<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission file number 0-24936
7TH LEVEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2480669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1110 East Collins Boulevard
Suite 122
Richardson, Texas 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 498-8100
Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value 13,915,197
(Title of Each Class) (Number of Shares Outstanding at
May 1, 1998)
<PAGE>
7TH LEVEL, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 1998
Index
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page No.
--------------
<S> <C> <C>
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at March 31,
1998 and December 31, 1997 (unaudited) 3
Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 1998 and 1997
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1998 and 1997
(unaudited) 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk 11
PART II OTHER INFORMATION
Item 2 Changes in Securities 12
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURE 14
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
7TH LEVEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 780,308 $ 2,465,079
Accounts receivable, net 149,112 1,112,026
Inventories - 18,477
Other current assets 619,078 752,847
--------------- ---------------
Total current assets 1,548,498 4,348,429
Fixed assets, net 4,218,528 4,960,560
Intangible assets, net 11,613 13,132
Other assets 232,873 532,605
--------------- ---------------
Total assets $ 6,011,512 $ 9,854,726
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 937,461 $ 1,111,732
Accrued expenses and other current liabilities 4,286,008 5,352,874
Current portion of notes payable 79,318 79,318
--------------- ---------------
Total current liabilities 5,302,787 6,543,924
Notes payable 377,027 377,027
Notes payable to related parties 108,108 108,108
Other 305,610 366,212
--------------- ---------------
Total liabilities 6,093,532 7,395,271
Commitments and contingencies
Stockholders' equity (deficit):
Common stock 137,837 137,837
Additional capital 70,642,628 70,642,628
Accumulated deficit (70,875,053) (68,333,578)
Accumulated other comprehensive income 12,568 12,568
--------------- ---------------
Total stockholders' equity (deficit) (82,020)* 2,459,455
--------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 6,011,512 $ 9,854,726
=============== ===============
</TABLE>
See accompanying notes.
* See Note 4 regarding issuance of debt and equity securities subsequent to
March 31, 1998
3
<PAGE>
7TH LEVEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C>
Net revenues $ 461,753 $ 4,197,836
Cost of revenues 84,920 2,666,135
----------------- -----------------
Gross profit 376,833 1,531,701
----------------- -----------------
Operating expenses:
Research and product development 1,166,216 4,587,780
Sales and marketing 350,945 1,903,345
General and administrative 1,244,318 1,600,934
----------------- -----------------
Total operating expenses 2,761,479 8,092,059
----------------- -----------------
Operating loss (2,384,646) (6,560,358)
Interest and other, net (156,829) 99,112
----------------- -----------------
Net loss $ (2,541,475) $ (6,461,246)
================= =================
Basic and diluted loss per common share $ (0.18) $ (0.48)
================= =================
Weighted average basic and diluted
shares outstanding 13,783,736 13,596,722
================= =================
</TABLE>
See accompanying notes.
4
<PAGE>
7TH LEVEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,541,475) $ (6,461,246)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of intangibles 565,054 1,071,073
Loss on sale of assets 161,207 -
Change in operating assets and liabilities 171,029 1,864,131
----------------- -----------------
Net cash used in operating activities (1,644,185) (3,526,042)
Cash flows from investing activities:
Capital expenditures (22,240) (347,037)
Proceeds from asset dispositions 39,529 -
Net change in short-term investments - 2,992,846
----------------- -----------------
Net cash provided by investing activities 17,289 2,645,809
Cash flows from financing activities:
Exercise of stock options - 7,550
Repayment of debt (57,875) (375,000)
----------------- -----------------
Net cash used in financing activities (57,875) (367,450)
----------------- -----------------
Effect of exchange rate changes on cash - (19,243)
----------------- -----------------
Net decrease in cash and cash equivalents (1,684,771) (1,266,926)
Cash and cash equivalents, beginning of period 2,465,079 10,798,372
----------------- -----------------
Cash and cash equivalents, end of period $ 780,308 $ 9,531,446
================= =================
</TABLE>
See accompanying notes.
5
<PAGE>
7TH LEVEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of 7th Level, Inc.
(the "Company") are unaudited and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results for the entire year ending December 31, 1998.
2. Loss per Common Share
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings per Share, in the fourth
quarter of 1997, which required companies to present basic earnings per share
and diluted earnings per share. Basic loss per share is computed by dividing
loss attributable to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted loss per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. There is no
difference between basic and diluted loss per share in the accompanying
financial statements as the potential issuances of common stock had an
antidilutive effect.
3. Comprehensive Income
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, in
the first quarter of 1998, which requires companies to disclose comprehensive
income as well as net income. Comprehensive income is defined as the change
in equity during a period from transactions and other events and circumstances
from non-ownership sources. It includes all changes in equity during a period,
except those resulting from investments by owners and distributions to owners.
The Company had no elements of other comprehensive income for the three months
ended March 31, 1998.
4. Subsequent Events
On April 21, 1998, the Company and Pulse Entertainment, Inc. executed
a Termination Agreement and General Release reflecting the mutual decision to
cancel the previously announced proposed merger.
In May 1998, the Company sold, pursuant to a private placement,
Secured Promissory Notes ("Notes") in the aggregate principal amount of
$4,500,000 and warrants exercisable at any time or from time to time commencing
from June 1, 1998 until March 30, 2005, unless there is a change in control of
the Company, at which time the warrants may be exercised immediately, for
675,000 shares of common stock, par value $0.01 per share ("Common Stock"), of
the Company at an exercise price of $0.01 per share. Interest accrues from and
after September 1, 1998 (unless the Company has not filed the Certificate of
Amendment (defined below) with the Secretary of State of the State of Delaware
on or prior to September 1, 1998, in which case interest shall accrue from May
6, 1998) on the unpaid balance of the principal amount of the Notes at a rate of
10% per annum, increasing by two percentage points for every three month period
that interest under the Notes is accruing. The Notes are secured by
substantially all of the Company's assets. At any time upon five business days
notice, the holders of the Notes have the right to convert the Notes into (i)
shares of the Company's Series A Preferred Stock, par value $0.01 per share
("Series A Preferred Stock"), having a liquidation preference equal to the
principal amount outstanding of
6
<PAGE>
the Notes and (ii) warrants to purchase 1,125,000 shares of Common Stock, at an
exercise price of $0.01 per share. Assuming receipt of all requisite
stockholder approvals, the Notes would also be convertible into (i) shares of
the Company's Series B Convertible Preferred Stock, $0.01 par value per share
("Series B Preferred Stock"), having a liquidation preference equal to the
principal amount outstanding of the Notes and (ii) warrants to purchase
1,125,000 shares of Common Stock. The Company intends to seek stockholder
approval for, among other things, an increase in its authorized Common Stock
(the "Certificate of Amendment") at its 1998 Annual Meeting of Stockholders. The
Notes are due on May 6, 2005.
In May 1998, the Company also sold, pursuant to a private placement,
shares of Series A Preferred Stock in the aggregate amount of $5,500,000 and
warrants exercisable at any time or from time to time commencing from June 1,
1998 until March 30, 2005, unless there is a change in control of the Company,
at which time the warrants may be exercised immediately, for 1,375,000 shares of
Common Stock at an exercise price of $0.01 per share. Holders of the Series A
Preferred Stock will be entitled to receive, when and as declared by the Board
of Directors of the Company, in (i) cash, (ii) shares of Common Stock or (iii)
shares of Series A Preferred Stock (if the Company does not have sufficient
shares of Common Stock authorized at the time of the applicable dividend payment
date) an annual dividend at the rate of 8%, payable quarterly in arrears on
January 30, April 30, July 30 and October 30 of each year, commencing October
30, 1998. The shares of Series A Preferred Stock are automatically convertible
into shares of Series B Preferred Stock on such date as the Certificate of
Amendment is filed with the Secretary of State of the State of Delaware. If,
after a minimum of two votes of the Company's stockholders, the Certificate of
Amendment is not approved, the Company has the right, but not the obligation, to
redeem the Series A Preferred Stock at a redemption price per share equal to the
sum of $1,000 plus all accrued and unpaid dividends and a compounded rate of
return of 30%.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the
financial statements and the notes thereto and in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. This
analysis is provided pursuant to applicable Securities and Exchange Commission
regulations and is not intended to serve as a basis for projections of future
events.
Overview
In 1997, the Company began a transition in strategy to exit CD-ROM
content development and leverage the Company's underlying software technologies
in the narrow bandwidth network market -- namely the Internet as well as
corporate intranets and extranets. The objective of the new strategy is to
position the Company as a developer of Internet software which supports the
creation of rich-media content for use in advertising, e-commerce, training,
customer support and other Internet related applications.
In November 1997, the Company signed a letter agreement to merge with
Pulse Entertainment, Inc. ("Pulse"). In February 1998, the definitive Agreement
and Plan of Merger (the "Merger Agreement") was signed by the Company and Pulse.
On April 21, 1998, the Company and Pulse executed a Termination Agreement and
General Release reflecting the mutual decision to cancel the proposed merger.
On May 8, 1998, the Company announced that it had closed on a $10
million private placement to finance the rollout of the Company's new line of
Internet software products. (See "Liquidity and Capital Resources.")
Additionally, the Company announced several new strategic distribution
agreements and a new management team to lead the Company's entry into the market
for Internet tools and technology. Richard Merrick, the Company's Senior Vice
President of Technology and Chief Strategist, was named Chief Executive Officer;
Curt Marvis, Senior Vice President of Business Development, was named President;
and Tim Cahill, formerly Vice President and General Manager of Pulse, was named
Chief Operating Officer and Executive Vice President. Robert Ezrin, a founder
of the Company, relinquished his position as interim Chief Executive Officer and
President to become Vice Chairman of the Board of Directors.
The Company is emerging from the development phase of its new Internet
technology and accordingly, the Company believes that significant revenues from
its new technology will not be realized until at least the second half of
1998.(1) However, the Company has begun to realize the benefits of previous
actions reflecting a dramatically lower cost structure primarily due to staff
reductions.
Results of Operations
Three Month Periods Ended March 31, 1998 and March 31, 1997
In the three months ended March 31, 1998, the Company's net revenues
decreased 89% to $461,753, compared to $4,197,836 for the three months ended
March 31, 1997. Development and licensing projects with third parties
constituted approximately 88% of net revenue for the three months ended March
31, 1998 and the remaining 12% was from CD-ROM products sales. By contrast, in
the first three months of 1997, approximately 42% was from licensing, OEM and
development contracts and the remaining 58% of net revenues related to products
sales. Revenues from customers outside of the United States increased from over
30% in the first quarter of 1997 to over 65% in the first quarter of 1998
primarily due to the international licensing agreements initiated in 1997. The
Company believes that once the new business strategy is established, product
revenues will track closely to Internet e-commerce sales trends which are
estimated to be 60% US and 40% rest-of-world and revenues from custom solutions
will be predominately US.(1)
8
<PAGE>
Cost of revenues for the quarter ended March 31, 1998 was $84,920 or
18% of net revenue, including manufacturing cost of $54,467 and royalty and
licensing costs of $30,453. For the quarter ended March 31, 1997, cost of
revenues was $2,666,135 or 64% of net revenue, including product development,
manufacturing, and royalty and licensing costs of $936,915, $533,617 and
$1,195,603, respectively. The significant decrease in cost of revenues in the
1998 period as a percentage of net revenues is primarily due to the change in
the composition of revenues. During the first three months of 1997, cost of
revenues included the write off of prepaid royalties and amortization of product
distribution rights. The Company expects fluctuations in gross margin in the
future as the Company's new business strategy is implemented.(1)
Research and product development expenses were $1,166,216 and
$4,587,780 for the three months ended March 31, 1998 and 1997, respectively.
Research and product development costs decreased 75% in the 1998 period due to
reductions in headcount and related expenditures in line with the new business
strategy. Results from the 1997 period included expenditures for eight
multimedia game titles in active production. The Company is focused on
optimization of its production processes and technology development in
connection with the change in the strategic direction of the Company. (1)
Sales and marketing expenses were $350,945 and $1,903,345 for the
quarters ended March 31, 1998 and 1997, respectively. Sales and marketing
expenses included $68,437 and $1,071,541 of expenses for advertising, marketing
and public relations and $282,508 and $831,804 of expenses related to internal
staffing for the three months ended March 31, 1998 and 1997, respectively.
Following its departure from the games business, the Company has effected
various cost savings measures including staff reductions and lower advertising
expenditures which resulted in the significant decrease in sales and marketing
expenses between the two periods.
General and administrative expenses for the three months ended March
31, 1998 were $1,244,318 compared with $1,600,934 for the three months ended
March 31, 1997. General and administrative expenses for the quarter ended March
31, 1998 included approximately $400,000 related to professional fees associated
with the terminated merger with Pulse. The 1997 amount included approximately
$400,000 of expenses related to employee resignations during the first quarter
of 1997. Excluding the one-time expenses, general and administrative expenses
decreased approximately 30% between the two periods.
Interest and other expenses decreased to a net expense of $156,829 for
the three months ended March 31, 1998, from a net interest income of $99,112 for
the three months ended March 31, 1997. During the quarter ended March 31, 1998
the Company sold surplus equipment and realized a loss on the disposition of
such assets which approximated $160,000. The decrease is also attributable to
lower average cash balances available for investment in the first quarter of
1998 compared to 1997.
Liquidity and Capital Resources
Cash and short term investments decreased $1,684,771 during the first
quarter to $780,308 at March 31, 1998. The decrease is primarily the result of
the net loss of $2,541,475 in the three months ended March 31, 1998 offset by
non-cash depreciation and amortization expenses as well as the positive impact
from the management of cash receipts and payments.
In May 1998, the Company sold, pursuant to a private placement, Notes
in the aggregate principal amount of $4,500,000 and warrants exercisable at any
time or from time to time commencing from June 1, 1998 until March 30, 2005,
unless there is a change in control of the Company, at which time the warrants
may be exercised immediately, for 675,000 shares of Common Stock at an exercise
price of $0.01 per share. Interest accrues from and after September 1, 1998
(unless the Company has not filed the Certificate of Amendment with the
Secretary of State of the State of Delaware on or prior to September 1, 1998, in
which case interest shall accrue from May 6, 1998) on the unpaid balance of the
principal
9
<PAGE>
amount of the Notes at a rate of 10% per annum, increasing by two percentage
points for every three month period that interest under the Notes is accruing.
The Notes are secured by substantially all of the Company's assets. At any time
upon five business days notice, the holders of the Notes have the right to
convert the Notes into (i) shares of the Company's Series A Preferred Stock,
having a liquidation preference equal to the principal amount outstanding of the
Notes and (ii) warrants to purchase 1,125,000 shares of Common Stock, at an
exercise price of $0.01 per share. Assuming receipt of all requisite
stockholder approvals, the Notes would also be convertible into (i) shares of
the Company's Series B Convertible Preferred Stock, having a liquidation
preference equal to the principal amount outstanding of the Notes and (ii)
warrants to purchase 1,125,000 shares of Common Stock. The Company intends to
seek stockholder approval for, among other things, an increase in its authorized
Common Stock at its 1998 Annual Meeting of Stockholders. The Notes are due on
May 6, 2005.
In May 1998, the Company also sold, pursuant to a private placement,
shares of Series A Preferred Stock in the aggregate amount of $5,500,000 and
warrants exercisable at any time or from time to time commencing from June 1,
1998 until March 30, 2005, unless there is a change in control of the Company,
at which time the warrants may be exercised immediately, for 1,375,000 shares of
Common Stock at an exercise price of $0.01 per share. Holders of the Series A
Preferred Stock will be entitled to receive, when and as declared by the Board
of Directors of the Company, in (i) cash, (ii) shares of Common Stock or (iii)
shares of Series A Preferred Stock (if the Company does not have sufficient
shares of Common Stock authorized at the time of the applicable dividend payment
date) an annual dividend at the rate of 8%, payable quarterly in arrears on
January 30, April 30, July 30 and October 30 of each year, commencing October
30, 1998. The shares of Series A Preferred Stock are automatically convertible
into shares of Series B Preferred Stock on such date as the Certificate of
Amendment is filed with the Secretary of State of the State of Delaware. If,
after a minimum of two votes of the Company's stockholders, the Certificate of
Amendment is not approved, the Company has the right, but not the obligation, to
redeem the Series A Preferred Stock at a redemption price per share equal to the
sum of $1,000 plus all accrued and unpaid dividends and a compounded rate of
return of 30%.
To date, the Company continues to use cash and operate at a loss. The
Company's ability to achieve positive cash flow depends upon a variety of
factors, including the timely introduction and market success of its products,
the costs of developing, producing and marketing such products, adoption of the
Internet as a medium of commerce and communications and various other factors,
some of which may be beyond the Company's control. If the Company requires
additional capital, it would seek such funding through additional public or
private financing, although there can be no assurance that the Company will be
able to obtain such financing(1).
Recently Issued Accounting Principles
In June 1997, Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS No.
131") was issued. This statement establishes standards for reporting
information about operating segments in annual and interim financial statements,
although this statement need not be applied to interim financial statement in
the initial year of its application. This statement is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 is not
expected to have a material impact on the Company's financial statements and
related disclosures.
10
<PAGE>
is required. The effective adoption of SFAS No. 132 is not expected to have a
material impact on the Company's financial statements and related disclosures.
- -----------------------------------------------
(1) Certain statements contained herein including those indicated by
(1) are forward looking statements that involve risks and uncertainties.
Accordingly, no assurance can be given that the actual events and results will
not be materially different than the anticipated results described in the
forward looking statement. There are a number of important factors that could
cause actual results to differ materially from those expressed in any forward
looking statements made by the Company. These factors include among others, the
Company's ability to complete new products at planned costs and on planned
schedules, the Company's ability to attract and retain strategic partners, the
Company's ability to leverage intangible assets in its technology, the market
acceptance of the Company's products, the success of the Company's cost
reduction strategy and the Company's ability to maintain a sufficient level of
financing for its new business strategy. Additional factors which are beyond
the Company's control and could influence results include market acceptance of
the Company's products and adoption of the Internet as a medium of commerce and
communications. See the discussion of the Company's business and a description
of the various factors that could materially affect the ability of the Company
to achieve the anticipated results described in the forward looking statement
which is included in Item 1. of the Company's Report on Form 10-K for the year
ended December 31, 1997.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
11
<PAGE>
7TH LEVEL, INC.
Part II. Other Information
Item 2. Changes in Securities
In April 1998, the Board of Directors approved the grant of
options under a broad based plan to purchase approximately 2,967
shares of Series C Preferred Stock, ("Series C Preferred Stock") or
upon the filing of a Certificate of Amendment (the "Amendment")
increasing the Company's authorized Common Stock, approximately
2,967,000 shares of Common Stock to Directors, management, employees
and consultants.
In May 1998, the Board of Directors approved the potential grant
of an option to purchase 350 shares of Series C Preferred Stock or,
upon the filing of the Amendment, 350,000 shares of Common Stock to
the new Chief Executive Officer conditioned upon a successful
secondary offering and the attainment of a $15 per share stock price
by the Company.
In May 1998, the Board of Directors approved the grant of a
warrant to purchase 200 shares of Series C Preferred Stock or, upon
the filing of the Amendment, 200,000 shares of Common Stock to East
West Capital Associates, Inc. in connection with a consulting
agreement, of which 50 shares of Series C Preferred Stock will be
issued at $2.00 per one one-thousandth of a share, 50 shares at $3.00
per one one-thousandth of a share, 50 shares at $4.00 per one one-
thousandth of a share and 50 shares at $5.00 per one one-thousandth of
a share, or 50,000 shares of Common Stock will be issued at $2.00 per
share, 50,000 shares at $3.00 per share, 50,000 shares at $4.00 per
share and 50,000 shares at $5.00 per share.
In May 1998, the Board of Directors approved the grant of a
warrant to purchase 800 shares of Series C Preferred Stock or, upon
the filing of the Amendment, 800,000 shares of Common Stock to
Donaldson, Lufkin and Jenrette Securities Corporation in connection
with an engagement letter executed in November 1997, with respect to
the Company's private placement of debt or equity securities, of which
200 shares of Series C Preferred Stock will be issued at $2.00 per one
one-thousandth of a share, 200 shares at $3.00 per one one-thousandth
of a share, 200 shares at $4.00 per one one-thousandth of a share and
200 shares at $5.00 per one one-thousandth of a share, or 200,000
shares of Common Stock will be issued at $2.00 per share, 200,000
shares at $3.00 per share, 200,000 shares at $4.00 per share and
200,000 shares at $5.00 per share.
In April, 1998 the Board of Directors granted 655,000 and 110,000
shares of Common Stock to Donald Schupak and Robert Ezrin,
respectively, in exchange for the surrender of options issued to
Messrs. Schupak and Ezrin to purchase 655,000 and 60,000 shares of
Common Stock, respectively.
The information concerning the Notes, the Series A Preferred
Stock and the warrants issued with respect to the Notes and the Series
A Preferred Stock set forth in Part 1, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the second and third
12
<PAGE>
paragraphs under "Liquidity and Capital Resources" on pages nine and
ten of this Report is incorporated herein by reference.
The Company believes the sale of the Notes and the warrants
issued in connection therewith qualifies as a transaction by an issuer
not involving a public offering within the meaning of Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act") based on
the manner of offering (a negotiated sale to two "accredited
investors" (as defined in Rule 501 of Regulation D under the
Securities Act) without general solicitation) and the purchasers'
financial status, investment experience and investment intent, as
represented to the Company.
The Company believes the sale of the Series A Preferred Stock and
the warrants issued in connection therewith qualifies as a transaction
by an issuer not involving a public offering within the meaning of
Section 4(2) of the Securities Act based on the manner of offering (a
negotiated sale to "accredited investors" (as defined in Rule 501 of
Regulation D under the Securities Act) and to two non-accredited
investors without general solicitation) and the purchasers' financial
status, investment experience and investment intent, as represented to
the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) 4.2 - Form of Warrant
4.3 - Certificate of Designations of Series A Preferred Stock
4.4 - Certificate of Designations of Series C Preferred Stock
10.36 - Securities Purchase Agreement dated as of May 6, 1998, by and
among the Company, Alpine Associates, a New Jersey Limited
Partnership ("Alpine") and East West Capital Associates, Inc.
("Capital")
10.37 - Security Agreement dated as of May 6, 1998, by and among the
Company, Capital, Alpine and Alpine, as collateral agent for
itself and Capital
10.38 - Senior Secured Promissory Note in the aggregate principal
amount of $3,000,000 issued to Alpine
10.39 - Senior Secured Promissory Note in the aggregate principal
amount of $1,500,000 issued to Capital
10.40 - Securities Purchase Agreement dated as of May 6, 1998,
between the Company and the Purchasers parties thereto
10.41 - Registration Rights Agreement dated as of May 6, 1998, by and
among the Company and the Purchasers parties thereto
10.42 - Specimen of Preferred Stock certificate
27 - Financial Data Schedule
(b) Reports on Form 8-K
Registrant filed a Current Report on Form 8-K, dated April 23, 1998,
in respect to the press release of registrant dated April 22, 1998
announcing 7th Level & Pulse Cancel Merger Plans; 7th Level Announces
Commitments and Terms for $4.5 Million Bridge Loan and $10 Million
Private Placement. (Item 5).
13
<PAGE>
7TH LEVEL, INC.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
7TH LEVEL, INC.
Date: May 15, 1998 By: /s/ DONALD SCHUPAK
------------------------------------------
Donald Schupak
Chairman of the Board and Director
(Principal Financial Officer)
14
<PAGE>
EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE
COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT IS AVAILABLE.
For the Purchase of
_________ shares of
Warrant No. ______ Common Stock
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
7TH LEVEL, INC.
(A DELAWARE CORPORATION)
7th Level, Inc., a Delaware corporation ("Company"), hereby certifies that
_________________, or its registered assigns ("Registered Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company, at any time
or from time to time commencing from June 1, 1998 until March 30, 2005, unless
there is a Change of Control (as defined), at which time this Warrant may be
exercised immediately, ________ shares of Common Stock, $.01 par value, of the
Company ("Common Stock"), at an initial exercise price equal to $.01 per share
(subject to adjustment as provided below). Notwithstanding the foregoing, to
the extent that this Warrant remains unexercised at the time the Company is sold
to an unaffiliated person, then immediately after such sale, this Warrant shall
be deemed to have expired worthless. The shares of Common Stock purchasable
upon exercise of this Warrant, and the price payable hereunder for each of such
shares, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Per Share
Warrant Price," respectively.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit I duly executed by such Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by proper payment of the Per Share Warrant Price multiplied by the
number of shares being purchased. Payment of the Per
<PAGE>
Share Warrant Price shall be made in lawful money of the United States.
Notwithstanding anything to the contrary contained herein, the Per Share Warrant
Price, as adjusted from time to time pursuant to the provisions of this Warrant,
shall never be less than the per share par value of the Common Stock.
The aggregate Per Share Warrant Price may be paid: (a) in cash, (b) by
surrender to the Company of shares of Common Stock which have been held by the
Registered Holder for at least 6 months with a fair value, on the date of
exercise that is equal to the Per Share Warrant Price in respect of the number
of Warrants exercised, (c) by surrender to the Company of Warrants (as provided
below) or (d) by a combination of (a), (b) or (c) hereof. The Registered Holder
shall have the right to convert Warrants or any portion thereof (the "Conversion
Right") into Warrant Shares as provided in this Section, but only if the
Warrants shall otherwise be exercisable under the provisions of this Warrant.
Upon exercise of the Conversion Right with respect to a particular number of
Warrants (the "Converted Warrants"), the Company shall deliver to the Registered
Holder (without payment by the Registered Holder of any cash or other
consideration) that number of Warrant Shares equal to the quotient obtained by
dividing (a) the difference between (i) the product of the fair value per share
of Common Stock as of the date the Conversion Right is exercised (the
"Conversion Date") and the number of Warrant Shares into which the Converted
Warrants could have been exercised hereunder and (ii) the aggregate Per Share
Warrant Price that would have been payable upon such exercise of the Converted
Warrants as of the Conversion Date, by (b) the fair value per share of Common
Stock as of the Conversion Date. For purposes of this Section, the fair value
per share of Common Stock shall mean the average Market Price of the Common
Stock for the ten Trading Days immediately preceding the Conversion Date.
As used herein, "Market Price" means, with respect to the shares of
Common Stock, (a) if the shares are listed or admitted for trading on any
national securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market, the last reported sales price as reported on such exchange or
market; (b) if the shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or Nasdaq SmallCap
Market, the average of the last reported closing bid and asked quotation for the
shares as reported on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or a similar service if NASDAQ is not reporting such
information; (c) if the shares are not listed or admitted for trading on any
national securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market or quoted by NASDAQ or a similar service, the average of the
last reported bid and asked quotation for the shares as quoted by a market maker
in the shares (or if there is more than one market maker, the bid and asked
quotation shall be obtained from two market makers and the average of the lowest
bid and highest asked quotation). In the absence of any available public
quotations for the Common Stock, the Board of Directors of the Company ("Board")
shall determine in good faith the fair value of the Common Stock, which
determination shall be set forth in a certificate by the Secretary of the
Company.
2
<PAGE>
As used in this Section 1, Trading Day means, in the event that the
Common Stock is listed or admitted to trading on the New York Stock Exchange (or
any successor to such exchange), a day on which the New York Stock Exchange (or
such successor) is open for the transaction of business, or, if the Common Stock
is not listed or admitted to trading on such exchange, a day on which the
principal national securities exchange on which the Common Stock is listed is
open for the transaction of business, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a day on which any New
York Stock Exchange member firm is open for the transaction of business.
As used herein, a "Change of Control" means when a person, or group of
persons acting together, acquires more than 50% of the shares of Common Stock
outstanding, as determined on a fully-diluted basis.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which the
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above and the Per Share Warrant Price shall have been paid. At such time,
the person or persons in whose name or names any certificates for Warrant Shares
shall be issuable upon such exercise as provided in subsection 1(c) below, shall
be deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in whole
or in part, and in any event within 20 days thereafter, the Company at its
expense will cause to be issued in the name of, and delivered to, the Registered
Holder, or, subject to the terms and conditions hereof, as such Registered
Holder (upon payment by such Registered Holder of any applicable transfer taxes)
may direct:
(a) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof, and
(b) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant, minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in subsection 1(a) above.
2. Adjustments. The number and kind of securities issuable upon the
exercise of this Warrant and the Per Share Warrant Price shall be subject to
adjustment from time to time in accordance with the following provisions:
(a) Certain Definitions. For purposes of this Warrant:
3
<PAGE>
(i) The term "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued, or deemed to be issued by the Company
pursuant to subsection (e) of this Section 2, after the first date of
issuance of this Warrant (the "Original Issue Date") except:
(A) issuances of Common Stock, Convertible Securities,
warrants and/or Options granted or approved to be granted by the
Board or a committee thereof prior to the first date of issuance
of the Company's Series A Preferred Stock (the "Series A Stock");
(B) issuances of Common Stock, Convertible Securities and/or
Options to officers, employees, consultants or directors;
provided that such issuances pursuant to this clause (B) in the
aggregate do not exceed more than 10% of the shares of Common
Stock outstanding, as determined on a fully-diluted basis (the
"Management Securities"); and
(C) issuances of Common Stock, warrants or Class B
Convertible Preferred Stock resulting from the provisions of the
Securities Purchase Agreement dated as of May 6, 1998, by and
among the Company, Alpine Associates, a New Jersey Limited
Partnership and East West Capital Associates, Inc. and the
Securities Purchase Agreement dated as of May 6, 1998 by and
among the Company and the Purchasers parties thereto relating to
the sale of the Series A Stock, and in each case the documents
executed, filed or delivered in connection therewith.
(ii) The term "Common Stock" shall mean (A) the Common Stock and
(B) the stock of the Company of any class, or series within a class,
whether now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets of the
Company without limit as to the amount or percentage.
(iii) The term "Convertible Securities" shall mean any evidence
of indebtedness, shares or other securities (other than this Warrant)
convertible into or exercisable or exchangeable for Common Stock.
(iv) The term "Options" shall mean any and all rights, options or
warrants (other than the Management Securities) to subscribe for,
purchase or otherwise in any manner acquire Common Stock or
Convertible Securities.
(b) Subdivision or Combination of Shares. In case outstanding shares
of Common Stock shall be subdivided, the Per Share Warrant Price shall be
proportionately reduced as of the effective date of such subdivision, or as of
the date a record is taken of the holders of Common Stock for the purpose of so
subdividing, whichever is earlier. In case outstanding
4
<PAGE>
shares of Common Stock shall be combined, the Per Share Warrant Price shall be
proportionately increased as of the effective date of such combination, or as of
the date a record is taken of the holders of Common Stock for the purpose of so
combining, whichever is earlier.
