgment which, together with other outstanding final
judgments against the Company, exceeds an aggregate of $400,000,
shall be rendered against the Company and within 90 days after
entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal or, within 60 days after
the expiration of any such stay, such judgment shall not have
been discharged; or
(f) the Company fails to make any redemption payment with respect to
the Series C Preferred Stock which it is obligated to make
hereunder, whether or not such payment is then legally
permissible or is prohibited by any agreement to which the
Company is subject.
12.2 Redemption. Notwithstanding any other rights to redemption they may
have, if an Event of Default has occurred, the holders of not less than a
majority of the outstanding shares of Series C Preferred Stock may demand (by
written notice delivered to the Company) immediate redemption of all or any
portion of the Series C Preferred Stock owned by such holder at a price per
share equal to $1.00 per share payable in cash. The Company will redeem all
Series C Preferred Stock as to which rights under this Subsection 13.2 have been
exercised within 30 days after receipt of the demand for redemption. Any
unexercised rights the holders of the Series C Preferred Stock may have
19
<PAGE>
EXHIBIT A
under this Subsection 13.2 will expire as of the close of business on the date
of which no Event of Default exists (whether through cure or otherwise), subject
to subsequent rights obtained pursuant to this Subsection 13.2.
12.3 Other Remedies. The holders of a majority of the Series C Preferred
Stock outstanding at the time of any Event of Default may proceed to protect and
enforce the rights of said holders by a suit in equity, action at law or other
appropriate proceeding, including but not limited to the enforcement of any
rights under any of the other documents executed and delivered in connection
herewith, for the specific performance of any agreement contained herein or in
any other documents executed and delivered in connection herewith, or for any
injunction against a violation of any of the terms or provisions hereof or
thereof or in aid of the exercise of any power granted hereby or thereby or by
law. The Company will pay to the holders thereof such further amount as shall
be sufficient to cover the cost and expense of any action instituted by the
holders upon such Event of Default, including (without limitation) reasonable
attorneys fees. If the holders shall give any notice or take any action in
respect of a claimed default, the Company will forthwith give written notice
thereof to all other such holder at the time outstanding, describing the notices
or action and the nature of the claimed default. No course of dealing and no
delay on the part of any holders in exercising any right shall operate as a
waiver thereof or otherwise prejudice such holders' rights. No remedy conferred
hereby or by any of the other documents executed and delivered in connection
herewith shall be exclusive of any other remedy referred to herein or therein or
now or hereafter available at law, in equity, by statute or otherwise.
13. Covenants. In addition to any other rights provided by law or
---------
agreement so long as any shares of the Series C Preferred Stock remain shall be
outstanding, without first obtaining the affirmative vote or written consent of
the holders of not less than 50% of the shares of Series C Preferred Stock then
outstanding (as adjusted for all subdivisions and combinations), the Company
shall not:
(a) pay or declare any dividend or distribution on any shares of
Common Stock or apply any of its assets to the redemption,
retirement, purchase or other acquisition directly or indirectly,
through subsidiaries or otherwise, of any shares of Common Stock;
(b) issue or sell any shares of its capital stock, or any rights or
options to acquire any shares of its capital stock, other than
(i) issuances of Common Stock upon conversion of the Series C
Preferred Stock, (ii) issuances of Common Stock or Series C
Preferred Stock in the form of dividends payable on shares of
outstanding Common Stock or Series C Preferred Stock,
respectively, and (iii) issuances ofshares (which number shall be
proportionately adjusted in the case of recapitalizations, stock
splits, stock dividends or combinations of shares) of Common
Stock upon exercise of options therefor to officers, directors or
employees of, or consultants to, the Company pursuant to a stock
option plan or other employee stock incentive program approved by
the Board of Directors;
(c) cause or permit, or agree or consent to cause or permit in the
future (upon the happening of a contingency or otherwise) any of
its property, whether now owned or hereafter acquired, to be
subject to a lien or liens except:
20
<PAGE>
EXHIBIT A
(i) liens securing taxes, assessments or governmental charges or
the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons, none of
which are in default or delinquent;
(ii) liens incurred or deposits made in the ordinary course of
business (A) in connection with workmen's compensation,
unemployment insurance, social security and other like laws,
or (B) to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, statutory obligations,
surety, appeal and performance bonds and other similar
obligations not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the
deferred purchase price of property; and
(iii) attachment, judgment and other similar liens arising in
connection with any court proceedings, provided the
execution or other enforcement of such liens is effectively
stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(iv) reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, leases and
other similar title exceptions or encumbrances affecting
real property provided they do not in the aggregate
materially detract from the value of said properties or
materially interfere with their use in the ordinary conduct
of the Corporation's business; and
(v) liens arising out of debt authorized by the requisite vote
of the Board of Directors.
(d) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws if such
action would alter or change the preferences, rights, privileges
or powers of, or the restrictions provided for the benefit of,
the Series C Preferred Stock;
(e) change the general character of its business as constituted as of
the Original Issue Date;
(f) except as otherwise provided herein, apply any of its assets to
redeem, retire, purchase or otherwise acquire any capital stock
of the Company;
(g) enter into any material transaction, including, without
limitation, the purchase, sale, lease, rental or exchange of
property or the rendering of any service, with an affiliate,
employee, officer, director or shareholder or engage in any
transaction not in the normal course of business with any
supplier, customer or any other person unless approved by the
Board of Directors of the Company;
21
<PAGE>
EXHIBIT A
(h) issue or agree to issue any additional shares of its Common
Stock, Series C Preferred Stock, any other equity securities,
including warrants, options or other rights or instruments to
acquire shares of Common Stock or other debt, equity or other
securities convertible into shares of Common Stock or other
equity securities or case any division or splitting of any such
securities or any stock dividend, reclassification, exchange or
substitution thereof or approve or agree to any reorganization,
merger, consolidation or combination with any corporation or
other entity or sell or lease (as lessor) more than 50% of the
Corporation's total consolidated assets in any 12 month period
(other than mortgages, deeds of trust, pledges or other
hypothecation of real or personal property otherwise permitted by
this Section 14 and other than sales or other dispositions of
inventory in the normal course of business), or liquidate,
dissolve, recapitalize or reorganize in any form of transaction;
(i) grant to any future purchaser of its securities any rights to
register such securities under the Securities Act that are more
favorable than those provided to the holders of the Series C
Preferred Stock pursuant to the Series C Stock Purchase Agreement
and will not grant any registration rights to any future
purchaser of its securities unless such registration rights shall
provide that (i) they are subject to the rights of the holders of
the Series C Preferred Stock to the extent that if the managing
underwriter of any offering which includes shares of Common Stock
into which the Series C Preferred Stock is convertible determines
that marketing factors require the limitation of the number of
shares of such Common Stock or other securities to be included in
the offering, the securities of the Company held by such future
purchasers of its securities shall be excluded from such
registration to the extent required by such limitation before the
exclusion of any shares of Common Stock into which the Series C
Preferred Stock is convertible, and (ii) such securities as are
excluded from registration shall not be offered to the public
until at least [180] days following the completion of the
offering of the securities included in the registration.
(j) issue any of its equity securities for consideration other than
cash, other than (i) issuances of Common Stock upon conversion of
the Series C Preferred Stock, (ii) issuances of Common Stock or
Series C Preferred Stock in the form of dividends payable on
shares of outstanding Common Stock or Series C Preferred Stock,
respectively, (iii) issuances of shares (which number shall be
proportionately adjusted in the case of recapitalizations, stock
splits, stock dividends or combinations of shares) of Common
Stock upon exercise of options therefor to officers, directors or
employees of, or consultants to, the Company pursuant to a stock
option plan or other employee stock incentive program approved by
the Board of Directors, and (iv) acquisitions of other companies
or assets related to the business of the Company;
(k) make or permit to remain outstanding any loan or advance to, or
extend credit other than credit extended in the normal course of
business to any Person who is not an affiliate of the
22
<PAGE>
EXHIBIT A
Company, or guarantee, endorse or otherwise be or become
contingently liable, directly or indirectly, in connection with
the obligations, stock or dividends of, or own, purchase or
acquire any stock, obligations or securities of, or any other
interest in, or make any capital contribution to, any Person,
except that the Company or any subsidiary may:
------
(i) own, purchase or acquire (A) certificates of deposit of
commercial banks organized under the laws of the United
States (having a capital and surplus in excess of
$50,000,000) and (B) obligations of the United States
Government or any agency thereof, and obligations guaranteed
by the United States Government, in each case due within one
year from the date of purchase and payable in the United
States in United States dollars;
(ii) endorse negotiable instruments for collection or deposit in
the ordinary course of business; and
(iii) permit to make and remain outstanding indebtedness
permitted by clause (d) of this Section 14.