(c) Stock Dividends. In case shares of Common Stock are issued as a
dividend or other distribution on the Common Stock (or such dividend is
declared), the Per Share Warrant Price shall be adjusted, as of the date a
record is taken of the holders of Common Stock for the purpose of receiving such
dividend or other distribution (or if no such record is taken, as at the
earliest of the date of such declaration, payment or other distribution), to the
Per Share Warrant Price determined by multiplying the Per Share Warrant Price in
effect immediately prior to such declaration, payment or other distribution by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the declaration or payment of such
dividend or other distribution, and (ii) the denominator of which shall be the
total number of shares of Common Stock outstanding immediately after the
declaration or payment of such dividend or other distribution. In the event
that the Company shall declare or pay any dividend on the Common Stock payable
in any right to acquire Common Stock for no consideration, then the Company
shall be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(d) Issuance of Additional Shares of Common Stock. If the Company
shall issue any Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to subsection (e) below) after the
Original Issue Date (other than as provided in the foregoing subsections (b) and
(c)), for no consideration or for a consideration per share less than the Market
Price in effect on the date of and immediately prior to such issue, then in such
event, the Per Share Warrant Price shall be reduced, concurrently with such
issue, to a price equal to the quotient obtained by dividing:
(A) an amount equal to (x) the total number of shares of Common
Stock outstanding immediately prior to such issuance or sale
multiplied by the Market Price in effect immediately prior to such
issuance or sale, plus (y) the aggregate consideration received or
deemed to be received by the Company upon such issuance or sale, by
(B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
(e) Deemed Issue of Additional Shares of Common Stock. Except as set
forth in subsection (a) above, if the Company at any time or from time to time
after the Original Issue Date shall issue any Convertible Securities or Options
or shall fix a record date for the determination of holders of any class of
securities then entitled to receive 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 designed to protect
against
5
<PAGE>
dilution) 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 of Options or Convertible
Securities or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) no further adjustments in the Per Share Warrant Price shall
be made upon the subsequent issue of Convertible Securities or shares
of Common Stock upon the exercise of such Options or the issue of
Common Stock upon the conversion or exchange of such Convertible
Securities;
(ii) 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 Company, or increase or
decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Per Share Warrant Price
computed upon the original issuance of such Options or Convertible
Securities (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, upon any such
increase or decrease becoming effective, shall 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 (provided, however, that no such adjustment of the Per
Share Warrant Price shall affect Common Stock previously issued upon
exercise of this Warrant);
(iii) 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 Per Share Warrant Price computed upon the
original issue of such Options or Convertible Securities (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:
(A) in the case of Options or Convertible Securities, 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 (x) for the issue
of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon exercise of
the Options or (y) for the issue of all such Convertible
Securities which were actually converted or exchanged plus the
additional consideration, if any, actually received by the
Company upon the conversion or exchange of the Convertible
Securities; and
6
<PAGE>
(B) 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 upon
the issue of the Convertible Securities with respect to which
such Options were actually exercised.
(iv) No readjustment pursuant to clause (ii) or (iii) above shall
have the effect of increasing the Per Share Warrant Price to an amount
which exceeds the lower of (x) the Per Share Warrant Price on the
original adjustment date or (y) the Per Share Warrant Price that would
have resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such readjustment date.
(v) 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 Per Share Warrant 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 (iii) above.
(f) Determination of Consideration. For purposes of this Section 2,
the consideration received by the Company 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 the aggregate amount
of cash received by the Company; and
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of the issue, as
determined in good faith by the vote of a majority of the Board
or if the Board cannot reach such agreement, by a qualified
independent public accounting firm, other than the accounting
firm then engaged as the Company's independent auditors.
(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 (e) above, relating
to Options and Convertible Securities shall be determined by dividing:
7
<PAGE>
(A) 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 designed to protect against dilution) 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
for Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities.
(g) Other Provisions Applicable to Adjustment Under this Section. The
following provisions shall be applicable to the adjustments in Per Share Warrant
Price as provided in this Section 2:
(i) Treasury Shares. The number of shares of Common Stock at
any time outstanding shall not include any shares thereof then
directly or indirectly owned or held by or for the account of the
Company.
(ii) Other Action Affecting Common Stock. If the Company shall
take any action affecting the outstanding number of shares of Common
Stock other than an action described in any of the foregoing
subsections 2(b) through 2(e) hereof, inclusive, which would have an
inequitable effect on the holders of this Warrant, then the Per Share
Warrant Price shall be adjusted in such manner and at such time as the
Board on the advice of the Company's independent public accountants
may in good faith determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the Per Share
Warrant Price shall be made if the amount of any such adjustment would
be an amount less than one percent (1%) of the Per Share Warrant Price
then in effect, but any such amount shall be carried forward and an
adjustment in respect thereof shall be made at the time of and
together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate an increase or decrease of one percent (1%) or more.
(iv) Certain Adjustments. The Per Share Warrant Price shall not
be adjusted upward except in the event of a combination of the
outstanding shares of
8
<PAGE>
Common Stock into a smaller number of shares of Common Stock or in the
event of a readjustment of the Per Share Warrant Price pursuant to
Section 2(e)(ii) or (iii).
(h) Notices of Adjustments. Whenever the Per Share Warrant Price is
adjusted as herein provided, an officer of the Company shall compute the
adjusted Per Share Warrant Price in accordance with the foregoing provisions and
shall prepare a written certificate setting forth such adjusted Per Share
Warrant Price and showing in detail the facts upon which such adjustment is
based, and such written instrument shall promptly be delivered to the
recordholders of this Warrant.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the mean between the low bid and
high asked prices for the Warrant Shares on the over-the-counter market as
reported by the National Association of Securities Dealers, Inc. or the closing
market price of the Warrant Shares on a national securities exchange on the
trading day immediately prior to the date of exercise, whichever is applicable,
or if neither is applicable, then on the basis of the then fair market value of
a Warrant Share as shall be reasonably determined by the Board.
4. Limitation on Sales, etc. The Registered Holder acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), and agrees, except as specified
in the proviso hereto, not to sell, pledge, distribute, offer for sale, transfer
or otherwise dispose of this Warrant or any Warrant Shares issued upon its
exercise in the absence of (a) an effective registration statement under the Act
as to this Warrant or the Warrant Shares issued upon its exercise or both, as
the case may be, and registration or qualification of this Warrant or such
Warrant Shares under any applicable Blue Sky or state securities law then in
effect, or (b) an opinion of counsel, satisfactory to the Company, that such
registration and qualification are not required; provided that the Registered
Holder may transfer this Warrant at any time to any of its affiliates.
Without limiting the generality of the foregoing, unless the offering
and sale of the Warrant Shares to be issued upon the exercise of the Warrant
shall have been effectively registered under the Act and unless the sale is to
an affiliate of the Registered Holder, the Company shall be under no obligation
to issue the shares covered by such exercise unless and until the Registered
Holder shall have executed an investment letter in form and substance reasonably
satisfactory to the Company, including a warranty at the time of such exercise
that it is acquiring such shares for its own account, for investment and not
with a view to, or for sale in connection with, the distribution of any such
shares, in which event a legend in substantially the following form shall be
endorsed upon the certificate(s) representing the Warrant Shares issued pursuant
to such exercise:
9
<PAGE>
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or pursuant
to the securities or "Blue Sky" Laws of any state. Such securities
may not be offered, sold, transferred, pledged, hypothecated or
otherwise assigned, except pursuant to (i) a registration statement
with respect to such securities which is effective under such Act,
(ii) Rule 144 or Rule 144A under such Act, or (iii) any other
exemption from registration under such Act, provided that, if
requested by the Company, an opinion of counsel reasonably
satisfactory in form and substance is furnished to the Company that an
exemption from the registration requirements of such Act is available.
5. Valid Issuance; Reservation of Stock. All shares of Common Stock
which may be issued in connection with the exercise provisions set forth herein
shall, upon issuance by the Company, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Company. The Company will
at all times reserve and keep available, solely for issuance and delivery upon
the exercise of this Warrant, such Warrant Shares and other stock, securities
and property, as from time to time shall be issuable upon the exercise of this
Warrant.
6. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement in an amount reasonably satisfactory to the Company, or (in
the case of mutilation) upon surrender and cancellation of this Warrant, the
Company will issue, in lieu thereof, a new Warrant of like tenor.
7. Transfers, etc. The Company will maintain a register containing the
names and addresses of the Registered Holders of this Warrant. Any Registered
Holder may change its, his or her address as shown on the warrant register by
written notice to the Company requesting such change. Until any transfer of
this Warrant is made in the warrant register, the Company may treat the
Registered Holder of this Warrant as the absolute owner hereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in this Warrant on the part of any other person; provided, however, that if and
when this Warrant is properly assigned in blank, the Company may (but shall not
be obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
8. Registration Rights. This Warrant shall entitle the Registered Holder
of this Warrant to the registration, holdback and piggyback rights set forth in
the Registration Rights Agreement attached hereto.
10
<PAGE>
9. Mailing of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by first-
class certified or registered mail, postage prepaid, sent by reputable overnight
delivery or by facsimile to the address furnished to the Company in writing by
the last Registered Holder of this Warrant who shall have furnished an address
to the Company in writing. All notices and other communications from the
Registered Holder of this Warrant or in connection herewith to the Company shall
be mailed by first-class certified or registered mail, postage prepaid, sent by
reputable overnight delivery or by facsimile (972-498-0111) to the Company at
its offices at 1110 East Collins Boulevard, Suite 122, Richardson, Texas 75081,
to the attention of President, or such other address, or to the attention of
such other officer, as the Company shall so notify the Registered Holder, with a
copy to The Schupak Group, 730 Fifth Avenue, Suite 1901, New York, New York
10022, telecopier no. (212) 262-1031, to the attention of Donald Schupak.
10. No Rights as Stockholders. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
11. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against whom enforcement of
the change or waiver is sought.
12. Headings. The headings of this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
13. Governing Law. This Warrant will be governed by and construed in
accordance with the law of the State of New York without regard to the
principles of conflict of law.
Dated: May __, 1998 7TH LEVEL, INC.
By:
-------------------------------
Donald Schupak
Chairman of the Board
11
<PAGE>
EXHIBIT I
PURCHASE FORM
-------------
To: 7th Level, Inc.
1110 East Collins Boulevard
Richardson, Texas 75081
Dated:
In accordance with the provisions set forth in the attached Warrant, the
undersigned hereby irrevocably elects to purchase _________ shares of the Common
Stock covered by such Warrant and herewith makes payment therefor in full at the
price per share provided for in such Warrant.
The undersigned has had the opportunity to ask questions of and receive
answers from the officers of the Company regarding the affairs of the Company
and related matters, and has had the opportunity to obtain additional
information necessary to verify the accuracy of all information so obtained.
The undersigned understands that the shares have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any other
jurisdiction, and hereby represents to the Company that the undersigned is
acquiring the shares for its own account, for investment, and not with a view
to, or for sale in connection with, the distribution of any such shares.
Signature
---------------------------
Address
---------------------------
---------------------------
12
<PAGE>
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A
PREFERRED STOCK OF 7TH LEVEL, INC.
7TH LEVEL, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors (the
"Board") by the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") and pursuant to the provisions of (S)151 of the
Delaware General Corporation Law, the Board, at a meeting held on May 1, 1998,
adopted the following resolution providing for the powers, designations,
preferences and rights, and the qualifications, limitations and restrictions of
the Series A Preferred Stock.
WHEREAS, the Certificate of Incorporation provides for two classes of
shares known as common stock, $.01 par value per share (the "Common Stock"), and
preferred stock, $.01 par value per share (the "Preferred Stock"); and
WHEREAS, the Board is authorized by the Certificate of Incorporation
to provide for the issuance of the shares of Preferred Stock in one or more
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in any such series and to fix the powers, designations, preferences and rights
of the shares of any such series and the qualifications, limitations and
restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable to,
and hereby does, designate a Series A Preferred Stock and fixes and determines
the powers, designations, preferences and rights, and the qualifications,
limitations and restrictions relating to the Series A Preferred Stock as
follows:
1. Designation. The shares of such series of Preferred Stock shall be
designated "Series A Preferred Stock" (referred to herein as the "Series A
Stock").
<PAGE>
2. Authorized Number. The number of shares constituting the Series A
Stock shall be 15,000.
3. Ranking. The Series A Stock shall rank, as to dividends, rights upon
liquidation, dissolution or winding up, senior and prior to the Common Stock and
to all other classes or series of stock issued by the Corporation. (All equity
securities of the Corporation to which the Series A Stock ranks prior, whether
with respect to dividends or upon liquidation, dissolution, winding up or
otherwise, including the Common Stock, are collectively referred to herein as
"Junior Securities," all equity securities of the Corporation with which the
Series A Stock ranks on a parity, whether with respect to dividends or upon
liquidation, dissolution, winding up or otherwise, are collectively referred to
herein as "Parity Securities," and all equity securities of the Corporation to
which the Series A Stock ranks junior, whether with respect to dividends or upon
liquidation, dissolution, winding up or otherwise, are collectively referred to
herein as "Senior Securities").
4. Dividends.
(a) Dividend Accrual and Payment. Dividends shall accrue on the
shares of Series A Stock on the date of the issuance of the shares of Series A
Stock (the "Original Issue Date") (or if shares of Series A Stock are issued
after the Original Issue Date, the "Subsequent Issue Date") at the rate of 8%
per share per annum (expressed as a percentage of the $1,000 per share
liquidation preference). The holders of shares of Series A Stock shall be
entitled to receive such dividends when and as declared by the Board, in (i)
cash, (ii) shares of Common Stock (or fractions thereof) computed by dividing
the amount of the dividend by the Market Price (as defined) of the Common Stock
or (iii) in the event the Corporation does not have sufficient shares of Common
Stock authorized at the time of the applicable Dividend Payment Date (or
fractions thereof) shares of Series A Stock valued at the Series A Issue Price
(as defined below), out of assets legally available for such purpose, quarterly
in arrears on the 30th day of January, April, July or October of each year (each
of such dates being a "Dividend Payment Date"), commencing October 30, 1998. As
used herein, "Market Price" means, with respect to the shares of Common Stock,
(a) if the shares are listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap Market,
the last reported sales price as reported on such exchange or market; (b) if the
shares are not listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap Market,
the average of the last reported closing bid and asked quotation for the shares
as reported on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or a similar service if NASDAQ is not reporting such
information; (c) if the shares are not listed or admitted for trading on any
national securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market or quoted by NASDAQ or a similar service, the average of the
last reported bid and asked quotation for the shares as quoted by a market maker
in the shares (or if there is more than one market maker, the bid and asked
quotation shall be obtained from two market makers and the average of the lowest
bid and highest asked quotation). In the absence of any available public
quotations for the Common Stock, the Board shall determine in good faith the
fair value of the Common Stock, which determination shall be set forth in a
certificate by the Secretary of the Corporation. Such dividends shall be paid
-2-
<PAGE>
to the holders of record at the close of business on the date specified by the
Board at the time such dividend is declared, provided, however, that such date
shall not be more than 60 nor less than 10 days prior to the applicable Dividend
Payment Date. Dividends on the Series A Stock shall be cumulative and shall
accrue on each share whether or not earned, from and after the Dividend Payment
Date coincident with or next preceding the issuance of such share; provided,
however, that dividends payable on the first Dividend Payment Date shall so
accrue from and after the date immediately succeeding the Original Issue Date.
If the Original Issue Date or the Subsequent Issue Date, as the case may be, is
on a date which does not coincide with a Dividend Payment Date, then the
dividend accrual period applicable to such shares shall be the period from the
Original Issue Date or the Subsequent Issue Date, as the case may be, through
whichever of January, April, July or October next occurs after the Original
Issue Date or the Subsequent Issue Date, as the case may be. If the date fixed
for payment of a final liquidating distribution on any shares of Series A Stock,
or the date on which any shares of Series A Stock are exchanged into Series B
Stock does not coincide with a Dividend Payment Date, then subject to the
provisions hereof relating to such payment or exchange, the final dividend
accrual period applicable to such shares shall be the period from whichever of
January, April, July or October most recently precedes the date of such payment
or exchange through the effective date of such payment or exchange. The rate at
which dividends are paid shall be adjusted for any combinations or divisions or
similar recapitalizations affecting the shares of Series A Stock. So long as
any shares of Series A Stock are outstanding, the amount of all dividends paid
with respect to the shares of Series A Stock pursuant to this Section 4(a) shall
be paid pro rata to the holders entitled thereto.
(b) Dividend Limitation on Junior Securities. So long as any shares
of Series A Stock are outstanding, the Corporation shall not declare, pay or set
apart for payment, any dividend on any Junior Securities or make any payment on
account of, or set apart for payment, money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any Junior Securities or
any warrants, rights, calls or options exercisable or exchangeable for or
convertible into any Junior Securities, or make any distribution in respect
thereof, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than in each case
distributions or dividends in Junior Securities to the holder of Junior
Securities). Notwithstanding the foregoing, the Corporation may expend up to
$1,000,000 to purchase shares of Junior Securities or options to purchase Junior
Securities from officers, directors, employees and consultants of the
Corporation upon their departure from the Corporation.
(c) Participation Rights. In addition to and subject to the payment
of any Liquidation Payments (as defined), the holders of the shares of Series A
Stock shall be paid an amount equal to .004% per share of all dividends and
distributions payable with respect to the Common Stock including, without
limitation, payment resulting from any liquidation, dissolution or winding up of
the Corporation, merger or sale of substantially all of the Corporation's
assets.
(d) Dividends on Fractional Shares. Each fractional share of Series A
Stock outstanding shall be entitled to a ratably proportionate amount of all
dividends accruing with respect to each outstanding share of Series A Stock
pursuant to Section 4(a) hereof, and all such dividends
-3-
<PAGE>
with respect to such outstanding fractional shares shall be fully cumulative and
shall accrue (whether or not declared), and shall be payable in the same manner
and at such times as provided for in Section 4(a) hereof with respect to
dividends on each outstanding share of Series A Stock.
5. Liquidation.
(a) Liquidation Procedure. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
the shares of Series A Stock shall be entitled to be paid an amount equal to (i)
$1,000 per share of Series A Stock, representing the liquidation preference per
share of the Series A Stock (as adjusted for any combinations, divisions or
similar recapitalizations affecting the shares of Series A Stock) (the "Series A
Issue Price"), plus (ii) all accrued and unpaid dividends on the Series A Stock
to such date (together with the Series A Issue Price, the "Liquidation
Payments"). If upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Stock shall be insufficient to permit payment in
full to the holders of Series A Stock of the Liquidation Payments, then the
entire assets of the Corporation shall be distributed ratably among such holders
in proportion to the full respective distributive amounts to which they are
entitled.
(b) Remaining Assets. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, after the holders of
Series A Stock shall have been paid in full the Liquidation Payments, the
remaining assets of the Corporation may be distributed ratably per share in
order of preference to the holders of Junior Securities in accordance with their
terms.
(c) Notice of Liquidation. Written notice of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
stating a payment date, the amount of the Liquidation Payments and the place
where said Liquidation Payments shall be payable, shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated therein,
to each holder of record of Series A Stock at his post office address as shown
by the records of the Corporation.
(d) Fractional Shares. The Liquidation Payments with respect to each
outstanding fractional share of Series A Stock shall be equal to a ratably
proportionate amount of the Liquidation Payments with respect to each
outstanding share of Series A Stock.
6. Redemption.
(a) Mandatory Redemption. The shares of Series A Stock shall be
exchanged into fully paid and nonassessable shares of Series B Stock having an
equal liquidation preference at one day after the date the amendment to the
Corporation's Certificate of Incorporation increasing the Corporation's number
of authorized shares of Common Stock to allow sufficient shares for issuance of
shares of Series B Stock (the "Amendment") is filed with the Secretary of State
of the State of Delaware. Such stockholder vote shall take place as soon as
practicable but in no event later
-4-
<PAGE>
than six months following the Original Issue Date. The holders of shares of
Series A Stock by acceptance of the shares of Series A Stock agree to vote in
favor of the Amendment. The Corporation shall promptly notify the holders of
shares of Series A Stock upon the filing of the Amendment with the Secretary of
State of the State of Delaware. Upon the filing of the Amendment with the
Secretary of State of the State of Delaware, the outstanding shares of Series A
Stock to be exchanged shall be exchanged automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation. Upon the exchange
of shares of Series A Stock as provided in this Section 6, the Corporation shall
pay, on the immediately succeeding Dividend Date, all then accrued but unpaid
dividends on the Series A Stock to the holders of the Series A Stock being
converted.
(b) Redemption on Change in Control. Upon a Change of Control (as
defined below), the Corporation shall submit a written offer (the "Offer") to
each holder of Series A Stock to purchase any and all of the Series A Stock
owned by such holder at a price per share equal to 200% of the Series A Issue
Price plus an amount equal to all accrued and unpaid dividends on the shares of
Series A Stock to be so redeemed to the date of redemption (the "Change of
Control Redemption Date"). If the holder of Series A Stock desires to sell a
number of his shares of Series A Stock, then such holder shall communicate in
writing his election to sell such shares (an "Acceptance") to the Corporation
within 30 days of the date the Offer was made. The Corporation shall purchase
all shares of Series A Stock as to which an Acceptance was received by the
Corporation within 30 days after the date of the Offer. If a holder of Series A
Stock does not send an Acceptance to the Corporation, then such holder shall be
deemed to have consented to the redemption by the Corporation of any Junior
Securities also being redeemed in connection with the Change of Control. Any
Offer made by the Corporation shall comply with the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder.
As used herein, a "Change of Control" means when any "person" (as
defined in Sections 13(d) and 14(d) of the Exchange Act) or "group" (as defined
in Section 13(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13(d)(3) of the Exchange Act), directly or indirectly, of
securities of the Corporation representing fifty percent (50%) or more of the
combined voting power of the Corporation's then outstanding securities.
On or prior to the Change of Control Redemption Date (the "Change of
Control Redemption Date"), the Corporation shall deposit the Series A Issue
Price plus an amount equal to all accrued and unpaid dividends on all
outstanding shares of Series A Stock to be so redeemed to the Change of Control
Redemption Date (the "Change of Control Redemption Price") with a bank or trust
corporation having aggregate capital and surplus in excess of $100,000,000 as a
trust fund for the benefit of the holders of the shares of Series A Stock, with
irrevocable instructions and authority to the bank or trust corporation to pay
the Change of Control Redemption Price for such shares to their respective
holders on or after the Change of Control Redemption Date upon receipt of the
certificate or certificates of the shares of Series A Stock to be redeemed.
From and after the Change of Control Redemption Date, unless there shall have
been a default in payment of the
-5-
<PAGE>
Change of Control Redemption Price, all rights of the holders of shares of
Series A Stock as holders of Series A Stock (except the right to receive the
Change of Control Redemption Price upon surrender of their certificate or
certificates) shall cease as to those shares of Series A Stock redeemed, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. If on the Change of
Control Redemption Date the funds of the Corporation legally available for
redemption of shares of Series A Stock are insufficient to redeem the total
number of shares of Series A Stock to be redeemed on such date, then the
Corporation shall use those funds which are legally available therefor to redeem
the maximum possible number of shares of Series A Stock ratably among the
holders of such shares to be redeemed based upon their holdings of Series A
Stock. Payments shall first be applied against accrued and unpaid dividends and
thereafter against the remainder of the Change of Control Redemption Price. The
shares of Series A Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Series A Stock such funds shall immediately be used to redeem the
balance of the shares of Series A Stock to be redeemed. No dividends or other
distributions shall be declared or paid on, nor shall the Corporation redeem,
purchase or acquire any shares of, the Common Stock or any other class or series
of stock of the Corporation unless the Change of Control Redemption Price of all
shares elected to be redeemed shall have been paid in full. Until the Change of
Control Redemption Price for a share of Series A Stock elected to be redeemed
shall have been paid in full, such share of Series A Stock shall remain
outstanding for all purposes and entitle the holder thereof to all the rights
and privileges provided herein, including, without limitation, that dividends
and interest thereon shall continue to accrue and, if unpaid prior to the date
such shares are redeemed, shall be included as part of the Change of Control
Redemption Price as provided in this Section 6(b).
"Affiliate" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
any other entity or organization including a government or political subdivision
or any agency or instrumentality thereof ("Person") (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control, with such Person, or (ii) which beneficially owns or
holds ten percent (10%) or more of the voting power of the Corporation. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting power by contract or otherwise.
In lieu of making the Offer, the Corporation may, in its discretion,
issue to each holder of Series A Stock warrants exercisable for 250,000 shares
of Common Stock for each 1,000 shares of Series A Stock, at an exercise price of
$.01 per share.
(c) Optional Redemption. Notwithstanding anything in this Section 6,
if the Amendment is not approved after a minimum of two votes of the
Corporation's stockholders, the Corporation may elect to redeem all (but not
less than all) outstanding shares of Series A Stock at a redemption price
("Redemption Price") per share, payable in cash, equal to the sum of (x) $1,000
plus (y) all accrued and unpaid dividends on such share of Series A Stock to the
Redemption Date
-6-
<PAGE>
(defined below) and (z) a compounded rate of return of 30% from the Original
Issue Date to the Redemption Date. The date fixed for redemption as provided in
this Section 6 is referred to herein as the "Redemption Date." The election
shall be made by delivering written notice to the holders of record of shares of
Series A Stock at their respective address as shown on the records of the
Corporation, specifying the place and date of such redemption, at least thirty
(30) but not more than sixty (60) days prior to the Redemption Date. The
Redemption Price for the shares of Series A Stock to be redeemed shall be paid
on or after the Redemption Date, upon surrender of the certificate or
certificates evidencing such shares. From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of shares of Series A Stock as holders of Series A Stock (except
the right to receive the Redemption Price upon surrender of their certificate or
certificates) shall cease as to those shares of Series A Stock redeemed, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever.
7. Voting Rights.
(a) General. Holders of Series A Stock shall be entitled to notice of
all meetings of the Corporation's stockholders. In addition to the rights
otherwise provided for herein or by law, holders of the Series A Stock shall be
entitled to one vote for each share of Series A Stock and shall vote, together
with the holders of the Common Stock and any other class or series of stock then
entitled to vote, as one class on all matters submitted to a vote of
stockholders of the Corporation. In addition, holders of Series A Stock shall
be entitled to vote as a separate class on all matters submitted to a vote of
stockholders of the Corporation at one vote per share.
(b) Appointment of Board of Directors. Commencing on the first
anniversary of the Original Issue Date, the holders of the Series A Stock shall
have the right to nominate one third (_) of the members of the Board, and
commencing on the second anniversary of the Original Issue Date the holders of
the Series A Stock shall have the right to nominate a majority of the members of
the Board. Subject to applicable law, the Series A Stock shall vote as a class
to elect such nominees. The Corporation acting through its Board, subject to
its fiduciary duty and in accordance with its Charter Documents (as defined in
the Securities Purchase Agreement, dated as of May 6, 1998 (the "Securities
Purchase Agreement"), by and among the Corporation and the purchasers thereto)
and applicable Law (as defined in the Securities Purchase Agreement), shall (i)
(A) increase the size of its Board in accordance with the terms of this Section
7, (B) use its best efforts to elect the nominees of the Series A Stock to the
Board to the newly created directorships to hold office until their respective
successors are elected at a special or annual meeting of the stockholders, and
(C) in connection with any such subsequent election of directors, nominate,
recommend and do all other acts and things to cause (including, without
limitation, voting all shares for which the Corporation's management or Board
holds proxies (including undesignated proxies) unless otherwise provided by the
stockholders submitting such proxies) the persons referenced in the preceding
clause (B) to be elected to the Board. In the event the directors elected
pursuant to this Section 7(b) shall cease to serve as directors for any reason,
the Corporation shall cause (subject to its fiduciary duty
-7-
<PAGE>
and the provisions of its Charter Documents and applicable Law) the vacancies
resulting thereby to be filled as promptly as practicable by persons selected by
the holders of Series A Stock.
8. Limitations on Transactions with Affiliates. The Corporation shall
not, and shall not permit, cause or suffer, any of its Subsidiaries (as defined
in the Securities Purchase Agreement) to, participate in an Affiliate
Transaction, except in good faith and on terms that are no less favorable to the
Corporation or such Subsidiary, as the case may be, than those that could have
been obtained in a comparable transaction on an arm's length basis from a person
not an Affiliate of the Corporation or such Subsidiary. "Affiliate Transaction"
means the conduct of business or any transactions or series of transactions by
the Corporation or any of its Subsidiaries with or for the benefit of any of
their respective Affiliates.
9. Information Rights. The Corporation shall deliver to the holders of
the Series A Stock the same information which is delivered to the holders of the
Common Stock. Upon written request, the Corporation shall deliver to the
holders of the Series A Stock the Corporation's (i) audited annual financial
statements, (ii) unaudited quarterly financial statements and (iii) annual
business plan. At any time, upon the request by the holders of at least an
aggregate of $1 million of liquidation preference of the Series A Stock the
Corporation shall provide such holders and their representatives access to the
books, records, Properties (as defined in the Securities Purchase Agreement) and
officers of the Corporation so long as such access does not violate any federal
or applicable state Law (as defined in the Securities Purchase Agreement);
provided, however, that the holders of the Series A Stock agree to maintain the
confidentiality of all non-public information received from the Corporation.
10. No Reissuance of Series A Stock. No share or shares of Series A Stock
acquired by the Corporation by reason of exchange or otherwise shall be
reissued, and all such shares of Series A Stock shall be canceled, retired and
eliminated from the shares of Series A Stock which the Corporation shall be
authorized to issue. Any such shares of Series A Stock acquired by the
Corporation or which are automatically converted or exchanged into shares of
Series B Stock shall have the status of authorized and unissued shares of
Preferred Stock issuable in undesignated series and may be redesignated and
reissued in any series other than as Series A Stock.
11. Exclusion of Other Rights. Except as may otherwise be required by
law, shares of Series A Stock shall not have any powers, designations,
preferences and rights, other than those specifically set forth herein (as may
be amended from time to time) and in the Certificate of Incorporation.
12. Registered Holders. A holder of Series A Stock registered on the
Corporation's stock transfer books as the owner of shares of Series A Stock
shall be treated as the owner of such shares for all purposes. All notices and
all payments required to be mailed to a holder of shares of Series A Stock shall
be mailed to such holder's registered address on the Corporation's stock
transfer books, and all dividend payments to a holder of shares of Series A
Stock made hereunder shall be deemed
-8-
<PAGE>
to be paid in compliance hereof on the date such payments are deposited into the
mail addressed to such holder at his registered address on the Corporation's
stock transfer books.
13. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
14. Severability of Provisions. If any right, preference or limitation of
the Series A Stock set forth herein (as may be amended) from time to time is
invalid, unlawful or incapable of being enforced by reason of any rule of law or
public policy, such right, preference or limitation (including, without
limitation, the dividend rate) shall be enforced to the maximum extent permitted
by law and all other rights, preferences and limitations set forth herein (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
6th day of May, 1998.
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
-----------------------------------
Name: Donald Schupak
Title: Chairman
-10-
<PAGE>
EXHIBIT 4.4
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C
PREFERRED STOCK OF 7TH LEVEL, INC.
7TH LEVEL, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors (the
"Board") by the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") and pursuant to the provisions of (S)151 of the
Delaware General Corporation Law, the Board, at a meeting held on May 1, 1998,
adopted the following resolution providing for the powers, designations,
preferences and rights, and the qualifications, limitations and restrictions of
the Series C Preferred Stock.
WHEREAS, the Certificate of Incorporation provides for two classes of
shares known as common stock, $.01 par value per share (the "Common Stock"), and
preferred stock, $.01 par value per share (the "Preferred Stock"); and
WHEREAS, the Board is authorized by the Certificate of Incorporation
to provide for the issuance of the shares of Preferred Stock in one or more
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares to be included
in any such series and to fix the powers, designations, preferences and rights
of the shares of any such series and the qualifications, limitations and
restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable to,
and hereby does, designate a Series C Preferred Stock and fixes and determines
the powers, designations, preferences and rights, and the qualifications,
limitations and restrictions relating to the Series C Preferred Stock as
follows:
1. Designation. The shares of such series of Preferred Stock shall
be designated "Series C Preferred Stock" (referred to herein as the "Series C
Preferred Stock").
2. Authorized Number. The number of shares constituting the Series C
Preferred Stock shall be 5,000.
<PAGE>
3. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series C Preferred Stock with respect to dividends, if any, the holders of
shares of Series C Preferred Stock shall be entitled to receive, when, as and if
declared by the Board out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of January, April, July and October in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series C Preferred
Stock, in an amount per share equal to, subject to the provision for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of common stock or a subdivision of the outstanding shares of common
stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series C Preferred Stock. In the event the Corporation
shall at any time after the date that the first share of Series C Preferred
Stock is issued (the "Issue Date") (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock
into a greater number of shares, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount to which
holders of shares of Series C Preferred Stock were entitled immediately prior to
such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(b) The Corporation shall declare a dividend or distribution on the
Series C Preferred Stock as provided in paragraph (a) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock).
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series C Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series C Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series C Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time
2
<PAGE>
outstanding. The Board may fix a record date for the determination of holders of
shares of Series C Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than thirty
(30) days prior to the date fixed for the payment thereof.
4. Voting Rights. The holders of shares of Series C Preferred Stock
shall have the following voting rights:
(a) Subject to the provisions for adjustment hereinafter set forth,
each share of Series C Preferred Stock shall entitle the holder thereof to one
(1) vote on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the Issue
Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock into a greater number of shares, or
(iii) combine the outstanding Common Stock into a smaller number of shares, then
in each such case the number of votes per share to which holders of shares of
Series C Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series C Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) Except as set forth herein, holders of Series C Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
5. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock, as provided in Section 3 hereof, are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series C Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Preferred Stock,
except dividends paid ratably on the Series C Preferred Stock and all such
parity stock on which dividends are payable, or in arrears in
3
<PAGE>
proportion to the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series C Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series C Preferred Stock, or any shares of stock ranking on a parity with
the Series C Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board) to all
holders of such shares upon such terms as the Board, after consideration of
the respective annual dividend rates and other relative rights and
preferences of the respective Series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
6. Reacquired Shares. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board, subject to the
conditions and restrictions on issuance set forth herein.
7. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock unless, prior
thereto, the holders of shares of Series C Preferred Stock shall have received
[$1,000] per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series C Liquidation Preference"). Following the payment of the full amount of
the Series C Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series C Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series C
Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in
subparagraph (c) below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to
4
<PAGE>
the Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series C Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series C
Preferred Stock and Common Stock, respectively, holders of Series C Preferred
Stock and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series C Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series C Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(c) In the event the Corporation shall at any time after the Issue
Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock into a greater number of shares, or
(iii) combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
8. Consolidation, Merger etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series C Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Issue Date (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock into a greater number of shares, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the exchange
or change of shares of Series C Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
5
<PAGE>
9. Redemption. The shares of Series C Preferred Stock shall be
exchanged into fully paid and nonassessable shares of Common Stock in the ratio
of 1,000 shares of Common Stock for each share of Series C Preferred Stock, as
adjusted pursuant to the provisions hereof, at the later of one day after the
date the amendment to the Certificate of Incorporation increasing the
Corporation's number of authorized shares of Common Stock to allow sufficient
shares for issuance of shares of Common Stock hereunder (the "Amendment") is
filed with the Secretary of State of the State of Delaware. The Corporation
shall promptly notify the holders of shares of Series C Preferred Stock upon the
filing of the Amendment with the Secretary of State of the State of Delaware.
Upon the filing of the Amendment with the Secretary of State of the State of
Delaware, the outstanding shares of Series C Preferred Stock to be exchanged
shall be exchanged automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation. Upon the exchange of shares of Series C
Preferred Stock as provided in this Section 9, the Corporation shall pay, on the
immediately succeeding Quarterly Dividend Payment Date, all then accrued but
unpaid dividends on the Series C Preferred Stock to the holders of the Series C
Preferred Stock being converted.
10. Ranking. The Series C Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock including, without limitation,
the Corporation's Series A Preferred Stock as to the payment of dividends and
the distribution of assets, unless the terms of any such series shall provide
otherwise.
11. Amendment. The Certificate of Incorporation shall not be further
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series C Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a majority or more
of the outstanding shares of Series C Preferred Stock, voting separately as a
class.
12. Fractional Shares. Series C Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holders, fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series C Preferred Stock.
13. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
14. Severability of Provisions. If any right, preference or
limitation of the Series C Stock set forth herein (as may be amended) from time
to time is invalid, unlawful or incapable of being enforced by reason of any
rule of law or public policy, such right, preference or limitation (including,
without limitation, the dividend rate) shall be enforced to the maximum extent
permitted by law and all other rights, preferences and limitations set forth
herein (as so amended) which can be given effect without the invalid, unlawful
or unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right,
6
<PAGE>
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this 6th day of May, 1998.
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
---------------------------------
Name: Donald Schupak
Title: Chairman of the Board
8
<PAGE>
EXHIBIT 10.36
================================================================================
______________________________
SECURITIES PURCHASE AGREEMENT
______________________________
SENIOR SECURED PROMISSORY NOTES
AND
WARRANTS
OF
7TH LEVEL, INC.
Dated as of May 6, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
1. Definitions...............................................................2
2. Issuance, Purchase and Sale of Securities.................................6
2.1 Issuance of the Securities........................................6
2.2 Sale and Purchase of the Securities...............................6
3. Closing of Sale of Securities.............................................7
4. Deliveries at the Closing.................................................7
4.1 Deliveries by the Company to the Purchasers on the Closing Date...7
(a) Securities...................................................7
(b) Opinion of Counsel...........................................7
(c) Security Agreement...........................................7
(d) Registration Rights Agreement................................7
(e) Officer's Certificate........................................7
(f) Payment of Closing Fees......................................8
4.2 Deliveries by the Purchasers to the Company on the Closing Date...8
(a) Purchase Price...............................................8
(b) Security Agreement...........................................8
(c) Registration Rights Agreement................................8
5. Representations and Warranties, Etc.......................................8
5.1 Organization and Qualification; Authority.........................8
5.2 Corporate Authorization...........................................9
5.3 No Conflict; Requisite Consents...................................9
5.4 Capitalization....................................................9
5.5 Litigation; Defaults.............................................10
5.6 No Material Adverse Change.......................................10
5.7 Employee Programs................................................11
5.8 Private Offerings................................................12
5.9 Company SEC Documents............................................12
5.10 Financial Statements; No Undisclosed Liabilities.................13
5.11 Environmental Regulation, Etc....................................13
5.12 Properties and Assets............................................13
5.13 Insurance........................................................14
5.14 Employment Practices.............................................14
5.15 Intellectual Property............................................14
5.16 Material Contracts...............................................14
5.17 Taxes............................................................15
<PAGE>
5.18 Licenses.........................................................15
5.19 Transactions with Affiliates.....................................15
5.20 Federal Reserve Regulations......................................15
5.21 Investment Company Act...........................................15
5.22 Broker's or Finder's Commissions.................................15
5.23 Books and Records................................................16
5.24 Disclosure.......................................................16
6. Representations and Warranties of the Purchasers.........................16
7. Covenants of the Company.................................................17
7.1 Use of Proceeds..................................................17
7.2 Charter Documents................................................17
7.3 Ordinary Course..................................................17
7.4 Issuance of Securities...........................................18
7.5 Dividends; Changes in Capital Stock..............................18
7.6 Change in Condition..............................................18
7.7 No Action........................................................18
7.8 Replacement of Certificates......................................18
8. Covenants of the Purchasers..............................................18
8.1 Conversion Right.................................................18
8.2 Purchase Obligation..............................................19
8.3 Reservation of Securities........................................19
8.4 Release of Collateral............................................19
9. Restrictions on Transfer.................................................20
9.1 Restrictive Legends..............................................20
9.2 Notice of the Proposed Transfer; Opinion of Counsel..............20
10. Miscellaneous............................................................21
10.1 Indemnification; Expenses, Etc...................................21
10.2 Survival of Representations and Warranties.......................21
10.3 Amendment and Waiver.............................................22
10.4 Notices, Etc.....................................................22
10.5 Entire Agreement.................................................22
10.6 Successors and Assigns...........................................22
10.7 Agreement and Action of the Purchasers...........................22
10.8 Descriptive Headings.............................................23
10.9 Governing Law....................................................23
10.10 Counterparts.....................................................23
<PAGE>
SCHEDULES
---------
SCHEDULE 5.1 -- Qualified Jurisdictions and Subsidiaries
SCHEDULE 5.2 -- Authorization
SCHEDULE 5.3 -- Consents
SCHEDULE 5.4 -- Capitalization
SCHEDULE 5.5 -- Litigation; Defaults
SCHEDULE 5.6 -- Material Developments
SCHEDULE 5.7 -- ERISA
SCHEDULE 5.10 -- Undisclosed Liabilities
SCHEDULE 5.11 -- Environmental
SCHEDULE 5.12 -- Properties and Assets
SCHEDULE 5.13 -- Insurance
SCHEDULE 5.14 -- Employment Practices
SCHEDULE 5.15 -- Intellectual Property
SCHEDULE 5.16 -- Material Contracts
SCHEDULE 5.17 -- Taxes
SCHEDULE 5.18 -- Licenses
SCHEDULE 5.19 -- Transactions with Affiliates
SCHEDULE 7.3 -- Dissolved Subsidiaries
iii
<PAGE>
EXHIBITS
--------
EXHIBIT A -- Certificate of Designations of Series A Preferred Stock
EXHIBIT B -- Certificate of Designations of Series B Convertible
Preferred Stock
EXHIBIT C -- Form of Warrant
EXHIBIT D -- Form of Note
EXHIBIT E -- Form of Registration Rights Agreement
EXHIBIT F -- Form of Security Agreement
EXHIBIT G -- Certificate of Designations of Series C Preferred Stock
EXHIBIT H -- Form of Opinion of Shereff, Friedman, Hoffman & Goodman, LLP
iv
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
This SECURITIES PURCHASE AGREEMENT ("Agreement"), dated as of May 6, 1998,
by and among 7th Level, Inc., a Delaware corporation (the "Company"), Alpine
Associates, a New Jersey Limited Partnership ("Alpine") and East West Capital
Associates, Inc., a California corporation ("Capital"). Alpine and Capital are
also each referred to herein as a "Purchaser," and collectively, the
"Purchasers."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is in the process of raising capital through the sale
by the Company of debt or equity securities resulting in gross proceeds
(including the surrender of the Notes (as defined below) valued at face) of at
least $7 million (the "Permanent Financing");
WHEREAS, certain investors have committed an aggregate amount of $5,500,000
to the Company to subscribe for units consisting of Series A Preferred Stock,
par value $.01 per share ("Series A Preferred Stock"), with the powers,
designations, preferences, rights, qualifications, limitations and restrictions
contained in the Certificate of Designations of the Series A Preferred Stock,
substantially in the form of Exhibit A hereto (the "Series A Preferred Stock
Certificate of Designations") and Warrants exercisable for shares of Common
Stock (as defined) which Series A Preferred Stock will convert into Series B
Convertible Preferred Stock, par value $.01 per share ("Series B Convertible
Preferred Stock"), with the powers, designations, preferences, rights,
qualifications, limitations and restrictions contained in the Certificate of
Designations of the Series B Convertible Preferred Stock, substantially in the
form of Exhibit B hereto;
WHEREAS, the Company desires to raise additional funds before the
consummation of the Permanent Financing;
WHEREAS, Alpine has committed to loan the Company an amount of $3,000,000
and in connection therewith the Company has previously issued to Alpine a
warrant exercisable for 50,000 shares of Common Stock at $.01 per share;
WHEREAS, Capital has committed to loan the Company an amount of $1,500,000
and in connection therewith the Company has previously agreed to issue to
Capital a warrant exercisable for 25,000 shares of Common Stock at $.01 per
share; and
WHEREAS, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase from the Company, (i) the Notes (as defined below)
in the aggregate amount of $4,500,000 together with (ii) warrants ("Warrants")
exercisable for 150,000 shares of Common Stock for each $1,000,000 loaned by
the Purchasers to the Company (reduced by the warrants exercisable for 75,000
shares of Common Stock previously issued to the Purchasers), substantially in
the form of Exhibit C hereto, on the terms, and subject to the conditions, set
forth herein.
<PAGE>
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. For purposes hereof unless the context otherwise
requires, the following terms shall have the meanings indicated. All accounting
terms not otherwise defined herein, shall have the respective meanings accorded
to them under GAAP (as defined below). Unless the context otherwise requires,
(i) references to a "Schedule" or an "Exhibit" are to a Schedule or an Exhibit
attached to this Agreement, (ii) references to a "section" are to a section of
this Agreement and (iii) any of the following terms may be used in the singular
or the plural, depending on the reference.
"Affiliate" means any Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with, the Company, or (ii) which beneficially owns or holds 10% or more
of any class of the outstanding Voting Stock of the Company. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of Voting Stock, by Contract or otherwise.
"Agent" means Alpine, as collateral agent for itself and Capital, in
connection with the Security Agreement.
"Agreement" means this Agreement, as amended, modified or supplemented
from time to time, in accordance with the terms hereof, together with any
exhibits, schedules or other attachments thereto.
"Alpine" means Alpine Associates, a New Jersey Limited Partnership.
"Benefit Plans" has the meaning ascribed thereto in Section 5.7
hereof.
"Business Day" means any day that is not a Saturday, a Sunday or a day
on which banking institutions in New York, New York are authorized or obligated
by Law, executive order or government decree to be closed.
"Capital" means East West Capital Associates, Inc., a California
corporation.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, whether
outstanding on the Closing Date or issued after the Closing Date and any and all
rights, warrants or options exercisable or exchangeable for or convertible into
such capital stock.
"Charter Documents" has the meaning ascribed thereto in Section 5.1
hereof.
2
<PAGE>
"Closing" has the meaning ascribed thereto in Section 3 hereof.
"Closing Date" has the meaning ascribed thereto in Section 3 hereof.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder, as amended from time to time.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" has the meaning ascribed thereto in the introduction hereof.
"Company Financial Statements" has the meaning ascribed thereto in
Section 5.10 hereof.
"Company SEC Documents" has the meaning ascribed thereto in Section
5.9 hereof.
"Contracts" has the meaning ascribed thereto in Section 5.16 hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations promulgated thereunder, as amended.
"ERISA Affiliate" means any trade or business (whether incorporated or
unincorporated) which is a member of a group described in Section 414(b), (c),
(m) or (o) of the Code, of which the Company also is a member.
"ERISA Affiliate Title IV Plan" has the meaning ascribed thereto in
Section 5.7 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, and the
rules and regulations of the Commission promulgated thereunder, as amended.
"Form 10-K" means the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, which has been previously delivered by Donaldson,
Lufkin & Jenrette Securities Corporation to the Purchasers.
"GAAP" means generally accepted accounting principles and practices
set forth in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting
3
<PAGE>
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession that are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means any governmental or quasi-governmental
authority including, without limitation, any federal, state, territorial,
county, municipal or other governmental or quasi-governmental agency, board,
branch, bureau, commission, court, arbitration panel, department, authority,
body or other instrumentality or political unit or subdivision or official
thereof, whether domestic or foreign.
"Indemnified Party" or "Indemnified Parties" has the meaning ascribed
thereto in Section 10.1(a) hereof.
"Intellectual Property" shall mean all registered patents, trademarks,
product designations, service marks, copyrights, and applications for any of the
foregoing, used, licensed, leased or owned, by a Person which is material to the
operations of such Person.
"Law" means any statute, ordinance, code, rule, regulation or order
enacted, adopted, promulgated, applied or followed by any Governmental
Authority.
"License" or "Licenses" has the meaning ascribed thereto in Section
5.18 hereof.
"Lien" means any security agreement, financing statement (whether or
not filed) mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, lien, charge, restrictive
agreement, mortgage, deed of trust, indenture, pledge, option, limitation,
exception to or other title defect in or on any interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any conditional
sale, lease, consignment, or bailment given for security purposes, trust receipt
or other title retention agreement with respect to any Property or asset of such
Person, whether direct, indirect, accrued or contingent.
"Losses" has the meaning ascribed thereto in Section 10.1(a) hereof.
"Material Adverse Effect" has the meaning ascribed thereto in Section
5.1 hereof.
"Notes" means the Senior Secured Promissory Notes of the Company,
substantially in the form of Exhibit D hereto.
"Permanent Financing" has the meaning ascribed thereto in the
introduction hereof.
"Person" means any individual, entity or group, including, without
limitation, individual, corporation, limited liability company, limited or
general partnership, joint venture,
4
<PAGE>
association, joint stock company, trust, unincorporated organization, or
government or any agency or political subdivision thereof.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchasers" has the meaning ascribed thereto in the introduction
hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof by and among the Company and the
Purchasers, substantially in the form of Exhibit E hereto, as amended, modified
or supplemented from time to time in accordance with the terms thereof, together
with any exhibits, schedules or other attachments thereto.
"Regulation D" means Regulation D under the Securities Act.
"Restricted Security" has the meaning ascribed thereto in Section 9.2
hereof.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Securities" means the Notes and the Warrants.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder, as amended.
"Security Agreement" means the Security Agreement dated as of the date
hereof by and among the Company, the Purchasers and Agent, substantially in the
form of Exhibit F hereto, as amended, modified or supplemented from time to time
in accordance with the terms thereof, together with any exhibits, schedules or
other attachments thereto.
"Series A Preferred Stock" has the meaning ascribed thereto in the
introduction hereof.
"Series A Preferred Stock Certificate of Designations" has the meaning
ascribed thereto in the introduction hereof.
"Series B Convertible Preferred Stock" has the meaning ascribed
thereto in the introduction hereof.
5
<PAGE>
"Series C Preferred Stock" means the Series C Preferred Stock, $.01
par value, of the Company, which shall rank junior to the Series A Preferred
Stock and Series B Convertible Preferred Stock, with the powers, designations,
preferences, rights, qualifications, limitations and restrictions contained in
the Certificate of Designations of the Series C Preferred Stock, substantially
in the form of Exhibit G hereto.
"Subsidiary" means with respect to any Person, any corporation,
association or other business entity of which securities representing more than
50% of the combined voting power of the total Voting Stock (or in the case of an
association or other business entity which is not a corporation, more than 50%
of the equity interest) is at the time owned or controlled, directly or
indirectly, by that Person or one or more Subsidiaries of that Person or a
combination thereof. When used herein without reference to any Person,
"Subsidiary" means a Subsidiary of the Company.
"Taxes" has the meaning ascribed thereto in Section 5.17 hereof.
"Transaction Documents" means, collectively, this Agreement, the
Warrants, the Notes, the Security Agreement, the Registration Rights Agreement
and any and all agreements, exhibits, schedules, certificates, instruments and
other documents delivered pursuant hereto and thereto.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of any
Persons (irrespective of whether or not at the time, Capital Stock of any class
or classes will have, or might have, voting power by the reason of the happening
of any contingency).
"Warrants" has the meaning ascribed thereto in the introduction
thereof.
2. Issuance, Purchase and Sale of Securities.
2.1 Issuance of the Securities. The Company has authorized the issuance
and sale of the Notes in the aggregate principal amount of $4,500,000 and the
Warrants (as defined) to be acquired by the Purchasers in accordance with the
terms of this Agreement. The Warrants will be issued in substantially the form
of the Warrant attached hereto as Exhibit C. Each Note will be issued in
substantially the form of the Note attached hereto as Exhibit D.
2.2 Sale and Purchase of the Securities. Subject to the terms and
conditions of this Agreement, on the Closing Date, the Company will issue, sell
and deliver to each Purchaser and each Purchaser will purchase from the Company,
such Warrants and such principal amount of Notes, as is specified opposite such
Purchaser's name on the signature pages hereto. At the Closing (as defined),
the aggregate amount of Warrants and principal amount of the Notes shall be
payable by the Purchasers to the Company in cash by wire transfer of immediately
available funds.
6
<PAGE>
3. Closing of Sale of Securities. The purchase and delivery of the
Notes and the Warrants to be purchased by the Purchasers hereunder shall take
place at the offices of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, New York 10022, at a closing (the "Closing") on or before May
6, 1998 or at such other place or on such other date as the Purchasers and the
Company may agree upon (such date on which the Closing shall have actually
occurred, the "Closing Date"). At the Closing, the Company will deliver or
cause to be delivered to each Purchaser the Warrants and the Notes to be
purchased by such Purchaser pursuant hereto against payment of the purchase
price therefor. The Notes and the Warrants to be purchased by each Purchaser
hereunder shall be, with respect to such Purchaser, in the form of a single Note
and Warrant (or such greater number of Notes and Warrants as each Purchaser may
request no less than 48 hours prior to the Closing), dated the date of the
Closing and registered in the Purchaser's name or that of its nominee (provided
to the Company no less than 48 hours prior to the Closing).
4. Deliveries at the Closing.
4.1 Deliveries by the Company to the Purchasers on the Closing Date.
At the Closing, the Company will deliver or cause to be delivered to each
Purchaser, against payment of the purchase price as provided herein:
(a) Securities. The Notes and the Warrants, as provided in
Section 3 hereof.
(b) Opinion of Counsel. A favorable opinion from Shereff,
Friedman, Hoffman & Goodman, LLP, counsel for the Company, substantially in the
form set forth in Exhibit H, addressed to the Purchasers, dated the Closing Date
and otherwise satisfactory in substance and form to the Purchasers, and their
respective counsel.
(c) Security Agreement. The Security Agreement, duly executed
by the Company, and a UCC-1 Financing Statement.
(d) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Company.
(e) Officer's Certificate. A certificate, dated the Closing
Date, of an officer of the Company, (i) certifying as true, complete and correct
its Charter Documents and resolutions relating to the transactions contemplated
by this Agreement and the other Transaction Documents, (ii) as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
the Company, and (iii) as to the incumbency and specimen signatures of officers
who shall have executed instruments, agreements and other documents in
connection with the transactions contemplated hereby.
7
<PAGE>
(f) Payment of Closing Fees. The fees, expenses and
disbursements of not more than one counsel for the Purchasers not to exceed
$10,000 reflected in statements of such counsel rendered prior to or on the
Closing Date.
4.2 Deliveries by the Purchasers to the Company on the Closing Date.
At the Closing, each Purchaser will deliver or cause to be delivered to the
Company the following:
(a) Purchase Price. Such Purchaser's payment of the purchase
price, as provided herein.
(b) Security Agreement. The Security Agreement, duly executed
by the Purchasers and Agent.
(c) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Purchasers.
5. Representations and Warranties, Etc. In order to induce the
Purchasers to purchase the Securities, the Company represents and warrants to
the Purchasers that:
5.1 Organization and Qualification; Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Schedule 5.1 attached hereto contains a list of
the name and jurisdiction of organization of each of the Company's Subsidiaries
and the Company's ownership interest with respect thereto. Each Subsidiary
material to the business of the Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Company and each of its Subsidiaries has full corporate power
and authority and all necessary government approvals to own and lease its
properties and carry on its business as presently conducted, is duly qualified,
registered or licensed as a foreign corporation to do business and is in good
standing in each jurisdiction in which the ownership or leasing of its
properties or the character of its present operations makes such qualification,
registration or licensing necessary, except where the failure to so qualify or
be in good standing would not have a material adverse effect on the condition
(financial or otherwise), assets, business or results of operations of the
Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect").
The Company has heretofore delivered to the Purchasers' counsel complete and
correct copies of (i) the certificate of incorporation and (ii) the by-laws of
the Company and its Subsidiaries, each as amended to date and as presently in
effect (collectively, the "Charter Documents").
5.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the other Transaction Documents are within
the Company's corporate power and authority. The execution and delivery of this
Agreement and the other Transaction Documents by the Company and the performance
by the Company of its obligations hereunder and thereunder, have been duly
authorized by all requisite corporate action and no other corporate proceedings
on the part of the Company other than those listed on Schedule 5.2 are
8
<PAGE>
necessary to authorize this Agreement and the other Transaction Documents. This
Agreement and the other Transaction Documents have been duly executed and
delivered by duly authorized officers of the Company and, assuming the due
authorization, execution and delivery thereof by all parties thereto other than
the Company, constitutes a legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as may be limited by
bankruptcy, reorganization, moratorium, fraudulent conveyance and insolvency
laws and by other laws affecting the rights of creditors generally and except as
may be limited by the availability of equitable remedies.
5.3 No Conflict; Requisite Consents. The execution, delivery and
performance by the Company of this Agreement and the other Transaction Documents
does not and will not (i) contravene or conflict with the Charter Documents and
any amendments thereto as contemplated by the Form 10-K, (ii) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company or any of the Company's
Subsidiaries under any provision of any written agreement or other instrument
binding upon the Company or any of the Company's Subsidiaries or require the
consent of any third party under any Law applicable to the Company or any
License held by the Company or any of the Company Subsidiaries, or (iii) result
in the creation or imposition of any Lien on any asset of the Company or any of
the Company's Subsidiaries other than those Liens created by the Security
Agreement, except, with respect to each of the occurrences or results referred
to in clauses (ii) and (iii) of this sentence, (a) the third party consents set
forth in Schedule 5.3 and (b) such items which would not have a Material Adverse
Effect.
5.4 Capitalization.
(a) As of April 28, 1998, the authorized Capital Stock of the
Company consists of 20,000,000 shares of Common Stock and 100,000 shares of
preferred stock, par value $.01 per share, of which 13,857,361 shares of Common
Stock and no shares of preferred stock are issued and outstanding. All issued
and outstanding shares of the Company's Capital Stock are validly issued, fully
paid and nonassessable. Except as set forth on Schedule 5.4, there are no (i)
outstanding subscriptions, options, warrants or rights (including registration
rights, conversion rights and preemptive rights), agreements, calls, convertible
securities, arrangements or commitments of any character to which the Company is
a party relating to the issued or unissued Capital Stock or other securities of
the Company or obligating the Company to grant, issue or sell any such options,
warrants or rights or (ii) shares of Common Stock reserved for issuance upon the
exercise of any warrants, options granted or to be granted under any stock
option plan or any options previously granted outside of any stock option plan.
(b) All the outstanding shares of Common Stock of the Company's
Subsidiaries are validly issued, fully paid and nonassessable and are owned by
the Company or by a Subsidiary of the Company free and clear of all Liens,
except as set forth on Schedule 5.4 and except for Liens which in the aggregate
are not material to the Company and its Subsidiaries. As of the date of this
Agreement, there are no outstanding options, warrants, preemptive or other
rights, Contracts, commitments, undertakings or arrangements by which any of the
Company's Subsidiaries
9
<PAGE>
is or may become obligated to issue any additional shares of their Capital Stock
or securities convertible into any such shares except as set forth on Schedule
5.4 or as contemplated by the Form 10-K. The Company does not directly or
indirectly own any interest in any other corporation, partnership, joint venture
or other business association or entity, which interest is material to the
Company and its Subsidiaries, taken as a whole, except as set forth on Schedule
5.4, or in the Form 10-K for the fiscal year ended December 31, 1997 heretofore
made available to the Purchasers, or otherwise publicly disclosed in a
subsequent filing with the Commission pursuant to the Securities Act or the
Exchange Act. Schedule 5.4 contains a list of all options, warrants or other
securities convertible into shares of Common Stock granted or approved to be
granted by the Company's Board of Directors (or a committee thereof) prior to
the date hereof.
5.5 Litigation; Defaults. There is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company, any of its Subsidiaries, or any properties of any of the
foregoing, before or by any Governmental Authority, which would (i) have a
Material Adverse Effect, or (ii) impair the ability of the Company to perform
any material obligation which the Company has under any Transaction Document
except as set forth on Schedule 5.5 or Schedule 5.11. Neither the Company nor
any of its Subsidiaries is in violation of, or in default under (and there does
not exist any event or condition which, after notice or lapse of time or both,
would constitute such a default under), any term of its Charter Documents, or of
any term of any agreement, Contract, instrument, judgment, decree, writ,
determination, arbitration award, or Law applicable to the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is bound, or to
any Properties of the Company or any of its Subsidiaries, except in each case to
the extent that such violations or defaults would not (a) affect the validity or
enforceability of any Transaction Document, (b) have a Material Adverse Effect
or (c) impair the ability of the Company to perform any material obligation
which the Company has under any Transaction Document except as set forth on
Schedule 5.5 or Schedule 5.11.
5.6 No Material Adverse Change. Since December 31, 1997, there has
been (i) no material adverse change in the condition (financial or otherwise),
assets, business, projects or results of operations of the Company or any of its
Subsidiaries, (ii) no material obligation or liability (contingent or otherwise)
incurred by the Company or any of its Subsidiaries, other than obligations and
liabilities incurred in the ordinary course of business and no material Lien
placed on any of the Properties of the Company or any of its Subsidiaries that
remains in existence on the date hereof, other than liabilities and Liens
described on Schedule 5.12 hereto, and (iii) no acquisition or disposition of
any material assets by the Company or any of its Subsidiaries (or any Contract
or arrangement therefor), or any other material transaction, otherwise than for
fair value in the ordinary course of business, except as set forth on Schedule
5.6, the Company SEC Documents or by virtue of the Company exiting the games
business and the international business.
5.7 Employee Programs.
(a) Neither the Company nor its Subsidiaries provide, nor has an
obligation to provide, or make contributions to provide compensation or benefits
of any kind or
10
<PAGE>
description whatsoever (whether current or deferred and whether paid in cash or
in kind) to, or on behalf of, one, or more than one, current or former employees
or directors of the Company, its Subsidiaries or any of its current or former
Affiliates or any of their dependents, other than any plans, programs or other
arrangements which only provide for the payment of cash compensation currently
from the general assets of the Company or its Subsidiaries on a payday by payday
basis as base salary or hourly wages for current services and other than
policies for vacation and sick days and except as disclosed on Schedule 5.7
(individually, a "Benefit Plan," and collectively, the "Benefit Plans"). Each of
the Benefit Plans is listed on Schedule 5.7.
(b) Except as disclosed on Schedule 5.7:
(i) No ERISA Affiliate (other than the Company or its
Subsidiaries) provides, or has an obligation to provide,
contributions, compensation or benefits of or under any plan, program
or arrangement which is subject to Title IV of ERISA ("ERISA Affiliate
Title IV Plan").
(ii) The Company has furnished or made available to the
Purchasers a true, complete and current copy of each written Benefit
Plan and any amendments thereto, a summary of each other Benefit Plan,
and all Internal Revenue Service, Department of Labor or Pension
Benefit Guaranty Corporation rulings or determinations, annual
reports, summary plan descriptions, actuarial and other financial
reports and such other documentation with respect to any Benefit Plan
as was reasonably requested by the Purchasers.