14. Record Holder. The Company may deem and treat the record holder of
-------------
any shares of Series C Preferred Stock as the true and lawful owner thereof for
all purposes, and the Company shall not be affected by any notice to the
contrary.
15. Notice. Except as may otherwise be provided for herein, all notices
------
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt. In the case of a notice of conversion
given to the Company as contemplated in Subsection 8.3 hereof, or, in all other
cases, upon the earlier of receipt of such notice or three Business Days after
the mailing of such notice if sent by registered mail (unless first class mail
shall be specifically permitted for such notice under the terms of this
Certificate) with postage prepaid, addressed: if to the Company, to its offices
at 150 Morris Avenue, Suite 205, Springfield, New Jersey 07081, or such other
place as designated in a written notice to the holders of the Series C Preferred
Stock, or other agent of the Company designated as permitted by this
Certificate, or, if to any holder of the Series C Preferred Stock, to such
holder at the address of such holder of the Series C Preferred Stock as listed
in the stock record books of the Company; or to such other address as the
Company or holder, as the case may be, shall have designated by notice similarly
given.
23
<PAGE>
EXHIBIT A
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Company by the undersigned on the 29/th/ day of September, 1997.
CREATIVE GAMING, INC.
By:/s/ Peter J. Jegou
------------------
Peter J. Jegou, President
24
<PAGE>
EXHIBIT A
TABLE OF CONTENTS
Page
1. Number of Shares and Designation...................................... 1
--------------------------------
2. Definitions........................................................... 1
-----------
3. Dividends............................................................. 2
---------
3.1 General......................................................... 2
3.2 Dividend Preference and Payment Dates........................... 2
3.3 Computation of Dividends for Partial Dividend Periods;
Payment of Dividends on Shares Called for Redemption........... 3
3.4 Priority and Dividend Participation/Parity Stock................ 3
3.5 Priority and Dividend Participation/Junior Stock................ 4
3.6 Dividend Participation with Common Stock after Payment of
Cumulative Dividends........................................... 4
4. Liquidation Value..................................................... 4
-----------------
4.1 General......................................................... 4
4.2 Liquidation Participation with Common Stock after Payment
of Liquidation Preference...................................... 5
4.3 Notice of Liquidation, Dissolution or Winding Up................ 5
5. Transfers............................................................. 5
---------
5.1 Transfer Restrictions........................................... 5
5.2 Delivery of Certificate, Transfer Instructions and Transfer
Certificate.................................................... 6
6. Redemption............................................................ 6
----------
6.1 Redemption at the Option of Holder.............................. 6
7. Shares to be Retired.................................................. 7
--------------------
8. Conversion............................................................ 7
----------
8.1 Right to Convert................................................ 7
8.2 Mechanics of Conversion......................................... 7
8.3 Payment of Fractional Interests................................. 8
8.4 Adjustments to Conversion Price for Diluting Issues............. 9
8.5 No Impairment................................................... 14
8.6 Certificate as to Adjustments................................... 14
8.7 Deferral of Issuance of Additional Shares....................... 15
8.8 Computation of Outstanding Common Stock......................... 15
8.9 Multiple Adjustments in a Single Transaction.................... 15
8.10 Further Adjustment by the Board of Directors.................... 15
8.11 Payment of Documentary Stamp and Transfer Taxes................. 15
8.12 Reservation of Common Stock..................................... 16
9. Special Right of Redemption Upon Change in Control.................... 16
--------------------------------------------------
9.1 Repurchase Right................................................ 16
9.2 Notice.......................................................... 16
1
<PAGE>
EXHIBIT A
9.3 Contents of Notice.............................................. 16
9.4 Definition of "Change in Control.".............................. 17
10. Ranking............................................................... 17
--------
11. Voting................................................................ 18
-------
11.1 Voting Rights with Common Stock................................. 18
12. Events of Default..................................................... 18
------------------
12.1 Events of Default Defined....................................... 18
12.2 Redemption...................................................... 19
12.3 Other Remedies.................................................. 20
13. Covenants............................................................. 20
----------
14. Record Holder......................................................... 23
--------------
15. Notice................................................................ 23
-------
2
<PAGE>
EXHIBIT 2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, IN RELIANCE UPON SECTION 4(2) THEREOF, OR UNDER ANY APPLICABLE
STATE SECURITIES ACTS. THESE SECURITIES WERE ACQUIRED FOR INVESTMENT, ARE
RESTRICTED AS TO TRANSFERABILITY, AND MAY NOT BE SOLD OR TRANSFERRED FOR
VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACTS.