(iii) No assets have been set aside in a trust or other
separate account to pay directly or indirectly any benefits under any
Benefit Plan or to the extent assets have been set aside, all assets
are shown on the books and records of such trust or separate account
at their fair market value as of the date of any report last provided
with respect to such trust.
(iv) Each Benefit Plan and each ERISA Affiliate Title IV
Plan has been established, maintained and administered in compliance
in all material respects with all applicable Laws. The Company has no
duty or obligation to indemnify or hold any other person or entity
harmless for any liability attributable to any acts or omissions by
such person or entity with respect to any Benefit Plan or ERISA
Affiliate Title IV Plan, other than indemnification obligations to
Benefit Plan fiduciaries under the terms of the Benefit Plan documents
and corporate charters, by-laws and state corporate Law.
(v) Neither the Company nor its Subsidiaries has incurred
any material liability for any tax or penalty with respect to any
Benefit Plan, ERISA Affiliate Title IV Plan or any group health plan
(as described in Section 5000 of the
11
<PAGE>
Code) of an ERISA Affiliate including, without limitation, any tax or
penalty under ERISA or under the Code.
(vi) Neither the Company nor its Subsidiaries has
terminated or withdrawn from, or sought a funding waiver with respect
to, any Benefit Plan which is subject to Title IV of ERISA.
(vii) To the knowledge of the Company, there is no
proposed or actual audit or investigation by any Governmental
Authority with respect to any Benefit Plan or ERISA Affiliate Title IV
Plan.
(viii) Neither the Company nor its Subsidiaries has any
obligation to make, or reimburse another employer, directly or
indirectly, for making, contributions to a multi employer plan as
described in Title IV of ERISA.
5.8 Private Offerings. Assuming the truth of the Purchasers'
representations and acknowledgments contained in Section 6 hereof, neither the
Company nor any person acting on its behalf (other than the Purchasers, as to
whom the Company makes no representations) has offered or sold the Securities by
means of any general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act. The Company has not sold the Securities
to anyone other than the Purchasers designated in this Agreement. No securities
of the same class or series as the Securities have been issued and sold by the
Company prior to the date hereof. Each Security shall bear substantially the
same legend set forth in Section 9.1 hereof for at least so long as required by
the Securities Act. Assuming the truth of the Purchasers' representations and
acknowledgments contained in Section 6 hereof and any required filings pursuant
to the Securities Act or any state securities laws, or such other post-closing
filings as may be required, the offer and sale of the Securities are and will be
exempt from the registration and prospectus delivery requirements of the
Securities Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
5.9 Company SEC Documents. The Company has filed with the
Commission, and has heretofore made available to the Purchasers, true and
complete copies of, each report, schedule, registration statement and definitive
proxy statement required to be filed by it under the Exchange Act or the
Securities Act (as such documents have been amended since the time of their
filing, collectively, the "Company SEC Documents"). As of their respective
dates, the Company SEC Documents do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
5.10 Financial Statements; No Undisclosed Liabilities. The
financial statements of the Company included or incorporated by reference in the
Company SEC Documents (the "Company Financial Statements") have been prepared in
accordance with GAAP applied on a
12
<PAGE>
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present in all material respects the consolidated financial position
of the Company and the consolidated Subsidiaries of the Company as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments and any other adjustments described
therein). Since December 31, 1997, neither the Company nor any of the Company's
Subsidiaries has incurred any liabilities or obligations of any nature, whether
or not accrued, absolute, contingent or otherwise, that would have a Material
Adverse Effect, other than liabilities (i) disclosed in press releases set forth
on Schedule 5.10, Schedule 5.10 or the Company SEC Documents filed prior to the
date of this Agreement (all of which have been furnished to the Purchasers),
(ii) adequately provided for in the Company Financial Statements or disclosed in
any related notes thereto (all of which have been furnished to the Purchasers),
(iii) not required under GAAP to be reflected in the Company Financial
Statements, or disclosed in any related notes thereto, (iv) incurred in
connection with the Permanent Financing, this Agreement or the other Transaction
Documents, or (v) incurred in the ordinary course of business.
5.11 Environmental Regulation, Etc. To the knowledge of the Company,
(i) the operations of the Company and its Subsidiaries comply in all material
respects with all applicable federal, state or local environmental, health and
safety statutes and regulations; (ii) none of the operations of the Company or
its Subsidiaries is the subject of any judicial or administrative proceeding
alleging the violation of any federal, state or local environmental, health or
safety statute or regulation; (iii) none of the operations of the Company or its
Subsidiaries is the subject of a federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any hazardous
or toxic waste, substance or constituent, or other substance into the
environment; (iv) neither the Company nor its Subsidiaries has filed any notice
under any federal or state Law indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release of a hazardous or
toxic waste, substance or constituent, or other substance into the environment;
and (v) neither the Company nor its Subsidiaries has contingent liability in
connection with any release of any hazardous or toxic waste, substance or
constituent, or other substance into the environment except as set forth on
Schedule 5.11.
5.12 Properties and Assets. The Company and its Subsidiaries have
and assets, whether tangible or intangible, owned by them and reasonably
necessary in the conduct of business of the Company or its Subsidiaries, except
defects in title which would not have a Material Adverse Effect or disclosed on
Schedule 5.12. The Company and its Subsidiaries have complied with all
commitments and obligations on their part to be performed or observed under each
of the leases listed on Schedule 5.12, except for such noncompliance which would
not have a Material Adverse Effect. All buildings, machinery and equipment of
the Company and its Subsidiaries are in good repair and working order, except
for ordinary wear and tear, and except as would not have a Material Adverse
Effect.
13
<PAGE>
5.13 Insurance. A list of all insurance policies covering the
assets, business, equipment and Properties under which the Company or any of its
Subsidiaries may derive any material benefit is set forth on Schedule 5.13
hereof. Except as set forth on Schedule 5.13, such policies of insurance and
bonds (or other policies and bonds providing substantially similar insurance
coverage) are and have been in full force and effect for at least the last year
and remain in full force and effect. Such policies of insurance and bonds are of
the type and in amounts customarily carried by Persons conducting business
similar to that presently conducted by the Company and its Subsidiaries. The
Company knows of no threatened termination of any such policies or bonds.
5.14 Employment Practices. Neither the Company nor its Subsidiaries
is a party to, or bound by, any collective bargaining agreement, Contract or
other agreement or understanding with a labor union organization except as set
forth on Schedule 5.14. Except as set forth on Schedule 5.14, there (i) is no
unfair labor practice or material labor arbitration proceeding pending or, to
the Company's knowledge, threatened against the Company or its Subsidiaries,
(ii) are no organizational efforts with respect to the formation of a collective
bargaining unit presently being made or, to the Company's knowledge, threatened
involving employees of the Company or its Subsidiaries, and (iii) is no material
labor controversy in existence with respect to the Company's or the
Subsidiaries' business and operations.
5.15 Intellectual Property. Schedule 5.15 annexed hereto sets forth
an accurate and complete list of all Intellectual Property owned or licensed by
the Company and its Subsidiaries. Except as set forth on Schedule 5.15, (i) the
Company and its Subsidiaries own, are licensed or otherwise have the right to
use, all Intellectual Property used in the business of the Company and its
Subsidiaries, as presently conducted or as proposed by the Company or its
Subsidiaries to be conducted, (ii) to the knowledge of the Company, the use of
the Intellectual Property by the Company or its Subsidiaries does not infringe
upon or otherwise violate the rights of any third party in or to such
Intellectual Property, and no claim has been asserted with respect thereto which
violation or assertion would have a Material Adverse Effect, and (iii) no
Employee of the Company or its Subsidiaries has a right to receive a royalty or
similar payment, or has any other monetary rights, in respect of any item of
Intellectual Property of the Company or its Subsidiaries.
5.16 Material Contracts. Schedule 5.16 sets forth a true, complete
and correct list of all contracts, agreements, commitments, obligations and
licenses to which the Company or its Subsidiaries is a party that are material
("Contracts"). All of the Contracts are valid and binding and are in full force
and effect; and, except as set forth on Schedule 5.16 hereto, there are no
existing material defaults (or events which, with notice or lapse of time or
both, would constitute a material default) by the Company or its Subsidiaries,
or, to the Company's knowledge, any other party thereunder.
5.17 Taxes. The Company and its Subsidiaries have in all material
respects filed or obtained extensions of all federal, state, local and foreign
income, excise, franchise, real estate, sales and use and other tax returns
heretofore required by Law to be filed by it. All material federal,
14
<PAGE>
state, county, local, foreign or other income taxes which have become due or
payable by the Company or any of its Subsidiaries (collectively, "Taxes"), have
been paid in full or are adequately provided for in accordance with GAAP on the
financial statements of the applicable Person. No Liens arising from or in
connection with Taxes have been filed and are currently in effect against the
Company or any of its Subsidiaries, except for Liens for Taxes which are not yet
due or which would not have a Material Adverse Effect. Except as set forth on
Schedule 5.17, no audits or investigations are pending or, to the knowledge of
the Company, threatened with respect to any tax returns or Taxes of the Company
or any of its Subsidiaries.
5.18 Licenses. The Company and its Subsidiaries hold all material
licenses, franchises, permits, consents, registrations, certificates and other
approvals (individually, a "License" and collectively, "Licenses") required for
the conduct of their business as now being conducted, and are operating in
substantial compliance therewith, except where the failure to hold any such
License or to operate in compliance therewith would not have a Material Adverse
Effect. Except as set forth on Schedule 5.18, the Company and its Subsidiaries
are in substantial compliance with all Laws applicable to it, except in each
case where the failure so to comply would not have a Material Adverse Effect or
a material adverse effect on the ability of the Company or any of its
Subsidiaries to perform any obligation that it has under any Transaction
Document to which it is a party.
5.19 Transactions with Affiliates. There are no material
transactions, agreements or understandings, existing or presently contemplated,
between or among the Company or any of its Subsidiaries, and any of their
officers or directors or stockholders or any of their Affiliates or associates
except as set forth on Schedule 5.19 or contemplated by the Form 10-K.
5.20 Federal Reserve Regulations. None of the transactions
contemplated by this Agreement (including without limitation the use of the
proceeds from the sale of the Securities) will violate or result in a violation
of Section 7 of the Exchange Act, or any regulation promulgated thereunder,
including without limitation Regulations G, T, U and X of the Board of Governors
of the Federal Reserve System.
5.21 Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.22 Broker's or Finder's Commissions. With the exception of the
retention of Donaldson, Lufkin & Jenrette Securities Corporation, the Company
has not employed any agent, broker, investment banker, finder or financial
advisor or incurred any liability for any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement and the other Transaction Documents.
5.23 Books and Records. The books of account, minute books, stock
record books and other records of the Company and the Company's Subsidiaries,
all of which have been made available to the Purchasers, are complete and
correct in all material respects.
15
<PAGE>
5.24 Disclosure. The Form 10-K, this Agreement and the other
Transaction Documents do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
60 Representations and Warranties of the Purchasers .
(a) Each Purchaser represents for itself to the Company that (i) it
is an accredited investor as defined in Regulation D under the Securities Act,
and (ii) by reason of its business and financial experience, and the business
and financial experience of those persons, if any, retained by it to advise it
with respect to its investment in the Securities, such Purchaser together with
such advisers have such knowledge, sophistication and experience in business and
financial matters as to be capable of evaluating the merits and risk of the
prospective investment, and that it is purchasing the Securities for its own
account or for one or more separate accounts maintained by it or for the account
of one or more institutional investors on whose behalf such Purchaser has
authority to make this representation for investment and not with a view to the
distribution thereof or with any present intention of distributing or selling
any of the Securities except in compliance with the Securities Act and except to
one or more such institutional investors, provided that the disposition of such
Purchaser's or such investor's property shall at all times be within its
control. Each Purchaser understands and agrees that the Company's offer and sale
of the Securities have not been registered under the Securities Act and the
Securities may be resold only if registered pursuant to the provisions
thereunder or if an exemption from registration is available.
(b) Each Purchaser which is an insurance company represents, to the
knowledge of such Purchaser, that no part of the funds to be used by it to
purchase the Securities to be purchased by such Purchaser constitutes assets
allocated to any separate account maintained by such Purchaser that contains the
assets of any Benefit Plan listed on Schedule 5.7 (or its related trust). Each
Purchaser which is not an insurance company or an "investment company" (as
defined in the Investment Company Act of 1940, as amended) also represents, to
the knowledge of such Purchaser, that no part of the funds to be used to
purchase the Securities to be purchased by such Purchaser constitutes assets
allocated to any trust or other entity which contains the assets of any Benefit
Plan listed on Schedule 5.7. The representations made in the preceding
sentences are made solely in reliance upon, and subject to, the accuracy of the
Company's representations contained in Section 5.7 of this Agreement and the
list of Benefit Plans shown on Schedule 5.7. As used in this section, the term
"separate account" shall have the meaning assigned to it in Section 3(17) of
ERISA.
(c) Each Purchaser represents for itself to the Company that it has
full power and authority and has taken all action necessary to authorize it to
enter into and perform its obligations under this Agreement and the other
Transaction Documents. This Agreement is the legal, valid and binding
obligation of each Purchaser, and is enforceable against each Purchaser in
accordance with its terms, except as may be limited by bankruptcy,
reorganization, moratorium, fraudulent
16
<PAGE>
conveyance and insolvency laws and by other laws affecting the rights of
creditors generally and except as may be limited by the availability of
equitable remedies.
(d) Each Purchaser acknowledges for itself that it has read the Form
10-K and has received all the information it has requested from the Company and
has had the opportunity to ask questions of the Company and, relying on the
completeness and accuracy of such information, such Purchaser believes such
information is sufficient to make an informed decision with respect to its
purchase of the Securities.
(e) Each Purchaser acknowledges for itself that the address set forth
on such Purchaser's signature page hereto is such Purchaser's principal place
of business.
70 Covenants of the Company. The Company covenants and agrees that from
the date hereof until the earlier of the consummation of the sale of the Series
B Convertible Preferred Stock to the holders of the Notes as contemplated below
or the repayment of the Notes in full, unless the Purchasers shall otherwise
consent in writing, it will do or cause the following:
7.1 Use of Proceeds. Use the net proceeds from the sale of the
Securities to provide for working capital requirements and general corporate
purposes.
7.2 Charter Documents. The Charter Documents shall not have been
modified or amended since the date delivered by the Company, except for the
Company's Certificate of Incorporation which may be amended to increase the
number of authorized shares of Capital Stock, to change the terms of the
Company's blank check preferred stock in order to provide for the establishment
of voting rights and to perform such other acts as are necessary to establish
the terms of the Series A Preferred Stock, the Series B Convertible Preferred
Stock and the Series C Preferred Stock.
7.3 Ordinary Course. Other than with respect to the Company's
games business and international business, the Company's business and the
businesses of its Subsidiaries shall be conducted only in the ordinary course of
business and in a manner consistent with past practice. The Company shall use
commercially reasonable efforts to preserve substantially intact the business
organization of itself and its Subsidiaries, to keep available the services of
its present officers and employees and to preserve its present relationships
with customers, suppliers and other persons with which it has a significant
business relationship, except as otherwise contemplated by the Company SEC
Documents provided, however, that the Company shall be permitted to close
international business offices and dissolve its Subsidiaries listed on Schedule
7.3.
7.4 Issuance of Securities. The Company shall not, nor shall it
permit any of its Subsidiaries to, issue, deliver, sell, redeem, acquire,
authorize or propose to issue, deliver, sell, redeem, acquire or authorize, any
shares of its Capital Stock of any class or any securities convertible into, or
any rights, warrants or options to acquire, any such shares or convertible
securities or other ownership interest, provided that the Company shall be
permitted to (i) issue the securities as set
17
<PAGE>
forth on Schedule 5.4, (ii) issue Common Stock, Warrants, Series A Preferred
Stock, Series B Convertible Preferred Stock resulting from the provisions of
this Agreement and the Securities Purchase Agreement dated as of May 6, 1998 by
and among the Company and the Investors parties thereto relating to the initial
sale of the Series A Preferred Stock, and in each case the documents executed,
filed or delivered in connection therewith or Series C Preferred Stock and (iii)
grant options to purchase up to an aggregate of 10% of the shares of Common
Stock outstanding, as determined on a fully-diluted basis.
7.5 Dividends; Changes in Capital Stock. The Company shall not, nor
shall it permit any of its Subsidiaries to, nor shall it propose to: (i)
declare, set aside, make or pay any dividend or other distribution, payable in
cash, stock, property or otherwise, with respect to any of its Capital Stock,
except with respect to the Series A Preferred Stock and the Series B Convertible
Preferred Stock; or (ii) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its Capital Stock.
7.6 Change in Condition. The Company shall promptly advise the
Purchasers in writing of any change in the condition (financial or otherwise),
operations or properties or businesses of the Company or any of its Subsidiaries
which would have a Material Adverse Effect.
7.7 No Action. The Company shall not, and shall not permit any of
its Subsidiaries to, take or agree or commit to take any action, (i) that is
likely to make any of its representations or warranties hereunder inaccurate; or
(ii) that is prohibited pursuant to the provisions of this Section 7.
7.8 Replacement of Certificates. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any certificate representing any of the Securities, and in the case of loss,
theft or destruction, upon receipt of indemnity in reasonable form and scope,
the Company will issue a new certificate representing such Securities in lieu of
such lost, stolen, destroyed, or mutilated certificate.
80 Covenants of the Purchasers.
8.1 Conversion Right. Any holder of the Notes may, upon five
Business Days notice furnished to the Company, convert all, but not less than
all, of the Notes beneficially owned by such holder into (i) a number of shares
of Series A Preferred Stock having a liquidation preference equal to the
principal amount outstanding of the Notes and (ii) Warrants, in the form of
Exhibit C attached hereto to purchase 250,000 shares of Common Stock , at an
exercise price of $.01 per share, for each $1,000,000 principal amount of Notes
surrendered. The Company shall pay all accrued but unpaid interest on the Notes
through the date of such conversion. In the event that the issuance of the
Warrants on such conversion would cause a violation of any rule, law or
regulation applicable to the Company or its stock, the Company shall on the date
of conversion issue the maximum amount of Warrants as would not cause such
violation and no later than 90 days after the conversion date issue the balance
of Warrants regardless of whether such issuance would cause such
18
<PAGE>
violation. The Purchasers agree to vote any shares of Common Stock beneficially
owned by them or by any of their affiliates in favor of the amendment to the
Company's Certificate of Incorporation contemplated by the Series A Preferred
Stock Certificate of Designations attached as Exhibit A hereto and the Company
may request voting agreements to be executed by all such affiliates.
8.2 Purchase Obligation. If the Purchasers do not exercise their
conversion rights set forth in Section 8.1, the holders of the Notes may, upon
notice furnished during the period specified in clauses (a), (b) or (c) below to
the Company, convert all but not less than all, of the Notes beneficially owned
by such holder into (i) a number of shares of Series B Preferred Stock having a
liquidation preference equal to the principal amount outstanding of the Notes
and (ii) Warrants, in the form of Exhibit C attached hereto to purchase 250,000
shares of Common Stock for each $1,000,000 principal amount of Notes
surrendered: (a) during the 30 day period following the date the amendment to
the Company's Certificate of Incorporation contemplated by the Series A
Preferred Stock Certificate of Designations attached as Exhibit A hereto is
filed with the Secretary of State of the State of Delaware, (b) during the 30
day period ending on the 7-year anniversary of the date hereof, or (c) during a
30 day period following the first 20 Business Day Period after the filing of the
Amendment in which the average Market Price of the Common Stock is greater than
$4.00 per share. The Company shall pay all accrued but unpaid interest on the
Notes through the date of such conversion.
8.3 Reservation of Securities. The Company shall reserve and set
apart and have at all times, free from preemptive rights, the number of
authorized but unissued shares of Series A Preferred Stock, and shall use its
best efforts to reserve and set apart and have all times, free from preemptive
rights, the number of authorized but unissued shares of Series B Convertible
Preferred Stock (and shares of Common Stock convertible upon conversion of the
Series B Convertible Preferred Stock), to conform to the Company's obligations
set forth in Sections 8.1 and 8.2.
8.4 Release of Collateral. Upon the earlier of (i) the date of
repayment in full of the Notes and all accrued and unpaid interest due thereon,
or (ii) the date of conversion of the Notes into shares of Series B Convertible
Preferred Stock, each Purchaser shall deliver or file, as the case may be, such
instruments as the Company reasonably requests (including Uniform Commercial
Code termination statements on Form UCC-3) acknowledging the termination of the
Security Agreement and the release of the Collateral (as defined in the Security
Agreement).
90 Restrictions on Transfer.
9.1 Restrictive Legends. Except as otherwise permitted by this
Section 9, each Security issued pursuant to this Agreement shall be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
19
<PAGE>
AMENDED, OR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY
STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT,
OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT,
PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE
COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT IS AVAILABLE.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to any Purchaser upon its request.
9.2 Notice of the Proposed Transfer; Opinion of Counsel. Each
Purchaser of each Security bearing the restrictive legend set forth in Section
9.1 above ("Restricted Security") agrees that prior to any transfer or attempted
transfer of such Restricted Security to give to the Company (a) written notice
describing the manner or circumstances of such transfer or proposed transfer,
and (b) an opinion of counsel, which is knowledgeable in securities law matters,
in form and substance reasonably satisfactory to the Company, to the effect that
the proposed transfer of such Restricted Security may be effected without
registration of such Restricted Security under the Securities Act. If the
holder of the Restricted Security delivers to the Company an opinion of counsel
in form and substance reasonably satisfactory to the Company that subsequent
transfers of such Restricted Security will not require registration under the
Securities Act, the Company will after such contemplated transfer deliver new
Securities for such Restricted Security which do not bear the Securities Act
legend set forth in Section 9.1 above. The restrictions imposed by this Section
9 upon the transferability of any particular Restricted Security shall cease and
terminate (i) when such Restricted Security has been sold pursuant to an
effective registration statement under the Securities Act, (ii) when such
Restricted Security has been transferred pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act, or (iii) upon the date which is two (2)
years after the later of (A) the original issue date of the Restricted Security
and (B) the last date on which the Company or any Affiliate of the Company was
the owner of the Restricted Security (or any predecessor Restricted Security).
As used in this Section 9.2, the term "transfer" encompasses any sale, transfer
or other disposition of any Securities referred to herein.
100 Miscellaneous.
10.1 Indemnification; Expenses, Etc.
20
<PAGE>
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates and each of its and their respective directors,
officers, partners, principals and attorneys (individually, an "Indemnified
Party" and, collectively, the "Indemnified Parties") from and against any and
all losses, claims, damages, liabilities, costs (including reasonable attorneys'
fees) and expenses (collectively, "Losses") to which any Indemnified Party may
become subject, insofar as such Losses arise out of, in any way relate to, or
result from (i) any breach of any representation or warranty made by the
Company, or the failure of the Company to fulfill any agreement or covenant
contained in this Agreement or any other Transaction Document, or (ii) any
proceeding against the Company or any Indemnified Party brought by any third
party arising out of or in connection with this Agreement or the other
Transaction Documents; provided, however, that the Company shall not have any
obligation under this indemnity provision after twelve months from the date
hereof, or for liabilities resulting from the gross negligence or willful
misconduct of any Indemnified Party. The Company agrees to reimburse any
Indemnified Party for all such Losses as they are incurred or suffered by such
Indemnified Party.
(b) If any Indemnified Party is entitled to indemnification
hereunder, such Indemnified Party shall give prompt notice to the Company of any
claim or of the commencement of any proceeding against the Company or any
Indemnified Party brought by any third party with respect to which such
Indemnified Party seeks indemnification pursuant hereto; provided, however, that
the delay to so notify the Company shall not relieve the Company from any
obligation or liability except to the extent the Company is prejudiced by such
delay. The Company shall have the right, exercisable by giving written notice to
an Indemnified Party within 30 days after the receipt of written notice from
such Indemnified Party of such claim or proceeding, to assume, at the expense of
the Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified Party. The Company shall not consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by claimant or plaintiff to such
Indemnified Party or Parties of a release, in form and substance satisfactory to
the Indemnified Party or Parties, from all liability in respect of such claim,
litigation or proceeding.
10.2 Survival of Representations and Warranties. All representations
and warranties contained in this Agreement or in the other Transaction Documents
shall survive, for the duration of any statutes of limitation applicable
thereto, the execution and delivery of this Agreement, any investigation at any
time made by any Purchaser or on such Purchaser's behalf, the purchase of the
Securities by the Purchasers under this Agreement and any disposition of or
payment on the Securities; provided, however, that such representations and
warranties shall expire upon the earlier of the consummation of the Permanent
Financing.
10.3 Amendment and Waiver. This Agreement may be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may be given, provided that the same are in writing and signed by the Purchasers
and/or the other holders of the Notes, holding a majority of the aggregate
principal amount of the Notes, and the Company.
21
<PAGE>
10.4 Notices, Etc. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be delivered personally, sent by telecopier (with written confirmation of
receipt), mailed by registered or certified mail, return receipt requested, or
by a nationally recognized overnight courier, postage prepaid, addressed, (a) if
to any Purchaser, at such address or telecopier number as is set forth next to
such Purchaser's name on the signature page hereto, or as any such Purchaser
shall have furnished to the Company in writing, or (b) if to the Company, at
1110 East Collins Boulevard, Suite 122, Richardson, Texas 75081, telecopier no.:
(972) 498-0111, to the attention of President, or at such other address or
telecopier number, or to the attention of such other officer, as the Company
shall have furnished to the Purchasers in writing, with a copy to The Schupak
Group, 730 Fifth Avenue, Suite 1901, New York, New York 10022, telecopier no.
(212) 262-1031, to the attention of Donald Schupak, and with a copy to Shereff,
Friedman, Hoffman and Goodman, LLP, 919 Third Avenue, New York, New York 10022,
telecopier no.: (212) 758-9526, to the attention of Gerald Adler, Esq.
10.5 Entire Agreement. This Agreement, the other Transaction
Documents embody the entire agreement and understanding between the Purchasers
and the Company and supersede all prior agreements and understandings relating
to the subject matter hereof.
10.6 Successors and Assigns. Whenever in this Agreement any of the
parties hereto are referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of the respective parties which are contained in this Agreement
shall bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of any Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon any such Purchaser shall
automatically extend to and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof. In
connection therewith, such transferee or assignee may disclose all documents and
information which such transferee or assignee now or hereafter may have relating
to the Notes, the Warrants, this Agreement, the other Transaction Documents, the
Company, any other Persons referred to herein or any of the business of any of
the foregoing entities, subject to such transferee or assignee executing a
confidentiality agreement reasonably satisfactory to the Company.
10.7 Agreement and Action of the Purchasers. Upon any occasion
requiring, permitting or referencing an act or an approval, consent, waiver,
election or other action on the part of the Purchasers, any such action shall
(i) be taken upon the affirmative vote of the Purchasers and/or the other
holders of the Notes, holding a majority or agreeing to purchase a majority
under this Agreement of the aggregate principal amount of the Notes, or (ii) be
deemed to have been taken by the Purchasers upon such action being taken by the
Purchasers and/or the other holders of the Notes, holding a majority of the
aggregate principal amount of the Notes.
10.8 Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
22
<PAGE>
10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CHOICE-OF-LAW
PRINCIPLES THEREOF.
10.10 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original.
23
<PAGE>
If this Agreement is satisfactory, please so indicate by signing the
applicable attached signature page of this Agreement and delivering such
counterpart to the Company, whereupon this Agreement will become binding among
the parties hereto in accordance with its terms.
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
----------------------------------------------
Name: Donald Schupak
Title:
Chairman of the Board
24
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SECURED PROMISSORY NOTES AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Principal Amount
date first written above: and Purchase Price of
Notes to be Purchased: $3,000,000
Aggregate Amount of
ALPINE ASSOCIATES, a New Jersey Warrants to be Purchased: 450,000
Limited Partnership (reduced by warrant exercisable for
50,000 shares previously issued)
By: Eckert Corp.,
Its General Partner
By: /s/ VICTORIA ECKERT
-----------------------------
Victoria Eckert
President
Address: 100 Union Avenue
Cresskill, New Jersey 07626
Telephone: (201) 871-2200
Telecopy: (201) 871-2241
WITH A COPY TO:
Address: Tax I.D. Number:
------------------------
(if acquired in the name of a
nominee, the taxpayer I.D. number
of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the -----------------------------------
Notes and Warrants are to be registered, Name
if different than name of
Purchaser): -----------------------------------
ABA #
-----------------------------------
Street Address
- ---------------------------------------- -----------------------------------
(Nominee's Name) City State Zip Code
-----------------------------------
Account Number Attention
25
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SECURED PROMISSORY NOTES AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Principal Amount
date first written above: and Purchase Price of
Notes to be Purchased: $1,500,000
Aggregate Amount of
EAST WEST CAPITAL ASSOCIATES, INC. Warrants to be Purchased: 225,000
(reduced by warrants exercisable
for 25,000 shares previously
issued)
By: /s/ PAUL NADEL
----------------------------------
Name: Paul Nadel
Title:
Address: 10900 Wilshire Boulevard
Suite 750
Los Angeles, California 90024
Telephone: (310) 209-6154
Telecopy: (310) 209-6160
WITH A COPY TO:
Address: Tax I.D. Number: 95-4214895
Stuart D. Buchalter, Esq. -----------------------
601 S. Figueroa Street, Suite 2400 (if acquired in the name of a
Los Angeles, CA 90017 nominee, the taxpayer I.D.
Telephone: 213-891-0700 number of such nominee)
Telecopy: 213-896-0400
Designated Bank:
Nominee (name in which the
Notes and Warrants are to be registered, -----------------------------------
if different than name of Name
Purchaser):
-----------------------------------
- ---------------------------------------- ABA #
(Nominee's Name)
-----------------------------------
Street Address
-----------------------------------
City State Zip Code
-----------------------------------
Account Number Attention
26
<PAGE>
EXHIBIT 10.37
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of May 6, 1998,
is entered into and made by and among Alpine Associates, a New Jersey Limited
Partnership ("Alpine"), East West Capital Associates, Inc. ("Capital"), and
together with Alpine, the "Lenders"), Alpine as collateral agent for itself and
Capital (the "Agent") and 7th Level, Inc., a Delaware corporation ("7th Level").
WHEREAS, pursuant to the Securities Purchase Agreement dated as of the
date hereof by and among 7th Level and the Lenders, the Lenders have agreed to
lend 7th Level an aggregate of up to Four Million Five Hundred Thousand Dollars
($4,500,000.00) for working capital requirements and general corporate purposes,
and 7th Level is issuing Secured Promissory Notes (the "Notes") in such
aggregate principal amount and warrants exercisable for 675,000 shares of common
stock to the Lenders;
WHEREAS, as security for such loans, 7th Level has agreed to grant to
the Lenders a continuing first priority (except to the extent set forth below)
security interest in the Collateral (as hereinafter defined);
WHEREAS, it is a condition precedent to the Lenders' obligations to
make the loan to 7th Level that 7th Level execute and deliver to the Lenders
this Agreement; and
WHEREAS, 7th Level desires to execute and deliver this Agreement to
satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to 7th
Level, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, 7th Level covenants and agrees
with the Lender and the Agent as follows:
1. Security for Obligations. This Agreement is for the benefit of
the Lenders to secure the due and punctual payment and performance of all
indebtedness, liabilities and obligations of 7th Level to the Lenders, of every
kind and description, whether direct, indirect or contingent, now existing or
hereafter acquired or arising, secured or unsecured, primary or secondary, due
or to become due, arising under the Notes or this Agreement and any and all
future amendments thereto (all of the foregoing are hereinafter called the
"Obligations").
2. Definition of Collateral. As used herein, the term "Collateral"
shall mean all of the tangible and intangible personal property and fixtures of
7th Level (but none of its obligations with respect thereto), including, without
limitation, the property described below, whether now owned or existing, or
hereafter acquired or arising, wherever located, together with any and all
additions, accessions and attachments thereto and substitutions, replacements,
proceeds (including, without limitation, insurance proceeds) and products
thereof:
<PAGE>
(a) all inventory, goods, merchandise, raw materials, parts,
components, assemblies, supplies, goods or work in process, finished goods
and other tangible personal property held by 7th Level for processing, sale
or lease or furnished or to be furnished by 7th Level under contracts of
service or to be used or consumed in 7th Level's business (the foregoing
items in this clause (a) being sometimes herein referred to collectively as
"Inventory");
(b) all accounts, accounts receivable, notes, drafts and
acceptances of 7th Level, all rights to receive the payment of money under
contracts, franchises, licenses, permits and other agreements, documents or
instruments (whether or not earned by performance) or otherwise of 7th
Level, and all rights of 7th Level to receive payments from any other
source (the foregoing items in this clause (b) being sometimes herein
referred to collectively as "Accounts Receivable"), together with all
rights of 7th Level in the goods and services which have given rise
thereto, including, without limitation, returned or repossessed goods and
unpaid sellers' rights of rescission, replevin, reclamation and rights to
stoppage in transit;
(c) all of 7th Level's equipment, machinery, fixtures,
furniture, furnishings, computers and related equipment, office equipment
and supplies, tools and vehicles; provided, however, that the security
interest granted hereby in respect of any computer or office equipment
acquired by 7th Level under capital leases shall be subject and subordinate
to the terms of such capital leases and the rights of the lessors
thereunder (the foregoing items in this clause (c) being sometimes herein
referred to collectively as "Equipment");
(d) all of 7th Level's general intangibles (including goodwill)
and other intangible property and all rights thereunder (all such items
existing on the date hereof are identified on Schedule 2(d) hereto),
including, without limitation, all of the following:
(i) all trademarks, trademark applications and
registrations and trade names, together with the goodwill
appurtenant thereto, owned, held (whether pursuant to a license
or otherwise), used or to be used, in whole or in part, in
conducting 7th Level's business (the "Trademarks");
(ii) all patents and patent applications of 7th Level,
including without limitation, the inventions and improvements
described and claimed therein (the "Patents");
(iii) all copyrights and applications for registration of
copyrights of 7th Level and all rights in literary property (the
"Copyrights");
2
<PAGE>
(iv) all reissues, divisions, continuations, renewals,
extensions and continuations-in-part of any Trademarks, Patents
and/or Copyrights; all income, royalties, damages and payments
now or hereafter due and/or payable with respect to any
Trademarks, Patents and/or Copyrights, including, without
limitation, damages and payments for past or future infringements
thereof; all rights (but no obligation) to sue for past, present
and future infringements of any Trademarks, Patents and/or
Copyrights or bring interference proceedings with respect
thereto; and all rights corresponding to any Trademarks, Patents
and/or Copyrights throughout the world;
(v) all rights and interests of 7th Level pertaining to
common law and statutory trademark, service marks, trade names,
slogans, labels, trade secrets, patents, copyrights, corporate
names, company names, business names, fictitious business names,
trademark or service mark registrations, designs, logos, trade
styles, applications for trademark registration and any other
indicia of origin;
(vi) all operating methods, formulas, processes, know-how
and the like of 7th Level (the foregoing items in clauses (i)
through (vi), inclusive, being sometimes herein referred to
collectively as the "Intellectual Property Collateral");
(e) all shares of capital stock and other ownership interests in
any subsidiary of 7th Level (other than 7th Level Deutschland GmbH and
Distant Thunder Entertainment, Inc.) or in any other person, including all
interests in any general or limited partnership, any joint venture or any
limited liability company or partnership; and all options, warrants and
similar rights to acquire such capital stock or such interests (the
foregoing items in this clause (e) being sometimes herein referred to as
the "Pledged Securities");
(f) all contracts, contract rights, leases (including leases of
personal property, whether 7th Level is the lessor or the lessee
thereunder), franchises, licenses, permits and other agreements (all such
items existing on the date hereof are identified on Schedule 2(f) hereto)
and all rights thereunder of 7th Level (the foregoing items in this clause
(f) being sometimes herein referred to collectively as "Contracts");
(g) all rights granted by others which permit 7th Level to
manufacture, distribute, sell or market items of property (all such items
existing on the date hereof are identified on Schedule 2(g) hereto);
(h) all chattel paper, documents, documents of title, records,
negotiable and non-negotiable instruments, hedge contracts and forward
purchase
3
<PAGE>
contracts of 7th Level (all such items existing on the date hereof
are identified on Schedule 2(h) hereto);
(i) all property or collateral granted by third party obligors
to, or held by, 7th Level with respect to any Accounts Receivable,
documents, chattel paper, instruments, leases and other items of Collateral
and all liens, rights, remedies, privileges, guarantees and other security
for any of the foregoing;
(j) all books and records, including without limitation, books
of account and ledgers of every kind and nature, all electronically
recorded data (including all computer programs, discs, tapes, electronic
data processing media and software used in maintaining 7th Level's books
and records), all files and correspondence and all receptacles and
containers for the foregoing; all computer software, designs, models,
know-how, trade secrets, rights of proprietary information, formulas,
customer lists, backlogs, orders, royalties, sales material, documents,
goodwill, inventions and processes of 7th Level;
(k) all judgments, causes of action and claims, whether or not
inchoate, of 7th Level;
(l) all cash, funds and investments, including that maintained
in any account (including any collateral account or deposit account) at any
bank or financial institution, and all rights with respect thereto;
(m) all tax refunds and abatements of every kind and nature, and
all rights and claims related thereto;
(n) all insurance policies (and all rights thereunder) which
insure against any loss or damage to any other Collateral;
(o) all other property, assets and items of value of every kind
and nature, tangible or intangible, absolute or contingent, legal or
equitable; and
(p) all proceeds, including, without limitation, insurance
proceeds, and products of the items of Collateral heretofore described.
7th Level has this day delivered to the Agent all certificates
evidencing the Pledged Securities of the subsidiaries of 7th Level (other than
7th Level Deutschland GmbH and Distant Thunder Entertainment, Inc.), accompanied
by one or more undated stock powers executed in blank.
4
<PAGE>
3. Pledge of Collateral. To secure the Obligations, 7th Level
hereby assigns, grants, conveys, pledges and sets over to the Agent a first
priority (except to the extent set forth above) security interest in all of the
Collateral.
4. Payments and Other Distributions. Unless an Event of Default (as
defined) shall have occurred and be continuing, all cash or other amounts
payable in respect of the Collateral shall be used by 7th Level for working
capital requirements, general corporate purposes or other valid business
purposes.
5. Representations, Warranties and Covenants. 7th Level hereby
represents, warrants and covenants as follows:
(a) 7th Level is, or to the extent that certain of the
Collateral is to be acquired after the date hereof will be, the owner of
the Collateral, free from any adverse lien, security interest or
encumbrance other than as set forth on Schedule 5(a) hereto. 7th Level will
defend the Collateral against all claims and demands of all persons at any
time claiming any interest therein to the extent that it is commercially
reasonable to do so. 7th Level will keep the Collateral free from any
adverse lien, security interest or encumbrance, other than those identified
on Schedule 5(a) hereto.
(b) Except as set forth on Schedule 5(a) hereto, no financing
statement covering the Collateral is on file in any public office, other
than the financing statements filed or to be filed by or on behalf of the
Agent pursuant to this Agreement.
(c) 7th Level will pay any and all taxes, assessments and
governmental charges upon the Collateral, except to the extent that such
taxes, assessments and charges have been adequately reserved for and are
currently being contested in good faith by 7th Level in appropriate
proceedings.
(d) 7th Level will promptly notify the Agent of any event
causing a substantial loss or diminution in the value of all or any
material part of the Collateral and the amount or an estimate of the amount
of such loss or diminution.
(e) 7th Level will not sell or offer to sell or otherwise
assign, transfer or dispose of the Collateral or any interest therein
(other than inventory sold or receivables collected in the ordinary course
of business or inventory sold in connection with 7th Level's exiting of the
games business), without the prior written consent of the Agent.
(f) 7th Level will have and maintain insurance at all times with
respect to the Collateral against risks of fire, theft and other
casualties. 7th Level shall give prompt written notice to the Agent and to
insurers of loss or damage to the Collateral and shall promptly file proofs
of loss with insurers.
5
<PAGE>
(g) All books and records concerning the Collateral consisting
of Contracts, Accounts Receivable and other general intangibles are located
at 1110 East Collins Boulevard, Suite 122, Richardson, Texas 75081, which
is the chief executive office and principal place of business of 7th Level.
7th Level's only additional place of business is at 900 Allen Avenue,
Glendale, California 91201. 7th Level shall promptly notify the Agent of
any change in the location of its chief executive office or of any new or
additional address where its books and records concerning the Collateral
are located.
(h) All Inventory and Equipment owned on the date hereof by 7th
Level are located at one of the locations shown in Schedule 5(h) hereto.
(i) Upon any Event of Default, 7th Level will pay the Agent on
demand the costs, expenses, losses, damages and liability (including
reasonable attorney's fees) incurred for pursuing, searching for,
receiving, taking, keeping, storing, advertising for the sale of and
selling the Collateral.
6. Special Provisions Concerning the Pledged Securities. Without
limiting the generality of the other provisions of this Agreement, 7th Level
hereby represents and warrants to and covenants and agrees with the Agent as
follows:
(a) A true and complete list of all Pledged Securities is
attached as Schedule 6(a) hereto and all information set forth thereon is
true, correct and complete. As of the date hereof, 7th Level does not own
any other securities or other items that would constitute Pledged
Securities. If any shares of capital stock, promissory notes or other
securities issued by any subsidiary of 7th Level or issued by any other
person are acquired by 7th Level after the date hereof, the same shall
without further action constitute Pledged Securities and shall be deposited
and pledged (together with all necessary stock or bond powers and
endorsements) with the Agent simultaneously with such acquisition.
(b) Unless an Event of Default shall have occurred and be
continuing, (i) 7th Level shall be entitled to receive all payments,
dividends and distributions on or with respect to the Pledged Securities
(except for any such payment, dividend or distribution that constitutes
additional Pledged Securities, in which case the same shall be deposited
and pledged with the Agent at the time such payment, dividend or
distribution is made) and (ii) 7th Level shall be entitled to vote or
consent with respect to the Pledged Securities in any manner.
(c) Upon the occurrence and during the continuance of an Event
of Default, (i) all payments, dividends and distributions on or with
respect to the Pledged Securities shall be deposited and pledged (together
with all necessary endorsements) with the Agent at the time such payment,
dividend or distribution is made and (ii) the Agent shall be entitled to
have any or all of the Pledged Securities transferred into its name and
6
<PAGE>
(whether or not any of the Pledged Securities has been transferred into the
name of the Agent) to vote or consent or take any other action with respect
to the Pledged Securities and to exercise any and all other incidents of
ownership thereof.
(d) Without limiting the provisions of clause (c) above, upon the
occurrence and during the continuance of an Event of Default, the Agent
shall be entitled (whether or not any of the Pledged Securities has been
transferred into the name of the Agent) to vote any or all of the Pledged
Securities and give all consents, waivers and ratifications in respect
thereof, and 7th Level hereby irrevocably constitutes and appoints the
Agent the proxy and attorney-in-fact of 7th Level, with full power of
substitution, to do so. The foregoing proxy and appointment of the Agent
as attorney-in-fact for 7th Level are irrevocable, are coupled with an
interest and, notwithstanding any provision of applicable corporate or
other law to the contrary, shall continue in full force and effect until
this Agreement has terminated by its express terms.
7. Remedies in Case of Default.
For purposes of this Agreement, an "Event of Default" shall mean the
occurrence of one or more of the following events:
(a) if 7th Level shall fail to pay when due any of the
Obligations; or if 7th Level shall breach any of the representations,
warranties or covenants contained in this Agreement provided that such
breach is not remedied within thirty (30) days after 7th Level's receipt of
written notice of same; or
(b) if an Event of Default should occur under the Notes, after
giving effect to all notice provisions and cure periods provided for
therein.
If an Event of Default shall have occurred and be continuing, the Agent shall be
entitled to exercise all of the rights, powers and remedies for the protection
and enforcement of its rights in respect of the Collateral at law or equity and,
in addition, the Agent may, without being required to give any notice, except as
herein provided or as may be required by mandatory provisions of law, sell the
Collateral, or any part thereof, at public or private sale or at any broker's
board, for cash, upon credit or for future delivery, and at such price or prices
as the Agent may deem commercially reasonable. The Agent shall have the right
to take immediate possession of the Collateral and for that purpose may enter
upon any premises on which any Collateral is located without notice and remove
the same therefrom. 7th Level hereby expressly consents to such repossession of
the Collateral and waives all rights to demand any notice with respect thereto.
The Agent may be the purchaser of any or all of the Collateral so sold at any
public sale and may apply all or any portion of the Obligations towards the
payment for any Collateral purchased by the Agent, and may thereafter hold the
same, absolutely, free from any right or claim of whatsoever kind. Upon any
such sale, the Agent shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. Each purchaser at any such sale shall
7
<PAGE>
hold the Collateral so sold absolutely, free from any claim or right of
whatsoever kind, including any equity or right of redemption. 7th Level, to the
extent permitted by law, hereby specifically waives all rights of redemption,
stay or appraisal which it has or may have under any rule of law or statute now
existing or hereafter adopted. The Agent shall give fifteen (15) days' prior
written notice of its intention to make any such public or private sale. Such
notice, in case of a public sale, shall state the time and place fixed for such
sale. Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Agent may fix in the notice of
such sale. At any such sale, the Collateral may be sold in one lot as an
entirety or in separate parcels, as the Agent may determine. The Agent shall
not be obligated to make any such sale pursuant to any such notice. The Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned.
8. Transfer by 7th Level. 7th Level shall not sell or otherwise
dispose of or grant any option with respect to, or pledge or otherwise encumber
any of the Collateral or any interest therein, except for sales of inventory or
collections of receivables in the ordinary course of business or inventory sold
in connection with 7th Level's exiting of the games business.
9. Power of Attorney. 7th Level hereby appoints the Agent and any
designee of the Agent as 7th Level's attorney-in-fact, at 7th Level's own cost
and expense, to exercise at any time after the occurrence of an Event of Default
all or any of the powers, authorities, and discretions conferred on or reserved
to the Agent by or pursuant to this Agreement or applicable law, and (without
prejudice to the generality of any of the foregoing) to seal and deliver or
otherwise perfect any deed, assurance, agreements, instrument or act as the
Agent may deem proper in or for the purpose of exercising any of such powers,
authorities or discretions. 7th Level hereby ratifies and confirms, and hereby
agrees to ratify and confirm, whatever lawful acts the Agent or any of the
Agent's sub-agents or attorneys shall do or purport to do in the exercise of the
power of attorney granted to the Agent pursuant to this paragraph 8, which power
of attorney, being given for consideration, is irrevocable. The Agent shall not
be liable to the Company or Capital for any action or inaction as Agent
hereunder except as may result from its own gross negligence or willful
misconduct.
10. Financing Statements. 7th Level will, upon request by the Agent,
promptly make, execute, acknowledge and deliver and file and record in all
proper offices and places, including, without limitation, the U.S. Patent and
Trademark Office and the U.S. Copyright Office, such financing statements,
continuation statements, certificates, collateral agreements and other
agreements, documents or instruments as may be necessary to perfect or from time
to time renew the liens arising hereunder, including, without limitation, those
that may be necessary to perfect such liens in any additional Collateral
hereafter acquired by 7th Level or in any replacements or proceeds thereof, and
7th Level will take all such action as may be deemed necessary or advisable by
7th Level for assuring and confirming to the Agent the grant and perfection of
the liens in the Collateral, including, without limitation, the Intellectual
8
<PAGE>
Property Collateral. To the extent permitted by law, 7th Level authorizes and
appoints (such appointment being coupled with an interest and irrevocable) the
Agent to execute such financing statements, continuation statements,
certificates, collateral agreements, and other agreements, documents and
instruments in its stead, with full power of substitution, as 7th Level's
attorney-in-fact. To the extent permitted by law, 7th Level further agrees that
a carbon, photographic or other reproduction of a security agreement, financing
statement or continuation statement is sufficient as a financing statement or
continuation statement.
11. Removal or Resignation of Agent. The Agent may resign at any
time by giving written notice thereof to the Lenders and 7th Level and may be
removed at any time, with or without cause, by the Required Lenders (as defined
below), and upon any such resignation or removal the Required Lenders shall have
the right to appoint a successor Agent. "Required Lenders" shall mean any
Lender or Lenders holding Notes evidencing, in the aggregate, an amount equal to
not less than a majority of the aggregate principal amount of all Notes then
outstanding. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within thirty (30) days after
the retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent. Upon the acceptance by a successor Agent of
its appointment as Agent hereunder, such successor Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this paragraph 11 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
12. Termination. Upon such time, if any, as 7th Level shall pay,
satisfy or otherwise discharge in full the Obligations, this Agreement shall be
null and void and the security interests granted hereunder shall terminate.
Notwithstanding the foregoing, 7th Level shall be permitted from time to time to
prepay any portion of the Notes in accordance with the terms thereof. Upon
termination of this Agreement or any release of Collateral in accordance with
the provisions of the preceding sentence, the Agent shall, upon the request and
at the sole cost and expense of 7th Level, forthwith assign, transfer and
deliver to 7th Level, against receipt and without recourse to or warranty by the
Agent, such of the Collateral to be released (in the case of a release) as may
be in possession of the Agent and as shall not have been sold or otherwise
applied pursuant to the terms hereof, and, with respect to any other Collateral,
proper instruments (including Uniform Commercial Code termination statements on
Form UCC-3) acknowledging the termination of this Agreement or the release of
such Collateral, as the case may be.
13. Notices. Unless otherwise provided herein or in the Purchase
Agreement, any notice or other communication herein required or permitted to be
given shall be given in accordance with the provisions of Section 10.4 of the
Purchase Agreement.
9
<PAGE>
14. Governing Law. This Agreement shall be construed in accordance
with, and governed by, the internal laws of the State of New York, without
giving effect to the principles of conflict of laws thereof.
15. Miscellaneous. 7th Level agrees with the Agent that each of the
obligations and liabilities of 7th Level to the Agent under this Agreement may
be enforced against 7th Level without the necessity of joining any other person
as a party. This Agreement shall create a continuing first priority security
interest in the Collateral and shall be binding upon the successors and assigns
of 7th Level and shall inure to the benefit of and be enforceable by the Agent
and its permitted successors and assigns. The headings in this Agreement are
for purposes of reference only and shall not limit or define the meaning hereof.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which shall constitute one instrument. In the
event that any provision of this Agreement shall prove to be invalid or
unenforceable, such provision shall be deemed to be severable from the other
provisions of this Agreement which shall remain binding on all parties hereto.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ALPINE ASSOCIATES,
a New Jersey Limited Partnership
By: Eckert Corp.,
Its General Partner
By: /s/ VICTORIA ECKERT
---------------------------------
Victoria Eckert
President
EAST WEST CAPITAL ASSOCIATES, INC.
By: /s/ PAUL NADEL
--------------------------------------
Name: Paul Nadel
Title: President
ALPINE ASSOCIATES,
a New Jersey Limited Partnership,
as collateral agent for itself and the other
Lender
By: Eckert Corp.,
Its General Partner
By: /s/ VICTORIA ECKERT
------------------------------
Victoria Eckert
President
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
---------------------------------------
Name: Donald Schupak
Title: Chairman of the Board
11
<PAGE>
EXHIBIT 10.38
7TH LEVEL, INC.
SENIOR SECURED PROMISSORY NOTE
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL AMOUNT
OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD TO MATURITY
ON THE ISSUE DATE IS DONALD SCHUPAK AT (212) 582-4210.
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES OR "BLUE SKY"
LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE
COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT IS AVAILABLE.
$3,000,000 May 6, 1998
FOR VALUE RECEIVED, 7TH LEVEL, INC., a Delaware corporation ("Company"),
with its principal office at 1110 E. Collins Boulevard, Richardson, Texas
75081, promises to pay to the order of Alpine Associates, a New Jersey Limited
Partnership residing at 100 Union Avenue, Cresskill, New Jersey 07626
("Holder"), or registered assigns, on the 7-year anniversary of the date hereof
(the "Maturity Date"), the principal amount of Three Million Dollars
($3,000,000), together with interest, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public or private debts, together with interest accrued thereon as
provided below.
Interest shall accrue from and after September 1, 1998 on the unpaid
balance of said principal amount from time to time outstanding at the rate per
annum set forth below; provided, however, that if the Company has not filed the
amendment to the Company's Certificate of Incorporation contemplated by the
Series A Preferred Stock Certificate of Designations (as
<PAGE>
defined in the Purchase Agreement (defined below)) with the Secretary of State
of the State of Delaware (the "Amendment") on or before September 1, 1998,
interest shall accrue on the outstanding principal hereof commencing from the
date hereof. Interest hereunder shall accrue from the date set forth in the
prior sentence at a rate of 10% per annum, increasing by two percentage points
for every three month period that interest under this Note is accruing.
Notwithstanding the foregoing, this Note may be prepaid or called by the Company
at any time in whole or in part without penalty or premium, but with at least
five days notice to the Holder. Interest shall accrue from the date set forth
above to and include the date on which prepayment is made. This Note shall be
paid (and prepaid, if applicable) pro rata with certain additional notes of like
tenor being issued simultaneously herewith. Payments of principal and interest
are to be made at the address of the Holder designated above or at such other
place as the Holder shall have notified the Company in writing at least five
days before such payment is due.
Reference to the Amendment shall in no way impair the absolute and
unconditional obligation of the Company to pay both principal and interest as
herein stated.
This Note is one of a duly authorized issue of senior secured notes
("Notes") limited to an aggregate principal amount of $4,500,000 issued by the
Company pursuant to a Securities Purchase Agreement by and among the Company,
Alpine Associates, a New Jersey Limited Partnership ("Alpine") and East West
Capital Associates, Inc. ("Purchase Agreement"), and is secured by certain
collateral ("Collateral") more specifically described in that certain Security
Agreement entered into by the Company for the benefit of the Holder, among
others (the "Security Agreement"), both of which are available for inspection at
the Company's principal office. Reference herein to the Purchase Agreement and
the Security Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay both principal and interest hereon as provided
herein. Certain rights and remedies of the Holder are described in the Security
Agreement which appoints Alpine, as collateral agent ("Agent") for the Holder
thereunder and hereunder to exercise the powers delegated to it, including
without limitation, powers with respect to the enforceability and collectibility
of all amounts due hereunder. Reference to the Security Agreement is made for a
complete description of the rights, powers and obligations of the Agent,
including the Agent's duty to act in certain circumstances at the direction of
the "Required Lenders," as such term is defined therein.
1. Events of Default. (a) Upon the occurrence of any of the following
events (herein called "Events of Default"):
(i) The Company shall fail to pay in full the principal of or
interest on this Note on the Maturity Date;
(ii) (A) The Company shall commence any proceeding or other
action relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation,
winding-up, composition or any other relief under any bankruptcy law, or
under any other insolvency, reorganization, liquidation,
2
<PAGE>
dissolution, arrangement, composition, readjustment of debt or any other
similar act or law, of any jurisdiction, domestic or foreign, now or
hereafter existing; or (B) the Company shall admit the material allegations
of any petition or pleading in connection with any such proceeding; or (C)
the Company shall apply for, or consent or acquiesce to, the appointment of
a receiver, conservator, trustee or similar officer for it or for all or a
substantial part of its property; or (D) the Company shall make a general
assignment for the benefit of creditors;
(iii) (A) The commencement of any proceedings or the taking of
any other action against the Company in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
dissolution, arrangement, composition, or any other relief under any
bankruptcy law or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of any
of such events for sixty (60) days undismissed, unbonded or undischarged;
or (B) the appointment of a receiver, conservator, trustee or similar
officer for the Company for any of its property and the continuance of any
of such events for sixty (60) days undismissed, unbonded or undischarged;
or (C) the issuance of a warrant of attachment, execution or similar
process against any of the property of the Company and the continuance of
such event for sixty (60) days undismissed, unbonded and undischarged;
(iv) Any breach of any of the Company's representations or
warranties when made or deemed made under the Purchase Agreement;
(v) The Company shall fail to perform any obligation of the
Company contained in the Purchase Agreement, after giving effect to any
applicable notice provisions and cure periods;
(vi) The Company shall fail to comply with any of its
obligations under this Note; provided, however, that with respect to a
failure to comply with any of the provisions of Sections 2.1(a) and (c) of
this Note, such failure is not remedied within thirty (30) days after the
Company's receipt of written notice of same;
(vii) The Company shall default with respect to any indebtedness
for borrowed money (other than under this Note) if either (a) the effect of
such default is to accelerate the maturity of such indebtedness (giving
effect to any applicable grace periods) or (b) the holder of such
indebtedness declares the Company to be in default (giving effect to any
applicable grace periods);
(viii) Any judgment or judgments against the Company or any
attachment, levy or execution against any of its properties for any amount
in excess of $250,000 in the aggregate shall remain unpaid, or shall not be
released, discharged, dismissed, stayed or fully bonded for a period of 45
days or more after its entry, issue or levy, as the case may be;
3
<PAGE>
(ix) An "Event of Default" (as defined in the Security Agreement)
shall have occurred under the Security Agreement, after giving effect to
any applicable notice provisions and cure periods set forth in the Security
Agreement; or
(x) The Company shall fail to have on December 31, 1998, or at
the end of any fiscal quarter thereafter, a net worth (as calculated under
generally accepted accounting principles) equal to at least $10,000,000;
then, and in any such event, the Holder, at its option and without written
notice to the Company, may declare the entire principal amount of this Note then
outstanding together with accrued unpaid interest thereon immediately due and
payable, and the same shall forthwith become immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived. The Events of Default listed herein are solely for the
purpose of protecting the interests of the Holder of this Note. If this Note is
not paid in full upon acceleration, as required above, interest shall accrue on
the outstanding principal of and interest on this Note from the date of the
Event of Default up to and including the date of payment at a rate equal to the
lesser of twenty (20%) percent per annum or the maximum interest rate permitted
by applicable law.
(b) Non-Waiver and Other Remedies. No course of dealing or delay on
the part of the Holder of this Note in exercising any right hereunder shall
operate as a waiver or otherwise prejudice the right of the Holder of this Note.
No remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereafter available at law, in equity, by statute or otherwise.
(c) Collection Costs; Attorney's Fees. In the event this Note is
turned over to an attorney for collection upon the occurrence of an Event of
Default, the Company agrees to pay all reasonable costs of collection, including
reasonable attorney's fees and expenses and all out of pocket expenses incurred
in connection with such collection efforts, which amounts may, at the Holder's
option, be added to the principal hereof.
2. Obligation to Pay Principal and Interest; Covenants. No provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this Note at the
place, at the respective times, at the rates, and in the currency herein
prescribed.
2.1 Affirmative Covenants. The Company covenants and agrees that,
while this Note is outstanding, it shall:
(a) Pay and discharge all taxes, assessments and governmental charges
or levies imposed upon it or upon its income and profits, or upon any properties
belonging to it before the same shall be in default; provided, however, that the
Company shall not be required to pay any such tax, assessment, charge or levy
which is being contested in good faith by proper
4
<PAGE>
proceedings and adequate reserves for the accrual of same are maintained if
required by generally accepted accounting principles;
(b) Preserve its corporate existence and continue to engage in
business of the same general type as conducted as of the date hereof; provided,
however, that the Company shall be permitted to enter the new media and on-line
solutions market;
(c) Comply in all respects with all statutes, laws, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations and requirements ("Requirement(s)") of all governmental bodies,
departments, commissions, boards, companies or associates insuring the premises,
courts, authorities, officials, or officers, which are applicable to the
Company; except wherein the failure to comply would not have a material adverse
effect on the Company; provided that nothing contained herein shall prevent the
Company from contesting the validity or the application of any Requirements.
2.2 Negative Covenants. The Company covenants and agrees that while
this Note is outstanding it will not directly or indirectly:
(a) Guaranty or otherwise in any way become or be responsible for
indebtedness for borrowed money, or for obligations, in either case of any of
its officers, directors or principal stockholders or any of their affiliates,
contingently or otherwise, other than such guaranties, indebtedness or
obligations existing as of the date hereof;
(b) Declare or pay cash dividends, except with respect to the
Company's Series A Preferred Stock issued or contemplated to be issued;
(c) Sell, transfer or dispose of, any of its assets other than in the
ordinary course of its business or with respect to its games business and
international business; or
(d) Purchase, redeem, retire or otherwise acquire for value any of
its capital stock now or hereafter outstanding.
3. Seniority. The Notes are senior in right of payment to any and all
other existing and future indebtedness of the Company.
4. Warrants. If the Company has not filed the Amendment with the
Secretary of State of Delaware on or before the five-month anniversary of the
date hereof, then on October 1, 1998 and on the first day of each month
thereafter until the Maturity Date, the Company shall issue to the Holder
warrants to acquire 100,002 shares of the Company's common stock, $.01 per share
("Common Stock") (or a warrant for 33,334 shares of Common Stock for each
$1,000,000 of principal amount of Notes held), at an exercise price of $.01 per
share, on substantially the same terms as the warrants to be issued to the other
investors of the Company in the Financing. If the Company has not filed the
Amendment with the Secretary of State of the State of Delaware
5
<PAGE>
on or before the 6-month anniversary of the date hereof, the Company shall issue
to the Holders of the Notes on such date warrants to acquire an additional
aggregate of 750,000 shares of Common Stock (or a warrant for 250,000 shares for
each $1,000,000 principal amount of Notes held), at an exercise price of $.01
per share.
5. Conversion. This Note is subject to the conversion rights provided for
under the Purchase Agreement.
6. Miscellaneous.
6.1 Required Consent. The Company may not modify any of the terms of
this Note without the prior written consent of at least a majority in aggregate
principal amount of the Notes at the time outstanding; provided, however, that
no such instrument shall (a) reduce or extend the fixed maturity of any Note,
increase or reduce the rate of payment of interest thereon, change the currency
for payment of principal and/or interest under any Note, or relieve the Company
of its obligation to pay principal and interest then due, (b) reduce the
aforesaid percentage of Notes, the Holders of which are required to consent to
any such instrument or (c) release any Collateral, without the consent of the
Holders of at least 66_% of the Notes then outstanding.