COMMON STOCK PURCHASE WARRANT
-----------------------------
Dated September 29, 1997
------------------------
Void After September 29, 1999
Creative Gaming, Inc. (the "Company"), a New Jersey corporation,
hereby certifies that, for value received, Arthur L. Malone, Jr., or registered
assigns (hereinafter referred to as the "Warrantholders"), is entitled, subject
to the terms and conditions set forth in this Warrant (said Warrant and any
warrants issued in exchange or transfer or replacements hereof being hereinafter
collectively referred to as the "Warrants"), to purchase from the Company, for
cash, Eight Hundred Seventy-Five Thousand (875,000) fully paid and nonassessable
shares of Common Stock of the Company, no par value (the "Common Stock," which
term is further defined in Paragraph IV C. hereof), at any time or from time to
time until 5 p.m. California local time on September 29, 1999, at an exercise
price of Ten Cents ($0.10) per share (the "Exercise Price"), the number of such
shares of Common Stock and the Exercise Price being subject to adjustment as
provided herein.
1. Exercise of Warrant. The rights represented by this Warrant may be
-------------------
exercised by the Warrantholders, in whole or in part (but not as to a
fractional share of Common Stock), by the presentation and surrender of
this Warrant with written notice of Warrantholders' election to purchase,
at the principal executive office of the Company, or at such other address
as the Company may designate by notice in writing to the Warrantholders at
the address of such Warrantholders appearing on the books of the Company,
and upon payment to the Company of the Exercise Price for such shares of
Common Stock. Such payment shall be made by certified or cashier's check
payable to the order of the Company. The Company agrees that the shares so
purchased (the "Warrant Shares") shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered
together with the aforementioned written notice of election to purchase,
and payment for such Warrant Shares shall have been made as aforesaid.
Certificates for the Warrant Shares so purchased shall be delivered to the
Warrantholders within a reasonable time, not exceeding five (5) days, after
the rights represented by this Warrant shall have been so exercised, and,
unless this Warrant has expired, a new Warrant representing the number of
shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Warrantholders within such time.
Exhibit 2 - Page 1
<PAGE>
2. Exercise Price. Warrant Shares shall be purchased at the Exercise
--------------
Price set forth above, subject to adjustment as provided herein.
3. Warrantholders Not Deemed Stockholders. Subject to the provisions of
--------------------------------------
the Company's Certificate of Incorporation and By-Laws, copies of which
will be delivered to the Warrantholders upon request, the Warrantholders
shall not be entitled to vote or receive dividends or be deemed the holders
of Common Stock, nor shall anything contained herein be construed to confer
upon the Warrantholders, as holders of Warrants, any of the rights of a
stockholder of the Company or any right to vote upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to
any corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive
notice of meetings, or to receive dividends, except as otherwise provided
herein, until this Warrant shall have been duly exercised and the Warrant
Shares receivable upon the exercise hereof shall have become deliverable as
provided in Paragraph I above.
4. Adjustment of Number of Shares, Exercise Price and Nature of
------------------------------------------------------------
Securities Issuable Upon Exercise of Warrants.
---------------------------------------------
a. Stock Dividend, Recapitalization, Merger, etc. If and whenever
---------------------------------------------
after the date hereof (i) any change occurs in the outstanding shares
of any class or series of Common Stock by reason of any stock
dividend, stock split, recapitalization, consolidation or merger; or
(ii) the Company pays any distribution or dividend in cash or property
of the Company, the holder of this Warrant shall thereafter, upon
exercise of this Warrant, be entitled to receive the number of shares
of stock or other securities or the cash or property of the Company
(or of the successor corporation resulting from any consolidation or
merger) to which the shares of Common Stock (and any other securities)
deliverable upon the exercise of this Warrant would have been entitled
if this Warrant had been exercised immediately prior to the earlier of
(i) such event, and (ii) the record date, if any, set for determining
the holders entitled to participate in such event and the Exercise
Price shall be adjusted appropriately so that the aggregate amount
payable by the holder hereof upon the full exercise of this Warrant
remains the same. The Company shall not effect any recapitalization,
consolidation or merger unless, upon the consummation thereof, the
successor corporation shall assume by written instrument the
obligation to deliver to the holder hereof such shares of stock,
securities, cash or property as such holder shall be entitled to
purchase in accordance with the foregoing provisions.