6.2 Lost Documents. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note or
any Note exchanged for it, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Note, if mutilated, the Company will make and deliver in lieu of such Note
a new Note of like tenor and unpaid principal amount and dated as of the
original date of the Note.
6.3 Benefit. This Note shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
6.4 Notices and Addresses. All notices, offers, acceptances and any
other acts under this Note (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressee in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To Holder: To Holder's address on page 1 of this Note
To the Company: 7th Level, Inc.
1110 East Collins Boulevard
Richardson, Texas 75081
Attn: Robert A. Ezrin, President
Fax: (972) 498-0111
6
<PAGE>
In either case with copies to: Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attn: Gerald Adler, Esq.
Fax: (212) 758-9526
The Schupak Group
730 Fifth Avenue, Suite 1901
New York, New York 10019
Attn: Donald Schupak
Fax: (212) 262-1031
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or five (5) business days after mailing.
6.5 Governing Law. This Note and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed and interpreted according to the internal laws of the State of New
York and the Company agrees that service of process upon it mailed by certified
mail to its address shall be deemed in every respect effective service of
process upon it in any such suit, action or proceeding, without regard to
principles of conflicts of law.
6.6 Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Note.
6.7 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained herein shall survive the
delivery of this Note.
7
<PAGE>
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
specified above by the duly authorized representative of the Company.
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
--------------------------------
Name: Donald Schupak
Title: Chairman of the Board
8
<PAGE>
EXHIBIT 10.39
7TH LEVEL, INC.
SENIOR SECURED PROMISSORY NOTE
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." THE NAME AND TELEPHONE
NUMBER OF THE REPRESENTATIVE OF THE ISSUER WHO CAN PROVIDE (i) THE TOTAL AMOUNT
OF ORIGINAL ISSUE DISCOUNT, (ii) THE ISSUE DATE, AND (iii) THE YIELD TO MATURITY
ON THE ISSUE DATE IS DONALD SCHUPAK AT (212) 582-4210.
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES OR "BLUE SKY"
LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE
COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT IS AVAILABLE.
$1,500,000 May 6, 1998
FOR VALUE RECEIVED, 7TH LEVEL, INC., a Delaware corporation ("Company"),
with its principal office at 1110 E. Collins Boulevard, Richardson, Texas
75081, promises to pay to the order of East West Capital Associates, Inc.
residing at 10900 Wilshire Boulevard, Suite 750, Los Angeles, California 90024
("Holder"), or registered assigns, on the 7-year anniversary of the date hereof
(the "Maturity Date"), the principal amount of One Million Five Hundred Thousand
Dollars ($1,500,000), together with interest, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public or private debts, together with interest accrued thereon as
provided below.
Interest shall accrue from and after September 1, 1998 on the unpaid
balance of said principal amount from time to time outstanding at the rate per
annum set forth below; provided, however, that if the Company has not filed the
amendment to the Company's Certificate of Incorporation contemplated by the
Series A Preferred Stock Certificate of Designations (as
<PAGE>
defined in the Purchase Agreement (defined below)) with the Secretary of State
of the State of Delaware (the "Amendment") on or before September 1, 1998,
interest shall accrue on the outstanding principal hereof commencing from the
date hereof. Interest hereunder shall accrue from the date set forth in the
prior sentence at a rate of 10% per annum, increasing by two percentage points
for every three month period that interest under this Note is accruing.
Notwithstanding the foregoing, this Note may be prepaid or called by the Company
at any time in whole or in part without penalty or premium, but with at least
five days notice to the Holder. Interest shall accrue from the date set forth
above to and include the date on which prepayment is made. This Note shall be
paid (and prepaid, if applicable) pro rata with certain additional notes of like
tenor being issued simultaneously herewith. Payments of principal and interest
are to be made at the address of the Holder designated above or at such other
place as the Holder shall have notified the Company in writing at least five
days before such payment is due.
Reference to the Amendment shall in no way impair the absolute and
unconditional obligation of the Company to pay both principal and interest as
herein stated.
This Note is one of a duly authorized issue of senior secured notes
("Notes") limited to an aggregate principal amount of $4,500,000 issued by the
Company pursuant to a Securities Purchase Agreement by and among the Company,
Alpine Associates, a New Jersey Limited Partnership ("Alpine") and East West
Capital Associates, Inc. ("Purchase Agreement"), and is secured by certain
collateral ("Collateral") more specifically described in that certain Security
Agreement entered into by the Company for the benefit of the Holder, among
others (the "Security Agreement"), both of which are available for inspection at
the Company's principal office. Reference herein to the Purchase Agreement and
the Security Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay both principal and interest hereon as provided
herein. Certain rights and remedies of the Holder are described in the Security
Agreement which appoints Alpine, as collateral agent ("Agent") for the Holder
thereunder and hereunder to exercise the powers delegated to it, including
without limitation, powers with respect to the enforceability and collectibility
of all amounts due hereunder. Reference to the Security Agreement is made for a
complete description of the rights, powers and obligations of the Agent,
including the Agent's duty to act in certain circumstances at the direction of
the "Required Lenders," as such term is defined therein.
1. Events of Default. (a) Upon the occurrence of any of the following
events (herein called "Events of Default"):
(i) The Company shall fail to pay in full the principal of or
interest on this Note on the Maturity Date;
(ii) (A) The Company shall commence any proceeding or other
action relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation,
2
<PAGE>
winding-up, composition or any other relief under any bankruptcy law, or
under any other insolvency, reorganization, liquidation, dissolution,
arrangement, composition, readjustment of debt or any other similar act or
law, of any jurisdiction, domestic or foreign, now or hereafter existing;
or (B) the Company shall admit the material allegations of any petition or
pleading in connection with any such proceeding; or (C) the Company shall
apply for, or consent or acquiesce to, the appointment of a receiver,
conservator, trustee or similar officer for it or for all or a substantial
part of its property; or (D) the Company shall make a general assignment
for the benefit of creditors;
(iii) (A) The commencement of any proceedings or the taking of
any other action against the Company in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
dissolution, arrangement, composition, or any other relief under any
bankruptcy law or any other similar act or law of any jurisdiction,
domestic or foreign, now or hereafter existing and the continuance of any
of such events for sixty (60) days undismissed, unbonded or undischarged;
or (B) the appointment of a receiver, conservator, trustee or similar
officer for the Company for any of its property and the continuance of any
of such events for sixty (60) days undismissed, unbonded or undischarged;
or (C) the issuance of a warrant of attachment, execution or similar
process against any of the property of the Company and the continuance of
such event for sixty (60) days undismissed, unbonded and undischarged;
(iv) Any breach of any of the Company's representations or
warranties when made or deemed made under the Purchase Agreement;
(v) The Company shall fail to perform any obligation of the
Company contained in the Purchase Agreement, after giving effect to any
applicable notice provisions and cure periods;
(vi) The Company shall fail to comply with any of its
obligations under this Note; provided, however, that with respect to a
failure to comply with any of the provisions of Sections 2.1(a) and (c) of
this Note, such failure is not remedied within thirty (30) days after the
Company's receipt of written notice of same;
(vii) The Company shall default with respect to any indebtedness
for borrowed money (other than under this Note) if either (a) the effect of
such default is to accelerate the maturity of such indebtedness (giving
effect to any applicable grace periods) or (b) the holder of such
indebtedness declares the Company to be in default (giving effect to any
applicable grace periods);
(viii) Any judgment or judgments against the Company or any
attachment, levy or execution against any of its properties for any amount
in excess of $250,000 in the aggregate shall remain unpaid, or shall not be
released, discharged, dismissed, stayed or fully bonded for a period of 45
days or more after its entry, issue or levy, as the case may be;
3
<PAGE>
(ix) An "Event of Default" (as defined in the Security
Agreement) shall have occurred under the Security Agreement, after giving
effect to any applicable notice provisions and cure periods set forth in
the Security Agreement; or
(x) The Company shall fail to have on December 31, 1998, or at
the end of any fiscal quarter thereafter, a net worth (as calculated under
generally accepted accounting principles) equal to at least $10,000,000;
then, and in any such event, the Holder, at its option and without written
notice to the Company, may declare the entire principal amount of this Note then
outstanding together with accrued unpaid interest thereon immediately due and
payable, and the same shall forthwith become immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived. The Events of Default listed herein are solely for the
purpose of protecting the interests of the Holder of this Note. If this Note is
not paid in full upon acceleration, as required above, interest shall accrue on
the outstanding principal of and interest on this Note from the date of the
Event of Default up to and including the date of payment at a rate equal to the
lesser of twenty (20%) percent per annum or the maximum interest rate permitted
by applicable law.
(b) Non-Waiver and Other Remedies. No course of dealing or delay on
the part of the Holder of this Note in exercising any right hereunder shall
operate as a waiver or otherwise prejudice the right of the Holder of this Note.
No remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereafter available at law, in equity, by statute or otherwise.
(c) Collection Costs; Attorney's Fees. In the event this Note is
turned over to an attorney for collection upon the occurrence of an Event of
Default, the Company agrees to pay all reasonable costs of collection, including
reasonable attorney's fees and expenses and all out of pocket expenses incurred
in connection with such collection efforts, which amounts may, at the Holder's
option, be added to the principal hereof.
2. Obligation to Pay Principal and Interest; Covenants. No provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this Note at the
place, at the respective times, at the rates, and in the currency herein
prescribed.
2.1 Affirmative Covenants. The Company covenants and agrees that,
while this Note is outstanding, it shall:
(a) Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income and profits, or upon any
properties belonging to it before the same shall be in default; provided,
however, that the Company shall not be required to pay any such tax, assessment,
charge or levy which is being contested in good faith by proper
4
<PAGE>
proceedings and adequate reserves for the accrual of same are maintained if
required by generally accepted accounting principles;
(b) Preserve its corporate existence and continue to engage in
business of the same general type as conducted as of the date hereof; provided,
however, that the Company shall be permitted to enter the new media and on-line
solutions market;
(c) Comply in all respects with all statutes, laws, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations and requirements ("Requirement(s)") of all governmental bodies,
departments, commissions, boards, companies or associates insuring the premises,
courts, authorities, officials, or officers, which are applicable to the
Company; except wherein the failure to comply would not have a material adverse
effect on the Company; provided that nothing contained herein shall prevent the
Company from contesting the validity or the application of any Requirements.
2.2 Negative Covenants. The Company covenants and agrees that while
this Note is outstanding it will not directly or indirectly:
(a) Guaranty or otherwise in any way become or be responsible for
indebtedness for borrowed money, or for obligations, in either case of any of
its officers, directors or principal stockholders or any of their affiliates,
contingently or otherwise, other than such guaranties, indebtedness or
obligations existing as of the date hereof;
(b) Declare or pay cash dividends, except with respect to the
Company's Series A Preferred Stock issued or contemplated to be issued;
(c) Sell, transfer or dispose of, any of its assets other than in the
ordinary course of its business or with respect to its games business and
international business; or
(d) Purchase, redeem, retire or otherwise acquire for value any of
its capital stock now or hereafter outstanding.
3. Seniority. The Notes are senior in right of payment to any and all
other existing and future indebtedness of the Company.
4. Warrants. If the Company has not filed the Amendment with the
Secretary of State of Delaware on or before the five-month anniversary of the
date hereof, then on October 1, 1998 and on the first day of each month
thereafter until the Maturity Date, the Company shall issue to the Holder
warrants to acquire 50,001 shares of the Company's common stock, $.01 per share
("Common Stock") (or a warrant for 33,334 shares of Common Stock for each
$1,000,000 of principal amount of Notes held), at an exercise price of $.01 per
share, on substantially the same terms as the warrants to be issued to the other
investors of the Company in the Financing. If the Company has not filed the
Amendment with the Secretary of State of the State of Delaware
5
<PAGE>
on or before the 6-month anniversary of the date hereof, the Company shall issue
to the Holders of the Notes on such date warrants to acquire an additional
aggregate of 375,000 shares of Common Stock (or a warrant for 250,000 shares for
each $1,000,000 principal amount of Notes held), at an exercise price of $.01
per share.
5. Conversion. This Note is subject to the conversion rights provided
for under the Purchase Agreement.
6. Miscellaneous.
6.1 Required Consent. The Company may not modify any of the terms of
this Note without the prior written consent of at least a majority in aggregate
principal amount of the Notes at the time outstanding; provided, however, that
no such instrument shall (a) reduce or extend the fixed maturity of any Note,
increase or reduce the rate of payment of interest thereon, change the currency
for payment of principal and/or interest under any Note, or relieve the Company
of its obligation to pay principal and interest then due, (b) reduce the
aforesaid percentage of Notes, the Holders of which are required to consent to
any such instrument or (c) release any Collateral, without the consent of the
Holders of at least 66_% of the Notes then outstanding.
6.2 Lost Documents. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note or
any Note exchanged for it, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Note, if mutilated, the Company will make and deliver in lieu of such Note
a new Note of like tenor and unpaid principal amount and dated as of the
original date of the Note.
6.3 Benefit. This Note shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns.
6.4 Notices and Addresses. All notices, offers, acceptances and any
other acts under this Note (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressee in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To Holder: To Holder's address on page 1 of this Note
To the Company: 7th Level, Inc.
1110 East Collins Boulevard
Richardson, Texas 75081
Attn: Robert A. Ezrin, President
Fax: (972) 498-0111
6
<PAGE>
In either case with copies to: Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attn: Gerald Adler, Esq.
Fax: (212) 758-9526
The Schupak Group
730 Fifth Avenue, Suite 1901
New York, New York 10019
Attn: Donald Schupak
Fax: (212) 262-1031
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or five (5) business days after mailing.
6.5 Governing Law. This Note and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed and interpreted according to the internal laws of the State of New
York and the Company agrees that service of process upon it mailed by certified
mail to its address shall be deemed in every respect effective service of
process upon it in any such suit, action or proceeding, without regard to
principles of conflicts of law.
6.6 Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Note.
6.7 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained herein shall survive the
delivery of this Note.
7
<PAGE>
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
specified above by the duly authorized representative of the Company.
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
-------------------------------------
Name: Donald Schupak
Title: Chairman of the Board
8
<PAGE>
EXHIBIT 10.40
================================================================================
------------------------------
SECURITIES PURCHASE AGREEMENT
------------------------------
SERIES A PREFERRED STOCK
AND
WARRANTS
OF
7TH LEVEL, INC.
Dated as of May 6, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions............................................................ 1
2. Issuance, Purchase and Sale of Securities.............................. 6
2.1 Issuance of the Securities........................................ 6
2.2 Sale and Purchase of the Securities............................... 6
3. Closing of Sale of Securities.......................................... 6
4. Deliveries at the Closing 7
4.1 Deliveries by the Company to the Purchasers on the Closing Date... 7
(a) Securities................................................. 7
(b) Opinion of Counsel..........................................7
(c) Registration Rights Agreement...............................7
(d) Officer's Certificate.......................................7
(e) Payment of Closing Fees.....................................7
4.2 Deliveries by the Purchasers to the Company on the Closing
Date...................................................... 7
(a) Purchase Price..............................................7
(b) Registration Rights Agreement...............................7
5. Representations and Warranties, Etc 7
5.1 Organization and Qualification; Authority......................... 8
5.2 Corporate Authorization........................................... 8
5.3 No Conflict; Requisite Consents................................... 8
5.4 Capitalization.................................................... 9
5.5 Litigation; Defaults.............................................. 9
5.6 No Material Adverse Change........................................10
5.7 Employee Programs.................................................10
5.8 Private Offerings.................................................11
5.10 Financial Statements; No Undisclosed Liabilities..................12
5.11 Environmental Regulation, Etc.....................................12
5.12 Properties and Assets.............................................13
5.13 Insurance.........................................................13
5.14 Employment Practices..............................................13
5.15 Intellectual Property.............................................14
5.16 Material Contracts................................................14
5.17 Taxes.............................................................14
5.18 Licenses..........................................................14
5.19 Transactions with Affiliates......................................15
5.20 Federal Reserve Regulations.......................................15
<PAGE>
5.21 Investment Company Act...........................................15
5.22 Broker's or Finder's Commissions.................................15
5.23 Books and Records................................................15
5.24 Disclosure.......................................................15
6. Representations and Warranties of the Purchasers.......................15
7. Covenants of the Company 16
7.1 Use of Proceeds..................................................17
7.2 Charter Documents................................................17
7.3 Ordinary Course..................................................17
7.4 Issuance of Securities...........................................17
7.5 Dividends; Changes in Capital Stock..............................17
7.6 Change in Condition..............................................18
7.7 No Action........................................................18
8. Covenants of the Purchasers............................................18
8.1 Voting Rights....................................................18
8.2 Reservation of Securities........................................18
9. Restrictions on Transfer...............................................18
9.1 Restrictive Legends..............................................18
9.2 Notice of the Proposed Transfer; Opinion of Counsel..............19
10. Miscellaneous....................................................20
10.1 Indemnification; Expenses, Etc...................................20
10.2 Survival of Representations and Warranties.......................20
10.3 Amendment and Waiver.............................................21
10.4 Notices, Etc.....................................................21
10.5 Entire Agreement.................................................21
10.6 Successors and Assigns...........................................21
10.7 Agreement and Action of the Purchasers...........................21
10.8 Descriptive Headings.............................................22
10.9 Governing Law....................................................22
10.10 Counterparts.....................................................22
<PAGE>
SCHEDULES
---------
SCHEDULE 5.1 -- Qualified Jurisdictions and Subsidiaries
SCHEDULE 5.2 -- Authorization
SCHEDULE 5.3 -- Consents
SCHEDULE 5.4 -- Capitalization
SCHEDULE 5.5 -- Litigation; Defaults
SCHEDULE 5.6 -- Material Developments
SCHEDULE 5.7 -- ERISA
SCHEDULE 5.10 -- Undisclosed Liabilities
SCHEDULE 5.11 -- Environmental
SCHEDULE 5.12 -- Properties and Assets
SCHEDULE 5.13 -- Insurance
SCHEDULE 5.14 -- Employment Practices
SCHEDULE 5.15 -- Intellectual Property
SCHEDULE 5.16 -- Material Contracts
SCHEDULE 5.17 -- Taxes
SCHEDULE 5.18 -- Licenses
SCHEDULE 5.19 -- Transactions with Affiliates
SCHEDULE 6 -- Non-accredited Investors
SCHEDULE 7.3 -- Dissolved Subsidiaries
iii
<PAGE>
EXHIBITS
--------
EXHIBIT A -- Certificate of Designations of Series A Preferred Stock
EXHIBIT B -- Certificate of Designations of Series B Convertible
Preferred Stock
EXHIBIT C -- Escrow Agreement
EXHIBIT D -- Form of Registration Rights Agreement
EXHIBIT E -- Form of Warrant
EXHIBIT F -- Form of Opinion of Shereff, Friedman, Hoffman & Goodman, LLP
EXHIBIT G -- Certificate of Designations of Series C Preferred Stock
iv
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
This SECURITIES PURCHASE AGREEMENT ("Agreement"), dated as of May 6, 1998,
by and among 7th Level, Inc., a Delaware corporation (the "Company") and each of
the several Purchasers (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is in the process of raising capital through the sale
by the Company of debt or equity securities resulting in gross proceeds of at
least $7 million (the "Permanent Financing");
WHEREAS, the Company has previously raised additional funds in the
aggregate amount of $4,500,000 before the consummation of the Permanent
Financing;
WHEREAS, the Purchasers have committed an aggregate amount of $5,500,000 to
the Company to subscribe for units consisting of Series A Preferred Stock, par
value $.01 per share ("Series A Preferred Stock"), with the powers,
designations, preferences, rights, qualifications, limitations and restrictions
contained in the Certificate of Designations of the Series A Preferred Stock,
substantially in the form of Exhibit A hereto (the "Series A Preferred Stock
Certificate of Designations"), and warrants exercisable for shares of Common
Stock (as defined), which Series A Preferred Stock will convert into Series B
Convertible Preferred Stock, par value $.01 per share ("Series B Convertible
Preferred Stock"), with the powers, designations, preferences, rights,
qualifications, limitations and restrictions contained in the Certificate of
Designations of the Series B Convertible Preferred Stock, substantially in the
form of Exhibit B hereto; and
WHEREAS, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase from the Company, (i) the Series A Preferred Stock
in the aggregate amount of $5,500,000 together with (ii) warrants ("Warrants")
exercisable for 250,000 shares of Common Stock for each $1,000,000 invested by
the Purchasers to the Company, on the terms, and subject to the conditions, set
forth herein.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. For purposes hereof unless the context otherwise
requires, the following terms shall have the meanings indicated. All accounting
terms not otherwise defined herein, shall have the respective meanings accorded
to them under GAAP (as defined below). Unless the context otherwise requires,
(i) references to a "Schedule" or an "Exhibit" are to a Schedule or an Exhibit
attached to this Agreement, (ii) references to a "section" are to a section of
this Agreement and (iii) any of the following terms may be used in the singular
or the plural, depending on the reference.
<PAGE>
"Accredited Investor" has the meaning ascribed thereto in Section 6(a)
hereof.
"Affiliate" means any Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with, the Company, or (ii) which beneficially owns or holds 10% or more
of any class of the outstanding Voting Stock of the Company. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of Voting Stock, by Contract or otherwise.
"Agreement" means this Agreement, as amended, modified or supplemented
from time to time, in accordance with the terms hereof, together with any
exhibits, schedules or other attachments thereto.
"Benefit Plans" has the meaning ascribed thereto in Section 5.7
hereof.
"Business Day" means any day that is not a Saturday, a Sunday or a day
on which banking institutions in New York, New York are authorized or obligated
by Law, executive order or government decree to be closed.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, whether
outstanding on the Closing Date or issued after the Closing Date and any and all
rights, warrants or options exercisable or exchangeable for or convertible into
such capital stock.
"Charter Documents" has the meaning ascribed thereto in Section 5.1
hereof.
"Closing" has the meaning ascribed thereto in Section 3 hereof.
"Closing Date" has the meaning ascribed thereto in Section 3 hereof.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder, as amended from time to time.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" has the meaning ascribed thereto in the introduction hereof.
2
<PAGE>
"Company Financial Statements" has the meaning ascribed thereto in
Section 5.10 hereof.
"Company SEC Documents" has the meaning ascribed thereto in Section
5.9 hereof.
"Contracts" has the meaning ascribed thereto in Section 5.16 hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations promulgated thereunder, as amended.
"ERISA Affiliate" means any trade or business (whether incorporated or
unincorporated) which is a member of a group described in Section 414(b), (c),
(m) or (o) of the Code, of which the Company also is a member.
"ERISA Affiliate Title IV Plan" has the meaning ascribed thereto in
Section 5.7 hereof.
"Escrow Agreement" means the Escrow Agreement dated as of the date
hereof, by and among the Company, Shereff, Friedman, Hoffman & Goodman, LLP and
the Purchasers, substantially in the form of Exhibit C hereto.
"Exchange Act" means the Securities Exchange Act of 1934, and the
rules and regulations of the Commission promulgated thereunder, as amended.
"Form 10-K" means the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, which has been previously delivered by Donaldson,
Lufkin & Jenrette Securities Corporation to the Purchasers.
"GAAP" means generally accepted accounting principles and practices
set forth in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession that are applicable to the circumstances as of the
date of determination.
"Governmental Authority" means any governmental or quasi-governmental
authority including, without limitation, any federal, state, territorial,
county, municipal or other governmental or quasi-governmental agency, board,
branch, bureau, commission, court, arbitration panel, department, authority,
body or other instrumentality or political unit or subdivision or official
thereof, whether domestic or foreign.
"Indemnified Party" or "Indemnified Parties" has the meaning ascribed
thereto in Section 10.1(a) hereof.
3
<PAGE>
"Intellectual Property" shall mean all registered patents, trademarks,
product designations, service marks, copyrights, and applications for any of the
foregoing, used, licensed, leased or owned, by a Person which is material to the
operations of such Person.
"Law" means any statute, ordinance, code, rule, regulation or order
enacted, adopted, promulgated, applied or followed by any Governmental
Authority.
"License" or "Licenses" has the meaning ascribed thereto in Section
5.18 hereof.
"Lien" means any security agreement, financing statement (whether or
not filed) mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, lien, charge, restrictive
agreement, mortgage, deed of trust, indenture, pledge, option, limitation,
exception to or other title defect in or on any interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any conditional
sale, lease, consignment, or bailment given for security purposes, trust receipt
or other title retention agreement with respect to any Property or asset of such
Person, whether direct, indirect, accrued or contingent.
"Losses" has the meaning ascribed thereto in Section 10.1(a) hereof.
"Material Adverse Effect" has the meaning ascribed thereto in Section
5.1 hereof.
"Notes" means the Senior Secured Promissory Notes of the Company in
the aggregate principal amount of $4,500,000.
"Permanent Financing" has the meaning ascribed thereto in the
introduction hereof.
"Person" means any individual, entity or group, including, without
limitation, individual, corporation, limited liability company, limited or
general partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchasers" means each Person who accepts and agrees to the terms
hereof as indicated by signature on an execution page of this Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement by and among the Company and the Purchasers, substantially in the form
of Exhibit D hereto, as amended, modified or supplemented from time to time in
accordance with the terms thereof, together with any exhibits, schedules or
other attachments thereto.
4
<PAGE>
"Regulation D" means Regulation D under the Securities Act.
"Restricted Security" has the meaning ascribed thereto in Section 9.2
hereof.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Securities" means the Warrants and the Shares.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder, as amended.
"Series A Preferred Stock" has the meaning ascribed thereto in the
introduction hereof.
"Series A Preferred Stock Certificate of Designations" has the meaning
ascribed thereto in the introduction hereof.
"Series B Convertible Preferred Stock" has the meaning ascribed
thereto in the introduction hereof.
"Series C Preferred Stock" means the Series C Preferred Stock, $.01
par value, of the Company, which shall rank junior to the Series A Preferred
Stock and the Series B Convertible Preferred Stock, with the powers,
designations, preferences, rights, qualifications, limitations and restrictions
contained in the Certificate of Designations of the Series C Preferred Stock,
substantially in the form of Exhibit G hereto.
"Shares" has the meaning ascribed thereto in Section 2.2 hereof.
"Subsidiary" means with respect to any Person, any corporation,
association or other business entity of which securities representing more than
50% of the combined voting power of the total Voting Stock (or in the case of an
association or other business entity which is not a corporation, more than 50%
of the equity interest) is at the time owned or controlled, directly or
indirectly, by that Person or one or more Subsidiaries of that Person or a
combination thereof. When used herein without reference to any Person,
"Subsidiary" means a Subsidiary of the Company.
"Taxes" has the meaning ascribed thereto in Section 5.17 hereof.
"Transaction Documents" means, collectively, this Agreement, the
Warrants, the Series A Preferred Stock Certificate of Designations, the
Registration Rights Agreement and any
5
<PAGE>
and all agreements, exhibits, schedules, certificates, instruments and other
documents delivered pursuant hereto and thereto.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of any
Persons (irrespective of whether or not at the time, Capital Stock of any class
or classes will have, or might have, voting power by the reason of the happening
of any contingency).
"Warrants" has the meaning ascribed thereto in the introduction
hereof.
2. Issuance, Purchase and Sale of Securities .
2.1 Issuance of the Securities. The Company has authorized the issuance
and sale of the Series A Preferred Stock in the aggregate principal amount of
$5,500,000 and the Warrants to be acquired by the Purchasers in accordance with
the terms of this Agreement. The shares of Series A Preferred Stock will be
issued in accordance with the terms of the Series A Preferred Stock Certificate
of Designations attached hereto as Exhibit A. The Warrants will be issued in
substantially the form of the Warrant attached hereto as Exhibit E.
2.2 Sale and Purchase of the Securities. Subject to the terms and
conditions of this Agreement, on the Closing Date, the Company will issue, sell
and deliver to each Purchaser and each Purchaser will purchase from the Company,
such warrants and such shares of Series A Preferred Stock (the "Shares"), as is
specified opposite such Purchaser's name on the signature pages hereto. At the
Closing (as defined), the aggregate amount of Warrants and the purchase price of
the Shares, which shall be $1,000 per share, shall be payable by the Purchasers
to Shereff, Friedman, Hoffman & Goodman LLP, as escrow agent, in cash by wire
transfer of immediately available funds in accordance with the terms of the
Escrow Agreement, attached hereto as Exhibit C.
3. Closing of Sale of Securities. The purchase and delivery of the
Shares and the Warrants to be purchased by the Purchasers hereunder shall take
place at the offices of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, New York 10022, at a closing (the "Closing") on or before May
6, 1998 or at such other place or on such other date as the Purchasers and the
Company may agree upon (such date on which the Closing shall have actually
occurred, the "Closing Date"). At the Closing, the Company will deliver or
cause to be delivered to each Purchaser the Shares and the Warrants to be
purchased by such Purchaser pursuant hereto against payment of the purchase
price therefor. The Shares and the Warrants to be purchased by each Purchaser
hereunder shall each be, with respect to such Purchaser, in the form of a single
share certificate and Warrant (or such greater number of share certificates and
Warrants as each Purchaser may request no less than 48 hours prior to the
Closing), dated the date of the Closing and registered in the Purchaser's name
or that of its nominee (provided to the Company no less than 48 hours prior to
the Closing).
6
<PAGE>
4. Deliveries at the Closing.
4.1 Deliveries by the Company to the Purchasers on the Closing Date.
At the Closing, the Company will deliver or cause to be delivered to each
Purchaser, against payment of the purchase price as provided herein:
(a) Securities. The Warrants and the certificates
representing the Shares, as provided in Section 3 hereof.
(b) Opinion of Counsel. A favorable opinion from Shereff,
Friedman, Hoffman & Goodman, LLP, counsel for the Company, substantially in the
form set forth in Exhibit F, addressed to the Purchasers, dated the Closing Date
and otherwise satisfactory in substance and form to the Purchasers, and their
respective counsel.
(c) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Company.
(d) Officer's Certificate. A certificate, dated the Closing
Date, of an officer of the Company, (i) certifying as true, complete and correct
its Charter Documents and resolutions relating to the transactions contemplated
by this Agreement and the other Transaction Documents, (ii) as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
the Company, and (iii) as to the incumbency and specimen signatures of officers
who shall have executed instruments, agreements and other documents in
connection with the transactions contemplated hereby.
(e) Payment of Closing Fees. The fees, expenses and
disbursements of not more than one counsel for the Purchasers not to exceed
$10,000 reflected in statements of such counsel rendered prior to or on the
Closing Date.
4.2 Deliveries by the Purchasers to the Company on the. At the
Closing, each Purchaser will deliver or Closing Date cause to be delivered to
the Company the following:
(a) Purchase Price. Such Purchaser's payment of the purchase
price, as provided herein.
(b) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Purchasers and Agent.
5. Representations and Warranties, Etc. In order to induce the
Purchasers to purchase the Securities, the Company represents and warrants to
the Purchasers that:
5.1 Organization and Qualification; Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Schedule 5.1 attached hereto contains a list of
the name and jurisdiction of organization of each of
7
<PAGE>
the Company's Subsidiaries and the Company's ownership interest with respect
thereto. Each Subsidiary material to the business of the Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. The Company and each of its Subsidiaries
has full corporate power and authority and all necessary government approvals to
own and lease its properties and carry on its business as presently conducted,
is duly qualified, registered or licensed as a foreign corporation to do
business and is in good standing in each jurisdiction in which the ownership or
leasing of its properties or the character of its present operations makes such
qualification, registration or licensing necessary, except where the failure to
so qualify or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), assets, business or results of
operations of the Company and its Subsidiaries, taken as a whole (a ''Material
Adverse Effect"). The Company has heretofore delivered to the Purchasers'
counsel complete and correct copies of (i) the certificate of incorporation and
(ii) the by-laws of the Company and its Subsidiaries, each as amended to date
and as presently in effect (collectively, the ''Charter Documents").
5.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the other Transaction Documents are within
the Company's corporate power and authority. The execution and delivery of this
Agreement and the other Transaction Documents by the Company and the performance
by the Company of its obligations hereunder and thereunder, have been duly
authorized by all requisite corporate action and no other corporate proceedings
on the part of the Company other than those listed on Schedule 5.2 are necessary
to authorize this Agreement and the other Transaction Documents. This Agreement
and the other Transaction Documents have been duly executed and delivered by
duly authorized officers of the Company and, assuming the due authorization,
execution and delivery thereof by all parties thereto other than the Company,
constitutes a legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as may be limited by bankruptcy,
reorganization, moratorium, fraudulent conveyance and insolvency laws and by
other laws affecting the rights of creditors generally and except as may be
limited by the availability of equitable remedies.
5.3 No Conflict; Requisite Consents. The execution, delivery and
performance by the Company of this Agreement and the other Transaction Documents
does not and will not (i) contravene or conflict with the Charter Documents and
any amendments thereto as contemplated by the Form 10-K, (ii) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company or any of the Company's
Subsidiaries under any provision of any written agreement or other instrument
binding upon the Company or any of the Company's Subsidiaries or require the
consent of any third party under any Law applicable to the Company or any
License held by the Company or any of the Company Subsidiaries, or (iii) result
in the creation or imposition of any Lien on any asset of the Company or any of
the Company's Subsidiaries, except, with respect to each of the occurrences or
results referred to in clauses (ii) and (iii) of this sentence, (a) the third
party consents set forth in Schedule 5.3 and (b) such items which would not have
a Material Adverse Effect.
8
<PAGE>
5.4 Capitalization.
(a) As of April 28, 1998, the authorized Capital Stock of the
Company consists of 20,000,000 shares of Common Stock and 100,000 shares of
preferred stock, par value $.01 per share, of which 13,857,361 shares of Common
Stock and no shares of preferred stock are issued and outstanding. All issued
and outstanding shares of the Company's Capital Stock are validly issued, fully
paid and nonassessable. Except as set forth on Schedule 5.4, there are no (i)
outstanding subscriptions, options, warrants or rights (including registration
rights, conversion rights and preemptive rights), agreements, calls, convertible
securities, arrangements or commitments of any character to which the Company is
a party relating to the issued or unissued Capital Stock or other securities of
the Company or obligating the Company to grant, issue or sell any such options,
warrants or rights or (ii) shares of Common Stock reserved for issuance upon the
exercise of any warrants, options granted or to be granted under any stock
option plan or any options previously granted outside of any stock option plan.
(b) All the outstanding shares of Common Stock of the Company's
Subsidiaries are validly issued, fully paid and nonassessable and are owned by
the Company or by a Subsidiary of the Company free and clear of all Liens,
except as set forth on Schedule 5.4 and except for Liens which in the aggregate
are not material to the Company and its Subsidiaries. As of the date of this
Agreement, there are no outstanding options, warrants, preemptive or other
rights, Contracts, commitments, undertakings or arrangements by which any of the
Company's Subsidiaries is or may become obligated to issue any additional shares
of their Capital Stock or securities convertible into any such shares except as
set forth on Schedule 5.4 or as contemplated by the Form 10-K. The Company does
not directly or indirectly own any interest in any other corporation,
partnership, joint venture or other business association or entity, which
interest is material to the Company and its Subsidiaries, taken as a whole,
except as set forth on Schedule 5.4, or in the Form 10-K for the fiscal year
ended December 31, 1997 heretofore made available to the Purchasers, or
otherwise publicly disclosed in a subsequent filing with the Commission pursuant
to the Securities Act or the Exchange Act. Schedule 5.4 contains a list of all
options, warrants or other securities convertible into shares of Common Stock
granted or approved to be granted by the Company's Board of Directors (or a
committee thereof) prior to the date hereof.
5.5 Litigation; Defaults. There is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company, any of its Subsidiaries, or any properties of any of the
foregoing, before or by any Governmental Authority, which would (i) have a
Material Adverse Effect, or (ii) impair the ability of the Company to perform
any material obligation which the Company has under any Transaction Document
except as set forth on Schedule 5.5 or Schedule 5.11. Neither the Company nor
any of its Subsidiaries is in violation of, or in default under (and there does
not exist any event or condition which, after notice or lapse of time or both,
would constitute such a default under), any term of its Charter Documents, or of
any term of any agreement, Contract, instrument, judgment, decree, writ,
determination, arbitration award, or Law applicable to the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is bound, or to
any Properties of the Company or any of its Subsidiaries, except
9
<PAGE>
in each case to the extent that such violations or defaults would not (a) affect
the validity or enforceability of any Transaction Document, (b) have a Material
Adverse Effect or (c) impair the ability of the Company to perform any material
obligation which the Company has under any Transaction Document except as set
forth on Schedule 5.5 or Schedule 5.11.
5.6 No Material Adverse Change. Since December 31, 1997, there has
been (i) no material adverse change in the condition (financial or otherwise),
assets, business, projects or results of operations of the Company or any of its
Subsidiaries, (ii) no material obligation or liability (contingent or otherwise)
incurred by the Company or any of its Subsidiaries, other than obligations and
liabilities incurred in the ordinary course of business and no material Lien
placed on any of the Properties of the Company or any of its Subsidiaries that
remains in existence on the date hereof, other than liabilities and Liens
described on Schedule 5.12 hereto, and (iii) no acquisition or disposition of
any material assets by the Company or any of its Subsidiaries (or any Contract
or arrangement therefor), or any other material transaction, otherwise than for
fair value in the ordinary course of business, except as set forth on Schedule
5.6, the Company SEC Documents or by virtue of the Company exiting the games
business and the international business.
5.7 Employee Programs.
(a) Neither the Company nor its Subsidiaries provide, nor has an
obligation to provide, or make contributions to provide compensation or benefits
of any kind or description whatsoever (whether current or deferred and whether
paid in cash or in kind) to, or on behalf of, one, or more than one, current or
former employees or directors of the Company, its Subsidiaries or any of its
current or former Affiliates or any of their dependents, other than any plans,
programs or other arrangements which only provide for the payment of cash
compensation currently from the general assets of the Company or its
Subsidiaries on a payday by payday basis as base salary or hourly wages for
current services and other than policies for vacation and sick days and except
as disclosed on Schedule 5.7 (individually, a "Benefit Plan," and collectively,
the "Benefit Plans"). Each of the Benefit Plans is listed on Schedule 5.7.
(b) Except as disclosed on Schedule 5.7:
(i) No ERISA Affiliate (other than the Company or its
Subsidiaries) provides, or has an obligation to provide,
contributions, compensation or benefits of or under any plan, program
or arrangement which is subject to Title IV of ERISA ("ERISA Affiliate
Title IV Plan").
(ii) The Company has furnished or made available to the
Purchasers a true, complete and current copy of each written Benefit
Plan and any amendments thereto, a summary of each other Benefit Plan,
and all Internal Revenue Service, Department of Labor or Pension
Benefit Guaranty Corporation rulings or determinations, annual
reports, summary plan descriptions, actuarial and other
10
<PAGE>
financial reports and such other documentation with respect to any
Benefit Plan as was reasonably requested by the Purchasers.
(iii) No assets have been set aside in a trust or other
separate account to pay directly or indirectly any benefits under any
Benefit Plan or to the extent assets have been set aside, all assets
are shown on the books and records of such trust or separate account
at their fair market value as of the date of any report last provided
with respect to such trust.
(iv) Each Benefit Plan and each ERISA Affiliate Title IV
Plan has been established, maintained and administered in compliance
in all material respects with all applicable Laws. The Company has no
duty or obligation to indemnify or hold any other person or entity
harmless for any liability attributable to any acts or omissions by
such person or entity with respect to any Benefit Plan or ERISA
Affiliate Title IV Plan, other than indemnification obligations to
Benefit Plan fiduciaries under the terms of the Benefit Plan documents
and corporate charters, by-laws and state corporate Law.
(v) Neither the Company nor its Subsidiaries has incurred
any material liability for any tax or penalty with respect to any
Benefit Plan, ERISA Affiliate Title IV Plan or any group health plan
(as described in Section 5000 of the Code) of an ERISA Affiliate
including, without limitation, any tax or penalty under ERISA or under
the Code.
(vi) Neither the Company nor its Subsidiaries has
terminated or withdrawn from, or sought a funding waiver with respect
to, any Benefit Plan which is subject to Title IV of ERISA.
(vii) To the knowledge of the Company, there is no proposed
or actual audit or investigation by any Governmental Authority with
respect to any Benefit Plan or ERISA Affiliate Title IV Plan.
(viii) Neither the Company nor its Subsidiaries has any
obligation to make, or reimburse another employer, directly or
indirectly, for making, contributions to a multi employer plan as
described in Title IV of ERISA.
5.8 Private Offerings. Assuming the truth of the Purchasers'
representations and acknowledgments contained in Section 6 hereof, neither the
Company nor any person acting on its behalf (other than the Purchasers, as to
whom the Company makes no representations) has offered or sold the Securities by
means of any general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act. The Company has not sold the Securities
to anyone other than the Purchasers designated in this Agreement. No securities
of the same class or series as the Securities have been issued and sold by the
Company prior to the date hereof. Each Security shall
11
<PAGE>
bear substantially the same legend set forth in Section 9.1 hereof for at least
so long as required by the Securities Act.
5.9 Company SEC Documents. The Company has filed with the
Commission, and has heretofore made available to the Purchasers, true and
complete copies of, each report, schedule, registration statement and definitive
proxy statement required to be filed by it under the Exchange Act or the
Securities Act (as such documents have been amended since the time of their
filing, collectively, the "Company SEC Documents"). As of their respective
dates, the Company SEC Documents do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Assuming the truth of
the Purchasers' representations and acknowledgments contained in Section 6
hereof and any required filings pursuant to the Securities Act or any state
securities laws, or such other post-closing filings as may be required, the
offer and sale of the Securities are and will be exempt from the registration
and prospectus delivery requirements of the Securities Act, and have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
5.10 Financial Statements; No Undisclosed Liabilities. The
financial statements of the Company included or incorporated by reference in the
Company SEC Documents (the "Company Financial Statements") have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present in all material respects the
consolidated financial position of the Company and the consolidated Subsidiaries
of the Company as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
any unaudited interim financial statements, to normal year-end adjustments and
any other adjustments described therein). Since December 31, 1997, neither the
Company nor any of the Company's Subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, absolute, contingent or
otherwise, that would have a Material Adverse Effect, other than liabilities (i)
disclosed in press releases set forth on Schedule 5.10, Schedule 5.10 or the
Company SEC Documents filed prior to the date of this Agreement (all of which
have been furnished to the Purchasers), (ii) adequately provided for in the
Company Financial Statements or disclosed in any related notes thereto (all of
which have been furnished to the Purchasers), (iii) not required under GAAP to
be reflected in the Company Financial Statements, or disclosed in any related
notes thereto, (iv) incurred in connection with the Permanent Financing, this
Agreement or the other Transaction Documents, or (v) incurred in the ordinary
course of business.
5.11 Environmental Regulation, Etc. To the knowledge of the
Company, (i) the operations of the Company and its Subsidiaries comply in all
material respects with all applicable federal, state or local environmental,
health and safety statutes and regulations; (ii) none of the operations of the
Company or its Subsidiaries is the subject of any judicial or administrative
proceeding alleging the violation of any federal, state or local environmental,
health or safety statute or regulation; (iii) none of the operations of the
Company or its Subsidiaries is the subject of a
12
<PAGE>
federal or state investigation evaluating whether any remedial action is needed
to respond to a release of any hazardous or toxic waste, substance or
constituent, or other substance into the environment; (iv) neither the Company
nor its Subsidiaries has filed any notice under any federal or state Law
indicating past or present treatment, storage or disposal of a hazardous waste
or reporting a spill or release of a hazardous or toxic waste, substance or
constituent, or other substance into the environment; and (v) neither the
Company nor its Subsidiaries has contingent liability in connection with any
release of any hazardous or toxic waste, substance or constituent, or other
substance into the environment except as set forth on Schedule 5.11.
5.12 Properties and Assets. The Company and its Subsidiaries have
good record and marketable fee title to all real Property and all other Property
and assets, whether tangible or intangible, owned by them and reasonably
necessary in the conduct of business of the Company or its Subsidiaries, except
defects in title which would not have a Material Adverse Effect or disclosed on
Schedule 5.12. The Company and its Subsidiaries have complied with all
commitments and obligations on their part to be performed or observed under each
of the leases listed on Schedule 5.12, except for such noncompliance which would
not have a Material Adverse Effect. All buildings, machinery and equipment of
the Company and its Subsidiaries are in good repair and working order, except
for ordinary wear and tear, and except as would not have a Material Adverse
Effect.
5.13 Insurance. A list of all insurance policies covering the
assets, business, equipment and Properties under which the Company or any of its
Subsidiaries may derive any material benefit is set forth on Schedule 5.13
hereof. Except as set forth on Schedule 5.13, such policies of insurance and
bonds (or other policies and bonds providing substantially similar insurance
coverage) are and have been in full force and effect for at least the last year
and remain in full force and effect. Such policies of insurance and bonds are
of the type and in amounts customarily carried by Persons conducting business
similar to that presently conducted by the Company and its Subsidiaries. The
Company knows of no threatened termination of any such policies or bonds.
5.14 Employment Practices. Neither the Company nor its
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
Contract or other agreement or understanding with a labor union organization
except as set forth on Schedule 5.14. Except as set forth on Schedule 5.14,
there (i) is no unfair labor practice or material labor arbitration proceeding
pending or, to the Company's knowledge, threatened against the Company or its
Subsidiaries, (ii) are no organizational efforts with respect to the formation
of a collective bargaining unit presently being made or, to the Company's
knowledge, threatened involving employees of the Company or its Subsidiaries,
and (iii) is no material labor controversy in existence with respect to the
Company's or the Subsidiaries' business and operations.
5.15 Intellectual Property. Schedule 5.15 annexed hereto sets
forth an accurate and complete list of all Intellectual Property owned or
licensed by the Company and its Subsidiaries. Except as set forth on Schedule
5.15, (i) the Company and its Subsidiaries own, are licensed or
13
<PAGE>
otherwise have the right to use, all Intellectual Property used in the business
of the Company and its Subsidiaries, as presently conducted or as proposed by
the Company or its Subsidiaries to be conducted, (ii) to the knowledge of the
Company, the use of the Intellectual Property by the Company or its Subsidiaries
does not infringe upon or otherwise violate the rights of any third party in or
to such Intellectual Property, and no claim has been asserted with respect
thereto which violation or assertion would have a Material Adverse Effect, and
(iii) no Employee of the Company or its Subsidiaries has a right to receive a
royalty or similar payment, or has any other monetary rights, in respect of any
item of Intellectual Property of the Company or its Subsidiaries.
5.16 Material Contracts. Schedule 5.16 sets forth a true, complete
and correct list of all contracts, agreements, commitments, obligations and
licenses to which the Company or its Subsidiaries is a party that are material
("Contracts"). All of the Contracts are valid and binding and are in full force
and effect; and, except as set forth in Schedule 5.16 hereto, there are no
existing material defaults (or events which, with notice or lapse of time or
both, would constitute a material default) by the Company or its Subsidiaries,
or, to the Company's knowledge, any other party thereunder.
5.17 Taxes. The Company and its Subsidiaries have in all material
respects filed or obtained extensions of all federal, state, local and foreign
income, excise, franchise, real estate, sales and use and other tax returns
heretofore required by Law to be filed by it. All material federal, state,
county, local, foreign or other income taxes which have become due or payable by
the Company or any of its Subsidiaries (collectively, "Taxes"), have been paid
in full or are adequately provided for in accordance with GAAP on the financial
statements of the applicable Person. No Liens arising from or in connection
with Taxes have been filed and are currently in effect against the Company or
any of its Subsidiaries, except for Liens for Taxes which are not yet due or
which would not have a Material Adverse Effect. Except as set forth on Schedule
5.17, no audits or investigations are pending or, to the knowledge of the
Company, threatened with respect to any tax returns or Taxes of the Company or
any of its Subsidiaries.
5.18 Licenses. The Company and its Subsidiaries hold all material
licenses, franchises, permits, consents, registrations, certificates and other
approvals (individually, a "License" and collectively, "Licenses") required for
the conduct of their business as now being conducted, and are operating in
substantial compliance therewith, except where the failure to hold any such
License or to operate in compliance therewith would not have a Material Adverse
Effect. Except as set forth on Schedule 5.18, the Company and its Subsidiaries
are in substantial compliance with all Laws applicable to it, except in each
case where the failure so to comply would not have a Material Adverse Effect or
a material adverse effect on the ability of the Company or any of its
Subsidiaries to perform any obligation that it has under any Transaction
Document to which it is a party.
5.19 Transactions with Affiliates. There are no material
transactions, agreements or understandings, existing or presently contemplated,
between or among the Company or any of its Subsidiaries, and any of their
officers or directors or stockholders or any of their Affiliates or associates
except as set forth on Schedule 5.19 or contemplated by the Form 10-K.
14
<PAGE>
5.20 Federal Reserve Regulations. None of the transactions
contemplated by this Agreement (including without limitation the use of the
proceeds from the sale of the Securities) will violate or result in a violation
of Section 7 of the Exchange Act, or any regulation promulgated thereunder,
including without limitation Regulations G, T, U and X of the Board of Governors
of the Federal Reserve System.
5.21 Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.22 Broker's or Finder's Commissions. With the exception of the
retention of Donaldson, Lufkin & Jenrette Securities Corporation, the Company
has not employed any agent, broker, investment banker, finder or financial
advisor or incurred any liability for any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement and the other Transaction Documents.
5.23 Books and Records. The books of account, minute books, stock
record books and other records of the Company and the Company's Subsidiaries,
all of which have been made available to the Purchasers, are complete and
correct in all material respects.
5.24 Disclosure. The Form 10-K, this Agreement and the other
Transaction Documents do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
60 Representations and Warranties of the Purchasers.
(a) Each Purchaser represents for itself to the Company that (i)
except as set forth on Schedule 6, it is an accredited investor as defined in
Regulation D under the Securities Act ("Accredited Investor"), and (ii) by
reason of its business and financial experience, and the business and financial
experience of those persons, if any, retained by it to advise it with respect to
its investment in the Securities, such Purchaser together with such advisers
have such knowledge, sophistication and experience in business and financial
matters as to be capable of evaluating the merits and risk of the prospective
investment, and that it is purchasing the Securities for its own account or for
one or more separate accounts maintained by it or for the account of one or more
institutional investors on whose behalf such Purchaser has authority to make
this representation for investment and not with a view to the distribution
thereof or with any present intention of distributing or selling any of the
Securities except in compliance with the Securities Act and except to one or
more such institutional investors, provided that the disposition of such
Purchaser's or such investor's property shall at all times be within its
control. Each Purchaser that is not an Accredited Investor represents for
itself to the Company that he or she has been furnished by the Company with all
information required by regulation D under the Securities Act in connection with
this Agreement
15
<PAGE>
and the transactions contemplated hereby. Each Purchaser understands and agrees
that the Company's offer and sale of the Securities have not been registered
under the Securities Act and the Securities may be resold only if registered
pursuant to the provisions thereunder or if an exemption from registration is
available.
(b) Each Purchaser which is an insurance company represents, to the
knowledge of such Purchaser, that no part of the funds to be used by it to
purchase the Securities to be purchased by such Purchaser constitutes assets
allocated to any separate account maintained by such Purchaser that contains the
assets of any Benefit Plan listed on Schedule 5.7 (or its related trust). Each
Purchaser which is not an insurance company or an "investment company" (as
defined in the Investment Company Act of 1940, as amended) also represents, to
the knowledge of such Purchaser, that no part of the funds to be used to
purchase the Securities to be purchased by such Purchaser constitutes assets
allocated to any trust or other entity which contains the assets of any Benefit
Plan listed on Schedule 5.7. The representations made in the preceding
sentences are made solely in reliance upon, and subject to, the accuracy of the
Company's representations contained in Section 5.7 of this Agreement and the
list of Benefit Plans shown on Schedule 5.7. As used in this section, the term
"separate account" shall have the meaning assigned to it in Section 3(17) of
ERISA.
(c) Each Purchaser represents for itself to the Company that it has
full power and authority and has taken all action necessary to authorize it to
enter into and perform its obligations under this Agreement and the other
Transaction Documents. This Agreement is the legal, valid and binding
obligation of each Purchaser, and is enforceable against each Purchaser in
accordance with its terms, except as may be limited by bankruptcy,
reorganization, moratorium, fraudulent conveyance and insolvency laws and by
other laws affecting the rights of creditors generally and except as may be
limited by the availability of equitable remedies.
(d) Each Purchaser acknowledges for itself that it has read the Form
10-K and has received all the information it has requested from the Company and
has had the opportunity to ask questions of the Company and, relying on the
completeness and accuracy of such information, such Purchaser believes such
information is sufficient to make an informed decision with respect to its
purchase of the Securities.
(e) Each Purchaser acknowledges for itself that the address set forth
on such Purchaser's signature page hereto is such Purchaser's principal place
of business.
70 Covenants of the Company. The Company covenants and agrees that from
the date hereof until the earlier of the consummation of the sale of the Series
B Convertible Preferred Stock to the holders of the Notes as contemplated below
or the repayment of the Notes in full, unless the Purchasers shall otherwise
consent in writing, it will do or cause the following:
7.1 Use of Proceeds. Use the net proceeds from the sale of the
Securities to provide for working capital requirements and general corporate
purposes.
16
<PAGE>
7.2 Charter Documents. The Charter Documents shall not have been
modified or amended since the date delivered by the Company, except for the
Company's Certificate of Incorporation which may be amended to increase the
number of authorized shares of Capital Stock, to change the terms of the
Company's blank check preferred stock in order to provide for the establishment
of voting rights and to perform such other acts as are necessary to establish
the terms of the Series A Preferred Stock, the Series B Convertible Preferred
Stock and the Series C Preferred Stock.
7.3 Ordinary Course. Other than with respect to the Company's
games business and international business, the Company's business and the
businesses of its Subsidiaries shall be conducted only in the ordinary course of
business and in a manner consistent with past practice. The Company shall use
commercially reasonable efforts to preserve substantially intact the business
organization of itself and its Subsidiaries, to keep available the services of
its present officers and employees and to preserve its present relationships
with customers, suppliers and other persons with which it has a significant
business relationship, except as otherwise contemplated by the Company SEC
Documents; provided, however, that the Company shall be permitted to close
international business offices and dissolve its Subsidiaries listed on Schedule
7.3.
7.4 Issuance of Securities. The Company shall not, nor shall it
permit any of its Subsidiaries to, issue, deliver, sell, redeem, acquire,
authorize or propose to issue, deliver, sell, redeem, acquire or authorize, any
shares of its Capital Stock of any class or any securities convertible into, or
any rights, warrants or options to acquire, any such shares or convertible
securities or other ownership interest, provided that the Company shall be
permitted to (i) issue the securities as set forth on Schedule 5.4, (ii) issue
Common Stock, Warrants, Series B Convertible Preferred Stock resulting from the
provisions of this Agreement and the Securities Purchase Agreement dated as of
May 6, 1998 by and among the Company, Alpine Associates, a New Jersey Limited
Partnership and East West Capital Associates, Inc. relating to the sale of the
Notes, and in each case the documents executed, filed or delivered in connection
therewith or Series C Preferred Stock and (iii) grant options to purchase up to
an aggregate of 10% of the shares of Common Stock outstanding, as determined on
a fully-diluted basis.
7.5 Dividends; Changes in Capital Stock. The Company shall not,
nor shall it permit any of its Subsidiaries to, nor shall it propose to: (i)
declare, set aside, make or pay any dividend or other distribution, payable in
cash, stock, property or otherwise, with respect to any of its Capital Stock,
except with respect to the Series A Preferred Stock and the Series B Convertible
Preferred Stock; or (ii) reclassify, combine, split, subdivide or redeem,
promptly purchase or otherwise acquire, directly or indirectly, any of its
Capital Stock.
7.6 Change in Condition. The Company shall promptly advise the
Purchasers in writing of any change in the condition (financial or otherwise),
operations or properties or businesses of the Company or any of its Subsidiaries
which would have a Material Adverse Effect.
17
<PAGE>
7.7 No Action. The Company shall not, and shall not permit any of
its Subsidiaries to, take or agree or commit to take any action, (i) that is
likely to make any of its representations or warranties hereunder inaccurate; or
(ii) that is prohibited pursuant to the provisions of this Section 7.
7.8 Replacement of Certificates. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any certificate representing any of the Securities, and in the case of loss,
theft or destruction, upon receipt of indemnity in reasonable form and scope,
the Company will issue a new certificate representing such Securities in lieu of
such lost, stolen, destroyed, or mutilated certificate.
80 Covenants of the Purchasers.
8.1 Voting Rights. The Purchasers agree to vote all shares of
Common Stock beneficially owned by them or by any of their affiliates in favor
of the amendment to the Company's Certificate of Incorporation contemplated by
the Series A Preferred Stock Certificate of Designations attached as Exhibit A
hereto and the Company may request voting agreements to be executed by all such
affiliates. The Company shall use its best efforts to cause such amendment to
be approved by the Company's stockholders or for an exemption of the Nasdaq
Stock Market to be granted and shall recommend to its stockholders a vote in
favor of these matters.
8.2 Reservation of Securities. The Company shall reserve and set
apart and have at all times, free from preemptive rights, the number of
authorized but unissued shares of Series A Preferred Stock, and shall use its
best efforts to reserve and set apart and have at all times, free from
preemptive rights, the number of authorized but unissued shares of Series B
Convertible Preferred Stock (and shares of Common Stock convertible upon
conversion of the Series B Convertible Preferred Stock), to conform to the
Company's obligations set forth in Section 8.1.
90 Restrictions on Transfer.
9.1 Restrictive Legends. Except as otherwise permitted by this
Section 9, each Security issued pursuant to this Agreement shall be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT
TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES
MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT
WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT,
(ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
18
<PAGE>
EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, IF
REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to any Purchaser upon its request.
9.2 Notice of the Proposed Transfer; Opinion of Counsel. Each
Purchaser of each Security bearing the restrictive legend set forth in Section
9.1 above ("Restricted Security") agrees that prior to any transfer or attempted
transfer of such Restricted Security to give to the Company (a) written notice
describing the manner or circumstances of such transfer or proposed transfer,
and (b) an opinion of counsel, which is knowledgeable in securities law matters,
in form and substance reasonably satisfactory to the Company, to the effect that
the proposed transfer of such Restricted Security may be effected without
registration of such Restricted Security under the Securities Act. If the
holder of the Restricted Security delivers to the Company an opinion of counsel
in form and substance reasonably satisfactory to the Company that subsequent
transfers of such Restricted Security will not require registration under the
Securities Act, the Company will after such contemplated transfer deliver new
Securities for such Restricted Security which do not bear the Securities Act
legend set forth in Section 9.1 above. The restrictions imposed by this Section
9 upon the transferability of any particular Restricted Security shall cease and
terminate (i) when such Restricted Security has been sold pursuant to an
effective registration statement under the Securities Act, (ii) when such
Restricted Security has been transferred pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act, or (iii) upon the date which is two (2)
years after the later of (A) the original issue date of the Restricted Security
and (B) the last date on which the Company or any Affiliate of the Company was
the owner of the Restricted Security (or any predecessor Restricted Security).
As used in this Section 9.2, the term "transfer'' encompasses any sale, transfer
or other disposition of any Securities referred to herein.
100 Miscellaneous.
10.1 Indemnification; Expenses, Etc.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates and each of its and their respective directors,
officers, partners, principals and attorneys (individually, an "Indemnified
Party" and, collectively, the "Indemnified Parties") from and against any and
all losses, claims, damages, liabilities, costs (including reasonable attorneys'
fees) and expenses (collectively, "Losses") to which any Indemnified Party may
become subject, insofar as such Losses arise out of, in any way relate to, or
result from (i) any breach of any representation or warranty made by the
Company, or the failure of the Company to fulfill any agreement or covenant
19
<PAGE>
contained in this Agreement or any other Transaction Document, or (ii) any
proceeding against the Company or any Indemnified Party brought by any third
party arising out of or in connection with this Agreement or the other
Transaction Documents; provided, however, that the Company shall not have any
obligation under this indemnity provision after twelve months from the date
hereof, or for liabilities resulting from the gross negligence or willful
misconduct of any Indemnified Party. The Company agrees to reimburse any
Indemnified Party for all such Losses as they are incurred or suffered by such
Indemnified Party.
(b) If any Indemnified Party is entitled to indemnification
hereunder, such Indemnified Party shall give prompt notice to the Company of any
claim or of the commencement of any proceeding against the Company or any
Indemnified Party brought by any third party with respect to which such
Indemnified Party seeks indemnification pursuant hereto; provided, however, that
the delay to so notify the Company shall not relieve the Company from any
obligation or liability except to the extent the Company is prejudiced by such
delay. The Company shall have the right, exercisable by giving written notice to
an Indemnified Party within 30 days after the receipt of written notice from
such Indemnified Party of such claim or proceeding, to assume, at the expense of
the Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified Party. The Company shall not consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by claimant or plaintiff to such
Indemnified Party or Parties of a release, in form and substance satisfactory to
the Indemnified Party or Parties, from all liability in respect of such claim,
litigation or proceeding.
10.2 Survival of Representations and Warranties. All representations
and warranties contained in this Agreement or in the other Transaction Documents
shall survive, for the duration of any statutes of limitation applicable
thereto, the execution and delivery of this Agreement, any investigation at any
time made by any Purchaser or on such Purchaser's behalf, the purchase of the
Securities by the Purchasers under this Agreement and any disposition of or
payment on the Securities; provided, however, that such representations and
warranties shall expire upon the earlier of the consummation of the Permanent
Financing.
10.3 Amendment and Waiver. This Agreement may be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may be given, provided that the same are in writing and signed by the
Purchasers and/or the other holders of the Shares, holding a majority of the
aggregate amount of the Shares, and the Company.