Notwithstanding the foregoing, no adjustment to the number of
shares of Common Stock or the Exercise Price shall occur as a result of the
reverse stock split contemplated by the Company to occur during 1997.
If pursuant to the provisions of this Paragraph IV A. the holder
of this Warrant would be entitled to receive shares of stock or other securities
upon the exercise of this Warrant in addition to the shares of Common Stock
issuable upon exercise of this Warrant, the Company shall at all times reserve
and keep available sufficient shares or other securities to permit the Company
to issue such additional shares or other securities upon the exercise of this
Warrant. If pursuant to the provisions of this Paragraph I A. the holder of this
Warrant would be entitled to receive cash or
Exhibit 2 - Page 2
<PAGE>
property upon the exercise of this Warrant, the Company shall set aside and hold
in trust as the property of the holder of this Warrant a sufficient amount of
such cash or property to permit payment in full of all such cash or property
that would be payable upon the exercise of this Warrant.
b. Accountants' Certificate. In each case of an adjustment in the
------------------------
number of shares of Common Stock or other stock, securities or
property receivable on the exercise of the Warrants, the Company at
its expense shall cause independent public accountants of recognized
standing selected by the Company and acceptable to the Warrantholders
to compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based,
including a statement of (a) the consideration received or to be
received by the Company for any additional shares of Common Stock,
rights, options or convertible securities issued or sold or deemed to
have been issued or sold, (b) the number of shares of Common Stock of
each class and/or series outstanding or deemed to be outstanding, (c)
the adjusted Exercise Price and (d) the number of shares issuable upon
exercise of this Warrant. The Company will forthwith mail a copy of
each such certificate to each Warrantholder.
c. Definition of Common Stock. As used herein, the term "Common
--------------------------
Stock" shall mean and include the Company's authorized common stock of
any class, classes or series, and shall also include any capital stock
of any class or series of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage of par value in respect of
the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, and shall
include any common stock of any class, classes or series resulting
from any reclassification or reclassifications thereof.
5. Special Agreements of the Company.
---------------------------------
a. Reservation of Shares. The Company covenants and agrees that all
---------------------
Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder,
and from all taxes, liens and charges with respect to the issue
thereof (other than taxes in respect to any transfer occurring
contemporaneously with such issue). The Company further covenants and
agrees that during the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this
Warrant.
b. Avoidance of Certain Actions. The Company will not, by
----------------------------
amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would
have the effect of avoiding the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in carrying out all of the
provisions of this Warrant and in taking all of such action as may be
necessary or appropriate in order to protect the rights of the
Warrantholders against dilution as provided herein or other impairment
of their rights hereunder.
Exhibit 2 - Page 3
<PAGE>
c. Communication to Shareholders. Any notice, document or other
-----------------------------
communication given or made by the Company to holders of Common Stock
as such shall at the same time be provided to the Warrantholders.
d. Compliance with Law. The Company shall comply with all
-------------------
applicable laws, rules and regulations of the United States and of all
states, municipalities and agencies and of any other jurisdiction
applicable to the Company and shall do all things necessary to
preserve, renew and keep in full force and effect and in good standing
its corporate existence and authority necessary to continue its
business.
6. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such
fraction multiplied by the current fair value of one share of Common Stock.
7. Notices of Stock Dividends, Subscriptions, Reclassifications,
-------------------------------------------------------------
Consolidations, Mergers, etc. If at any time: (i) the Company shall
----------------------------
declare a cash dividend (or an increase in the then existing dividend
rate), or declare a dividend on Common Stock payable otherwise than in cash
out of its net earnings after taxes for the prior fiscal year; or (ii) the
Company shall authorize the granting to the holders of Common Stock of
rights to subscribe for or purchase any shares of capital stock of any
class or of any other rights; or (iii) there shall be any capital
reorganization, or reclassification, or redemption of the capital stock of
the Company, or consolidation or merger of the Company with, or sale of all
or substantially all of its assets to, another corporation or firm; or (iv)
there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the
Warrantholders at the addresses of such Warrantholders as shown on the
books of the Company, at least twenty (20) days prior to the applicable
record date hereinafter specified, a written notice summarizing such action
or event and stating the record date for any such dividend or rights (or,
if a record date is not to be selected, the date as of which the holders of
Common Stock of record entitled to such dividend or rights are to be
determined), the date on which any such reorganization, reclassification,
consolidation, merger, sale of assets, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected
the holders of Common Stock of record shall be entitled to effect any
exchange of their shares of Common Stock for cash (or cash equivalent)
securities or other property deliverable upon any such reorganization,
reclassification, consolidation, merger, sale of assets, dissolution,
liquidation or winding up.
8. Registered Holder; Transfer of Warrants or Warrant Shares.
---------------------------------------------------------
a. Maintenance of Registration Books; Ownership of this Warrant.
------------------------------------------------------------
The Company shall keep at its principal office a register in which,
subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration, transfer and exchange of
this Warrant. The Company shall not at any time, except upon the
dissolution, liquidation or winding-up of the Company, close such
register so as to result in preventing or delaying the exercise or
transfer of this Warrant.
Exhibit 2 - Page 4
<PAGE>
The Company may deem and treat the person in whose name
this Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration or transfer as provided in this
Paragraph VIII.
b. Exchange and Replacement. This Warrant is exchangeable upon
------------------------
surrender hereof by the registered holder to the Company at its
principal office for new Warrants of like tenor and date representing
in the aggregate the right to purchase the number of shares
purchasable hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by said
registered holder at the time of surrender. Subject to compliance with
the provisions of Paragraphs VIII and IX, this Warrant and all rights
hereunder are transferable in whole or in part upon the books of the
Company by the registered holder hereof in person or by duly
authorized attorney, and a new Warrant shall be made and delivered by
the Company, of the same tenor and date as this Warrant but registered
in the name of the transferee, upon surrender of this Warrant, duly
endorsed, to said office of the Company. Upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in lieu of this Warrant, upon the
delivery of an appropriate bond if required by the Company. This
Warrant shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange, transfer or replacement. The
Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, execution and delivery of Warrants
pursuant to this Paragraph VIII.
c. Warrants and Warrant Shares Not Registered. The holder of this
------------------------------------------
Warrant, by accepting this Warrant, represents and acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act on the grounds that the issuance of this Warrant and
the offering and sale of such Warrant Shares were exempt from
registration under Section 4(2) of the Securities Act.
D. Registration Rights. (a) The Company shall prepare
-------------------
and file with the Securities and Exchange Commission ("SEC"), on one occasion,
at the sole expense of the Company (except as provided in Section 3(c) hereof),
in respect of all holders of the warrants, so as to permit a non-underwritten
public offering and sale of the Warrants or the underlying Common Stock of the
Company (the "Conversion Shares") under the Act.
(b) The Company will maintain any Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Conversion
Shares have been sold pursuant to the Registration Statement, (ii) the date the
holders thereof receive an opinion of counsel that the Conversion Shares may be
sold under the provisions of Rule 144 or (iii) the second anniversary of the
effective date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
any Registration Statement under
Exhibit 2 - Page 5
<PAGE>
subparagraph 3(a) and in complying with applicable securities and Blue Sky laws
(including, without limitation, all attorneys' fees) shall be borne by the
Company. The Warrantholders shall bear the cost of underwriting discounts and
commissions, if any, applicable to the Conversion Shares being registered and
the fees and expenses of its counsel. The Company shall use its best efforts to
qualify any of the securities for sale in such states as such Warrantholders
reasonably designate. However, the Company shall not be required to qualify in
any state which will require an escrow or other restriction relating to the
Company and/or the sellers. The Company at its expense will supply the
Warrantholders with copies of such Registration Statement and the prospectus or
offering circular included therein and other related documents in such
quantities as may be reasonably requested by the Warrantholders.
(d) The Company shall not be required by this Section 3 to
include a Warrantholder's Conversion Shares in any Registration Statement which
is to be filed if, in the opinion of counsel for both the Warrantholders and the
Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for the
Warrantholders and the Company) the proposed offering or other transfer as to
which such registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144 under
the Securities Act.
9. Miscellaneous Provisions.
------------------------
(a) Governing Law and Venue. This Warrant shall be deemed to have
-----------------------
been made in the State of New Jersey and the validity of this Warrant, the
construction, interpretation, and enforcement thereof, and the rights of the
parties thereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of New Jersey, without regard to
principles of conflicts of law. The parties agree that all actions or
proceedings arising in connection with this Warrant shall be tried and litigated
only in the state or federal courts located in the County of Los Angeles, State
of California or, at the sole option of a Warrantholder, in any other court in
which a Warrantholder shall initiate legal or equitable proceedings and which
has subject matter jurisdiction over the matter in controversy. The
Warrantholders and the Company each waive the right to a trial by jury and any
right each may have to assert the doctrine of forum non conveniens or to object
----- --- ----------
to venue to the extent any proceeding is brought in accordance with this
Paragraph IX(a). Service of process, sufficient for personal jurisdiction in any
action against the Company, may be made by registered or certified mail, return
receipt requested, to its address indicated in Paragraph IX A.
a. Notices. All notices hereunder shall be in writing and shall be
-------
deemed to have been given one (1) business day after being sent by
facsimile or five (5) days after being mailed by certified mail,
addressed to the address below stated of the party to which notice is
given, or to such changed address as such party may have fixed by
notice:
To the Company: Creative Gaming, Inc.
150 Morris Avenue
Suite 205
Springfield, New Jersey 07081
Exhibit 2 - Page 6
<PAGE>
To the At the addresses of such holders as
Warrantholders they appear on the records of the
or holder of Company
Warrant Shares
provided, however, that any notice of change of address shall be effective only
upon receipt.
b. Assignment. This Warrant shall be binding upon and inure to the
----------
benefit of the Company, the Warrantholders and the holders of Warrant
Shares and the successors, assigns and transferees of the Company, the
Warrantholders and the holders of Warrant Shares.
c. Attorneys' Fees. If any legal action or any arbitration or other
---------------
proceeding is brought for the enforcement of this Warrant, or because
of an alleged dispute, breach, default, or misrepresentation in
connection with any of the provisions of this Warrant, the successful
or prevailing party or parties shall be entitled to recover such
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be
entitled, as may be ordered in connection with such proceeding.
d. Entire Agreement; Amendments and Waivers. This Warrant sets
----------------------------------------
forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek
redress for the violation or to insist upon the strict performance of
any term of this Warrant shall not constitute a waiver of such term
and such party shall be entitled to enforce such term without regard
to such forbearance. This Warrant may be amended, the Company may take
any action herein prohibited or omit to take action herein required to
be performed by it, and any breach of or compliance with any covenant,
agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or written waiver of the
majority in interest of the Warrantholders, and then such consent or
waiver shall be effective only in the specific instance and for the
specific purpose for which given.
e. Severability. If any term of this Warrant as applied to any
------------
person or to any circumstance is prohibited, void, invalid or
unenforceable in any jurisdiction, such term shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
invalidity without in any way affecting any other term of this Warrant
or affecting the validity or enforceability of this Warrant or of such
provision in any other jurisdiction.
f. Headings. The headings in this Warrant are inserted only for
--------
convenience of reference and shall not be used in the construction of
any of its terms.
Exhibit 2 - Page 7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officers on the date first written above.
Creative Gaming, Inc., a New Jersey corporation
By:
----------------------------------------------
Peter J. Jegou, President
Attest: [SEAL]
- ---------------------------
Secretary
Exhibit 2 - Page 8
<PAGE>
SCHEDULE 2.1
------------
INVESTORS:
Number of Shares of Number of
Name Series C Preferred Stock Warrant Shares
- ------------------------- ------------------------ --------------
Arthur L. Malone, Jr. 1,344,000 875,000
638 Lindero Canyon Road
Agoura Hills, CA 91301
Gene A. Hochevar 129,000 25,000
1917 Oaks Way
Oklahoma City, OK 73131
Paul H. Ring 172,000 25,000
- -------------------------
- -------------------------
- -------------------------
Eric Ray Turner 258,000 25,000
- -------------------------
- -------------------------
- -------------------------
Stephen A. Zrenda, Jr. 64,400 25,000
13524 Green Cedar Lane
Oklahoma City, OK 73131
Joan S. Mathis Bailey 32,600 25,000
--------- ---------
- -------------------------
- -------------------------
- -------------------------
TOTAL 2,000,000 1,000,000
========= =========
Section 2.1-Page 1