10.4 Notices, Etc. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be delivered personally, sent by telecopier (with written confirmation of
receipt), mailed by registered or certified mail, return receipt requested, or
by a nationally recognized overnight courier, postage prepaid, addressed, (a) if
to any Purchaser, at such address or telecopier number as is set forth next to
such Purchaser's name on the signature page hereto, or as any such Purchaser
shall have furnished to the Company in writing, or (b) if to the Company, at
1110 East Collins Boulevard, Suite 122, Richardson, Texas
20
<PAGE>
75081, telecopier no.: (972) 498-0111, to the attention of President, or at such
other address or telecopier number, or to the attention of such other officer,
as the Company shall have furnished to the Purchasers in writing, with a copy to
The Schupak Group, 730 Fifth Avenue, Suite 1901, New York, New York 10022,
telecopier no. (212) 262-1031, to the attention of Donald Schupak, and with a
copy to Shereff, Friedman, Hoffman and Goodman, LLP, 919 Third Avenue, New York,
New York 10022, telecopier no.: (212) 758-9526, to the attention of Gerald
Adler, Esq.
10.5 Entire Agreement. This Agreement, the other Transaction
Documents embody the entire agreement and understanding between the Purchasers
and the Company and supersede all prior agreements and understandings relating
to the subject matter hereof.
10.6 Successors and Assigns. Whenever in this Agreement any of the
parties hereto are referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of the respective parties which are contained in this Agreement
shall bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of any Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon any such Purchaser shall
automatically extend to and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof. In
connection therewith, such transferee or assignee may disclose all documents and
information which such transferee or assignee now or hereafter may have relating
to the Warrants, the Shares, this Agreement, the other Transaction Documents,
the Company, any other Persons referred to herein or any of the business of any
of the foregoing entities, subject to such transferee or assignee executing a
confidentiality agreement reasonably satisfactory to the Company.
10.7 Agreement and Action of the Purchasers. Upon any occasion
requiring, permitting or referencing an act or an approval, consent, waiver,
election or other action on the part of the Purchasers, any such action shall
(i) be taken upon the affirmative vote of the Purchasers and/or the other
holders of the Shares, holding a majority or agreeing to purchase a majority
under this Agreement of the aggregate amount of the Shares, or (ii) be deemed
to have been taken by the Purchasers upon such action being taken by the
Purchasers and/or the other holders of the Shares, holding a majority of the
aggregate amount of the Shares.
10.8 Descriptive Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CHOICE-OF-LAW
PRINCIPLES THEREOF.
21
<PAGE>
10.10 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original.
22
<PAGE>
If this Agreement is satisfactory, please so indicate by signing the
applicable attached signature page of this Agreement and delivering such
counterpart to the Company, whereupon this Agreement will become binding among
the parties hereto in accordance with its terms.
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
------------------------------------
Name: Donald Schupak
Title: Chairman of the Board
23
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 150
--------
DNK Investments LLP Aggregate Amount of
Name: /s/ DOUGLAS MORGAN Warrants to be Purchased: 37,500
---------
General Partner Douglas Morgan
By: /s/ KENNETH W. GOLDSTEIN
------------------------------
Name:
Title: General Partner Kenneth W. Goldstein
Address: 21 Vouga Ln.
----------------------
St. Louis, MO 63131
----------------------
Telephone: 314-432-6607
----------------------
Telecopy: 314-432-2615
----------------------
WITH A COPY TO:
Address: Tax I.D. Number:
------------------
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, -------------------------------------
if different than name of Name
Purchaser):
-------------------------------------
ABA #
-------------------------------------
Street Address
-------------------------------------
City State Zip Code
- -------------------------------------- -------------------------------------
(Nominee's Name) Account Number Attention
24
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 830
Aggregate Amount of
Name: Entec Associates Warrants to be Purchased: 207,500
By: /s/ MICHAEL R. MILKEN
Name: Michael R. Milken
Title: General Partner
Address: 844 Moraga Drive
Los Angeles, CA 90049
Telephone: 310-440-5475
Telecopy: 310-440-5490
WITH A COPY TO: Richard V. Sandler
Address: 844 Moraga Drive Tax I.D. Number: 95-4459388
Los Angeles, CA 90049
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone: 310-440-5475
Telecopy: 310-440-5490
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Street Address
(Nominee's Name)
City State Zip Code
Account Number Attention
25
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 200
Aggregate Amount of
Name: Mayfirst Assoicates, Ltd. Warrants to be Purchased: 50,000
By: /s/ RUDY VALNER
Name: Rudy Valner
Title: Agent
Address: c/o Law Offices of Rudy Valner
10100 Santa Monica Blvd. - Suite 945
Los Angeles, CA 90067
Telephone: 310-553-8336
Telecopy: 310-553-7132
WITH A COPY TO:
Address: Tax I.D. Number:
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name: Swiss Bank Corporation
if different than name of
Purchaser): ABA #: 026-007-993
Street Address
(Nominee's Name) New York, NY
---------------------------
City State Zip Code
101-WA-105252-000 Richard Schaefer
-----------------------------------
Account Number Attention
26
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 160
Stephen Leroy Kling & Rosalyn Aggregate Amount of
Name: H. Kling, Trustees of The Lee Kling Warrants to be Purchased: 40,000
Revocable Trust U/T/A 1/20/82
By: /s/ S. LEE KLING
------------------
Name: S. Lee Kling
Title: Principle
Address: 1401 S. Brentwood Boulevard
St. Louis, MO 63144
Telephone: 314-963-2501
Telecopy: 314-968-1255
WITH A COPY TO:
Address: Tax I.D. Number: ###-##-####
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Street Address
(Nominee's Name)
City State Zip Code
Account Number Attention
27
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 295
Aggregate Amount of
Name: Ozzie Silna Warrants to be Purchased: 73,750
By: /s/ OZZIE SILNA
-------------------
Name:
Title:
Address: 23301 Palm Canyon Lane
Malibu, CA 90265
Telephone: 310-456-8054
Telecopy: 310-456-7594
WITH A COPY TO:
Address: Tax I.D. Number:
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Street Address
(Nominee's Name)
City State Zip Code
Account Number Attention
28
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 400
Aggregate Amount of
Name: DLJ Capital Corp. Warrants to be Purchased: 100,000
By: /s/ MARJORIE WHITE
--------------------
Name: Marjorie White
Title: Secretary
Address: 277 Park Avenue
New York, NY 10172
Telephone: 212-892-7232
Telecopy: 212-892-5978
WITH A COPY TO:
Address: Ed Poletti Tax I.D. Number: 13-2656882
DLJ
277 Park Avenue (if acquired in the name of a
New York, NY 10172 nominee, the taxpayer I.D.
number of such nominee)
Telephone: 212-892-7232
Telecopy: 212-892-5978
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name Citibank, NA
if different than name of -----------------------
Purchaser): ABA # 021-000-089
----------------------
Street Address
(Nominee's Name) New York, NY
---------------------------
City State Zip Code
3889-6041 Ed Poletts
---------------------------
Account Number Attention
F/F/C: DLJ Capital Corp.
275-187367
29
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 200
Aggregate Amount of
Name: Castlerock Partners Warrants to be Purchased: 50,000
By: /s/ PAUL P. TANICO
--------------------
Name: Paul P. Tanico
Title: General Partner
Address: Castlerock Partners
101 Park Ave.
New York, NY 10178
Telephone: 878-7654
Telecopy:
WITH A COPY TO:
Address: Tax I.D. Number:
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Street Address
(Nominee's Name)
City State Zip Code
Account Number Attention
30
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: $240,000
(240 shares)
Aggregate Amount of
Name: Nevada Anderson, Inc. Warrants to be Purchased: 60,000
By: /s/ CORBE G. ANDERSON
----------------------
Name: Corbe G. Anderson
Title: President
Address: 1400 Colorado Street
Boulder City, Nevada 89005
Telephone: 515-784-8755
Telecopy: 515-784-8199
WITH A COPY TO:
Address: Tax I.D. Number: 86-0880791
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the First Bank , N.A.
Shares and Warrants are to be registered, ------------------------------
if different than name of Name
Purchaser): 091 0000 22
------------------------------
ABA#
601 2nd Ave. South
------------------------------
* Warrant to be Split 30,000 to each of: Street Address
- ---------------------------------------- Minneapolis, MN 55402
(Nominee's Name) ------------------------------
Profitable Ventures Inc. City State Zip Code
2553 N. Carson St., Suite 3579 1-602-3009-7208 / Acct# 6021-6895
Carson City, NV 89706 Tax ID 88-0391645 ---------------------------------
Mystic Investments Limited Account Number Attention
Shirley Park Avenue #24 Suite 2 Also- Commercial Federal Bank
Nassau, Bahamas ABA # 0732903927
Acct#102459
31
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 2,500.00
Bond Fund Series for the Account of Aggregate Amount of
Name: Oppenheimer Convertible Warrants to be Purchased: 625,000.00
Securities Fund
By: /s/ MICHAEL S. ROSEN
--------------------
Name: Michael S. Rosen
Title: Vice President
Address: Two World Trade Center, 34th Floor
New York, NY 10048-0203
Telephone: 212-323-0867
Telecopy: 212-323-0860
WITH A COPY TO:
Address: Oppenheimer Funds, Inc. Tax I.D. Number: 16-6289311
Attn: Banking Operations
6801 S. Tucson Way
Englewood, CO 80112 (if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone: 303-768-2936
Telecopy: 303-768-2807
Designated Bank:
Nominee (name in which the The Bank of New York
Shares and Warrants are to be registered, ------------------------
if different than name of Name
Purchaser): 021000018 GLA #111612
------------------------
ABA #
90 Washington Street
Hare & Co. ------------------------
-------------- Street Address
(Nominee's Name) New York, NY 10286
------------------------
City State Zip Code
276990 Mr. Anthony Cng
-----------------------------
Account Number Attention
32
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: $25,000 / 25 shares
Aggregate Amount of
Name: Eric J. Maiss Warrants to be Purchased: 6,250
------------------------
By: /s/ ERIC J MAISS
-----------------------
Name:
Title:
Address: 8121 Shadowvale Dr.
Las Vegas, NV 89117
Telephone: 702-248-3096
Telecopy: 702-829-1641
WITH A COPY TO:
Address: Tax I.D. Number: ###-##-####
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Street Address
(Nominee's Name)
City State Zip Code
Account Number Attention
33
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 180
Aggregate Amount of
Name: David Chu Warrants to be Purchased: 45,000
By: /s/ DAVID CHU
-------------------
Name: David Chu
Title:
Address: 536 Stanwich Road
Greenwich, CT 06831
Telephone: 203-661-1578
Telecopy: 203-661-4010
WITH A COPY TO:
Address: Tax I.D. Number: 094 46 4514
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the Chase Manhattan Bank
Shares and Warrants are to be registered, -------------------------
if different than name of Name
Purchaser): 021000021
-------------------------
ABA #
1211 Avenues of America
--------------------------
Street Address
(Nominee's Name) New York, NY 10036
--------------------------
City State Zip Code
0311147961 Paul Rossi
--------------------------
Account Number Attention
34
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 50
Aggregate Amount of
Name: Andrew Schupak Warrants to be Purchased: 12,500
By: /s/ Andrew Schupak
---------------------
Name:
Title:
Address: 350 West 50th St. Apt.#5PP
New York, NY 10019
Telephone: 212-581-7197
Telecopy: 212-265-5264
WITH A COPY TO:
Address: Tax I.D. Number:
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Street Address
(Nominee's Name)
City State Zip Code
Account Number Attention
35
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 25
Aggregate Amount of
Name: Lance Maiss Warrants to be Purchased: 6,250
By: /s/ LANCE MAISS
-----------------
Name:
Title:
Address: 3780 Ranch Crest Dr.
Reno, NV 89509
Telephone: 702 329-1959
Telecopy:
WITH A COPY TO:
Address: Tax I.D. Number:
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Lance and Erica Maiss Street Address
- ----------------------------------
(Nominee's Name)
City State Zip Code
Account Number Attention
36
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR
SHARES OF SERIES A PREFERRED STOCK AND WARRANTS
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Amount of
date first written above: Shares of Series A Preferred Stock
to be Purchased: 60 in name of
Stanley Aber
Aggregate Amount of
Name: Stanley Aber Warrants to be Purchased: 15,000 in
the name of Saber Development Corp.
By: /s/ STANLEY ABER
-----------------
Name: Warrants to be issued to Saber
Title: Development Corporation.
/s/ STANLEY SABER
Address: 145 E. 92nd Street -----------------------
New York, NY 10128 President, Saber Development
Corporation
Telephone: 212-888-0970
Telecopy: 212-644-6536
WITH A COPY TO: Tax I.D. Number: 13-295-7316 Saber
-------------------------
Development Corp.
-------------------------
Address: Tax I.D. Number: ###-##-#### Stanley Aber
-------------------------
(if acquired in the name of a
nominee, the taxpayer I.D.
number of such nominee)
Telephone:
Telecopy:
Designated Bank:
Nominee (name in which the
Shares and Warrants are to be registered, Name
if different than name of
Purchaser): ABA #
Saber Development Corporation Street Address
- --------------------------------
(Nominee's Name) City State Zip Code
Account Number Attention
37
<PAGE>
EXHIBIT 10.41
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
EACH OF THE PURCHASERS REFERRED TO HEREIN
AND
7TH LEVEL, INC.
Dated as of May 6, 1998
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of May 6, 1998 (this
"Agreement"), by and among 7th Level, Inc., a Delaware corporation (the
"Company"), and each of the Purchasers (defined below).
WHEREAS, Alpine Associates, a New Jersey Limited Partnership
("Alpine"), East West Capital Associates, Inc., a California corporation
("Capital") and the Company have entered into a Securities Purchase Agreement,
dated as of May 6, 1998 (the "First Purchase Agreement"), pursuant to which
Alpine and Capital have agreed to purchase from the Company, subject to the
terms and conditions contained therein, Senior Secured Promissory Notes in the
aggregate amount of $4,500,000 and warrants exercisable for 150,000 shares of
Common Stock (as defined) for each $1,000,000 loaned by Alpine and Capital to
the Company;
WHEREAS, the Company and certain investors ("Investors," and together
with Alpine and Capital, the "Purchasers") have entered into a Securities
Purchase Agreement, dated as of May 6, 1998 (the "Second Purchase Agreement,"
and together with the First Purchase Agreement, the "Purchase Agreements"),
pursuant to which the Investors have agreed to purchase from the Company,
subject to the terms and conditions contained therein, Series A Preferred Stock,
par value $.01 per share, in the aggregate amount of $5,500,000 and warrants
exercisable for 250,000 shares of Common Stock for each $1,000,000 invested by
the Investors; and
WHEREAS, it is a condition precedent to the purchase of the securities
purchased under the Purchase Agreements that the Company provide for the
registration of the Common Stock of the Company issuable on the exchange,
exercise or conversion of such securities.
NOW, THEREFORE, in consideration on the foregoing premises and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION I.1. Definitions. The following terms shall have the
meanings ascribed to them below:
"Agreement" means this Agreement, as amended, modified or supplemented
from time to time, in accordance with the terms hereof, together with any
exhibits, schedules or other attachments thereto.
<PAGE>
"Alpine" has the meaning ascribed thereto in the introduction hereof.
"Business Day" means any day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York are authorized or obligated
by law, executive order or government decree to be closed.
"Capital" has the meaning ascribed thereto in the introduction hereof.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" has the meaning ascribed thereto in the introduction hereof.
"Controlling Person" means a Controlling Person as defined in Section
4.1.
"Convertible Preferred Stock" means the Company's Series B Convertible
Preferred Stock, par value $.01 per share.
"Damages" means Damages as defined in Section 4.1.
"Demand Registration" means a Demand Registration as defined in
Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"First Purchase Agreement" has the meaning ascribed thereto in the
introduction hereof.
"Holder" means any Person who now holds or shall hereafter acquire and
hold Registrable Securities.
"Indemnified Party" means an Indemnified Party as defined in Section
4.3.
"Indemnifying Party" means an Indemnifying Party as defined in Section
4.3.
"Investors" has the meaning ascribed thereto in the introduction
hereof.
"Market Price" means, with respect to the shares of Common Stock, (a)
if the shares are listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap Market,
the last reported sales price as reported on
-2-
<PAGE>
such exchange or market; (b) if the shares are not listed or admitted for
trading on any national securities exchange or included in The Nasdaq National
Market or Nasdaq SmallCap Market, the average of the last reported closing bid
and asked quotation for the shares as reported on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or a similar service if
NASDAQ is not reporting such information; (c) if the shares are not listed or
admitted for trading on any national securities exchange or included in The
Nasdaq National Market or Nasdaq SmallCap Market or quoted by NASDAQ or a
similar service, the average of the last reported bid and asked quotation for
the shares as quoted by a market maker in the shares (or if there is more than
one market maker, the bid and asked quotation shall be obtained from two market
makers and the average of the lowest bid and highest asked quotation). In the
absence of any available public quotations for the Common Stock, the Board of
Directors of the Company shall determine in good faith the fair value of the
Common Stock, which determination shall be set forth in a certificate by the
Secretary of the Company.
"Person" means any individual, entity or group, including without
limitation, individual, corporation, limited liability company, limited or
general partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggy-Back Registration" means a Piggy-Back Registration as defined
in Section 2.2.
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the securities covered by such Registration
Statement, and all other amendments and supplements to the prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
"Purchase Agreements" has the meaning ascribed thereto in the
introduction hereof.
"Purchasers" has the meaning ascribed thereto in the introduction
hereof.
"Registrable Securities" means the shares of Common Stock issued or
issuable upon exercise of the Warrants or conversion of the Convertible
Preferred Stock, as the case may be, until (i) a Registration Statement covering
such shares of Common Stock has been declared effective by the Commission and
such shares of Common Stock have been disposed of pursuant to such effective
Registration Statement, or (ii) such shares of Common Stock would be saleable
pursuant to Rule 144 under the Securities Act (or any similar provisions then in
force), without regard to the volume limitations set forth in Rule 144(e), or
(iii) such shares of Common Stock
-3-
<PAGE>
have been otherwise transferred and the Company has delivered a new certificate
or other evidence of ownership for such Common Stock not bearing a restrictive
legend and not subject to any stop transfer or similar restrictive order and all
of such Common Stock may be resold by the Person receiving such certificate
without complying with the registration requirements of the Securities Act.
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such registration
statement.
"Request" means a Request as defined in Section 2.1(a).
"Second Purchase Agreement" has the meaning ascribed thereto in the
introduction hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a Registration Statement under the Securities Act.
"Selling Holders Counsel" means the counsel selected to represent the
Selling Holders as set forth in Section 3.1(c).
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
"Warrants" means the warrants exercisable to purchase shares of Common
Stock issued to the Purchasers pursuant to the Purchase Agreements.
ARTICLE II.
REGISTRATION RIGHTS
SECTION II.1. Demand Registration.
(a) Request for Registration. Subject to the limitations contained in
this Section 2.1(a), at any time after the date hereof any Holder or Holders of
an aggregate of Registrable Securities representing 30% or more of all the
Registrable Securities may make written requests (individually, a "Request") on
the Company for the registration of the offer and sale of the Registrable
Securities under the Securities Act (such registration being hereinafter
referred to as a "Demand Registration"). Subject to the penultimate sentence of
Section 2.1(b),
-4-
<PAGE>
the Company shall have no obligation to effect more than three (3) Demand
Registrations. Any Request will specify the number of Registrable Securities
proposed to be sold and the intended method(s) of disposition thereof and shall
also state the firm intent of the Holder to offer Registrable Securities for
sale. The Company shall give written notice of such Request within 10 days after
the receipt thereof to all other Holders. Within 20 days after receipt of such
notice by any such Holder, such Holder may request in writing that all or any
portion of its Registrable Securities be included in such Registration Statement
and the Company shall include in the Registration Statement for such Demand
Registration the Registrable Securities of all Holders that requested to be so
included. Each such request by such other Holders shall specify the number of
Registrable Securities proposed to be sold and the intended method(s) of
disposition thereof and shall also state the firm intent of the Holder to offer
Registrable Securities for sale. Notwithstanding the foregoing, the Company
shall not be requested to effect a Demand Registration unless the Request has
been made at least 180 days since the last Registration Statement (other than a
shelf registration under Rule 415 of the Securities Act or a Registration
Statement on Form S-8) was filed by the Company.
(b) Effective Registration. A registration will not be deemed to have
been effected as a Demand Registration unless the Registration Statement
relating thereto has been declared effective by the Commission and the Company
has complied in all material respects with its obligations under this Agreement
with respect thereto; provided that if, after the Registration Statement has
become effective, the offering and/or sale of Registrable Securities pursuant to
such Registration Statement is or becomes the subject of any stop order,
injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court or other governmental or
quasi-governmental agency prevents or otherwise limits the offer and/or sale of
the Registrable Securities pursuant to the Registration Statement, other than in
each case primarily as a result of acts or omissions of the Holder or any agent
thereof, such registration will be deemed not to have been effected. If (i) a
registration requested pursuant to this Section 2.1 is deemed not to have been
effected or (ii) the Registration Statement relating to a Demand Registration
requested pursuant to this Section 2.1 does not remain effective for a period of
at least 180 consecutive days beyond the effective date thereof or, with respect
to an underwritten offering of Registrable Securities, until 45 days after the
commencement of the distribution by the Holders of the Registrable Securities
included in such Registration Statement, then the Company shall continue to be
obligated to effect such Registration pursuant to this Section 2.1. The Holders
shall be permitted to withdraw all or any part of the Registrable Securities
from a Registration Statement at any time prior to the effective date of such
Demand Registration Statement; provided that in the event of such withdrawal,
such Holders shall be responsible for the fees and expenses referred to in
Section 3.2(viii) hereof incurred by such Holders with respect to such Demand
Registration prior to such withdrawal.
(c) Selection of Underwriter. If the Selling Holders participating in
a Demand Registration so elect, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. The Company shall select, with the consent of the Selling
Stockholders, which consent shall not be unreasonably withheld, one or
-5-
<PAGE>
more nationally recognized firms of investment bankers to act as the lead
managing Underwriter or Underwriters in connection with such offering.
(d) Deferral of Registration. Notwithstanding any other provision of
this Section 2, the Company shall not be obligated to effect the filing of a
Registration Statement pursuant to Section 2(a) hereof (i) during any period
when there exists an effective Registration Statement covering the Registrable
Securities, or (ii) for a period not to exceed 90 days, if the Company shall
furnish to the Holders requesting a Registration Statement under Section 2(a)
hereof a certificate, signed by the Company, stating that in the good faith
judgment of the Board of Directors of the Company it would be detrimental to the
best interests of the Company and its stockholders generally for such
Registration Statement to be filed at that time; provided that in such event,
the Holders initiating the request for registration will be entitled to withdraw
such request.
SECTION II.2. Piggy-Back Registration. If at any time the Company
proposes to file a Registration Statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its respective security holders (other than (x) a Registration Statement on Form
S-4 or Form S-8 or on any other form inappropriate for an underwritten public
offering or related solely to securities to be issued in a merger, acquisition
of the stock or assets of another entity or in a similar transaction (or any
substitute form that may be adopted by the Commission), or (y) a Registration
Statement pursuant to a Demand Registration pursuant to Section 2.1), then the
Company shall give written notice of such proposed filing to the Holders as soon
as practicable (but in no event less than 30 days before the anticipated filing
date), and such notice shall offer such Holders the opportunity to register such
number of Registrable Securities as each such Holder may request (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder and the intended method(s) of distribution thereof and shall also state
the firm intent of the Holder to offer Registrable Securities for sale) (a
"Piggy-Back Registration"). The Company shall use all reasonable efforts to
cause the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in a
Piggy-Back Registration to be included on the same terms and conditions as any
similar securities of the Company or any other security holder included therein
and to permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. Any Holder shall
have the right to withdraw its request for inclusion of its Registrable
Securities in any Registration Statement pursuant to this Section 2.2 by giving
written notice to the Company of its request to withdraw, provided that in the
event of such withdrawal (other than pursuant to Section 2.3(c) hereof), such
Holder shall be responsible for the fees and expenses referred to in Section
3.2(viii) hereof incurred by such Holder prior to such withdrawal relating to
such Registration Statement. The Company may withdraw a Piggy-Back Registration
at any time prior to the time it becomes effective.
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a
-6-
<PAGE>
registration upon the request of Holders pursuant to Section 2.1, and no failure
to effect a registration under this Section 2.2 and to complete the sale of
Registrable Securities in connection therewith shall relieve the Company of any
other obligation under this Agreement (including, without limitation, the
Company's obligations under Sections 3.2 and 4.1).
SECTION II.3. Reduction of Offering.
(a) Demand Registration. The Company may include in a Demand
Registration pursuant to Section 2.1 securities of the same class as the
Registrable Securities for the account of the Company and any other Persons who
hold securities of the same class as the Registrable Securities on the same
terms and conditions as the Registrable Securities to be included therein;
provided, however, that (i) if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.1 have informed the Company in
writing that it is their opinion that the total number of Registrable
Securities, and securities of the same class as the Registrable Securities which
Holders, the Company and any other Persons desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, then the number of shares to be
offered for the account of the Company and for the account of all such other
Persons (other than the Holders) participating in such registration shall be
reduced or limited pro rata in proportion to the respective number of shares
requested to be registered to the extent necessary to reduce the total number of
shares requested to be included in such offering to the number of shares, if
any, recommended by such managing Underwriter or Underwriters, and (ii) if the
offering is not underwritten, no other Person, including the Company, shall be
permitted to offer securities under any such Demand Registration unless the
Selling Holders owning a majority-in-interest of Common Stock to be sold consent
to the inclusion of such shares therein.
(b) Piggy-Back Registration. (i) Notwithstanding anything contained
herein, if the managing Underwriter or Underwriters of any underwritten offering
described in Section 2.2 have informed, in writing, the Holders requesting
inclusion in such offering that it is their opinion that the total number of
shares which the Company, Holders and any other Persons holding securities of
the same class as the Registrable Securities desiring to participate in such
registration intend to include in such offering is such as to materially and
adversely affect the success of such offering, then, the Company will include in
such registration (A) first, all the shares the Company offered for its own
account, if any, (B) then, if additional shares may be included in such
registration without materially and adversely affecting the success of such
offering, the shares offered by the holders of securities as a result of their
exercise of "demand" registration rights by such holders, if any, and (C) then,
if additional shares may be included in such registration without materially and
adversely affecting the success of such offering, the number of shares offered
by the Holders and such other holders of securities of the same class as the
Registrable Securities whose piggy-back registration rights may not be reduced
without violating their contractual rights (provided such contractual rights
were in existence prior to the date of this Agreement), on a pro rata basis in
proportion to the relative number of Registrable Securities of the holders
(including the Holders) participating in such registration.
-7-
<PAGE>
(ii) If the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 notify the Holders requesting
inclusion in such offering that the kind of securities that the Holders, the
Company and any other Persons desiring to participate in such registration
intend to include in such offering is such as to materially and adversely affect
the success of such offering, (A) the Registrable Securities to be included in
such offering shall be reduced as described in clause (i) above or (B) if such
reduction would, in the judgment of the managing Underwriter or Underwriters, be
insufficient to substantially eliminate the material adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering.
(c) If, as a result of the proration provisions of this Section 2.3,
any Holder shall not be entitled to include all Registrable Securities in a
Demand Registration or Piggy-Back Registration that such Holder has requested to
be included, such Holder may elect to withdraw his request to include
Registrable Securities in such registration; provided, however that if a Holder
withdraws his request pursuant to this Paragraph 2.3(c) such Holder shall not be
responsible for the fees and expenses referred to in Section 3.2(viii) hereof.
(d) Holdback Agreements. If any registration of Registrable
Securities shall be in connection with an underwritten public offering, each
Holder agrees not to effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act, of any Registrable Securities,
and not to effect any such public sale or distribution of any other equity
security of the Company or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (in each case, other than as
part of such underwritten public offering) during the seven (7) days prior to,
and during the one hundred eighty (180) day period beginning on, the effective
date of such Registration Statement (except as part of such registration).
ARTICLE III.
REGISTRATION PROCEDURES
SECTION III.1. Filings; Information. Whenever the Company is
required to effect or cause the registration of the offer and sale of
Registrable Securities pursuant to Section 2.1 or 2.2 hereof, the Company will
use its best efforts to effect the registration of the offer and the sale of
such Registrable Securities in accordance with the intended method(s) of
disposition thereof as quickly as practicable, and in connection with any such
request:
(a) The Company will prepare and file with the Commission a
Registration Statement with respect to the offer and sale of such securities and
use its best efforts to cause such Registration Statement to become and remain
effective until the completion of the distribution contemplated thereby;
provided, however, the Company shall not be required to keep such Registration
Statement effective for more than 180 days (or such shorter period which will
terminate when all Registrable Securities covered by such Registration Statement
have been sold, but not prior to the expiration of the applicable period
referred to in Section 4(3) of the Securities
-8-
<PAGE>
Act and Rule 174 thereunder, if applicable); provided, further, that with
respect to a Demand Registration, the Company shall file with the Commission a
Registration Statement as soon as is practicable after the date of the Request
and in any event no later than 60 days after the date of the Request for the
Demand Registration and shall cause such Registration Statement to be declared
effective as soon as is practicable after the date of filing and in any event no
later than 120 days after the date of such Request.
(b) The Company will prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement as may be
necessary to keep such Registration Statement effective for as long as such
registration is required to remain effective pursuant to the terms hereof; cause
the Prospectus to be supplemented by any required Prospectus supplement, and, as
so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to it with respect
to the disposition of all Registrable Securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Selling Holders set forth in such Registration Statement
or supplement to the Prospectus.
(c) The Company, at least ten (10) Business Days prior to filing a
Registration Statement or at least five (5) Business Days prior to filing a
Prospectus or any amendment or supplement to such Registration Statement or
Prospectus, will furnish to (i) each Selling Holder, (ii) not more than one
counsel representing all Selling Holders ("Selling Holders Counsel"), to be
selected by a majority-in-interest of such Selling Holders, and (iii) each
Underwriter, if any, of the Registrable Securities covered by such Registration
Statement copies of such Registration Statement as proposed to be filed,
together with exhibits thereto, which documents will be subject to review and
approval by each of the foregoing within five (5) Business Days after delivery
(except that such review and approval of any Prospectus or any amendment or
supplement to such Registration Statement or Prospectus must be within three (3)
Business Days after delivery), and thereafter, furnish to such Selling Holders,
Selling Holders Counsel and Underwriters, if any, such number of conformed
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto and documents incorporated by reference
therein), the Prospectus included in such Registration Statement (including each
preliminary Prospectus) and such other documents or information as such Selling
Holders, Selling Holders Counsel or Underwriters may reasonably request in order
to facilitate the disposition of the Registrable Securities (it being understood
that the Company consents to the use of the Prospectus and any amendment or
supplement thereto by each Selling Holder and the Underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto).
(d) The Company will take all reasonable actions required to prevent
the entry of such stop order or to remove it at the earliest possible moment if
entered.
(e) On or prior to the date on which the Registration Statement is
declared effective, use its best efforts to register or qualify such Registrable
Securities under such other
-9-
<PAGE>
securities or "blue sky" laws of such jurisdictions as any Selling Holder,
Selling Holders Counsel or Underwriter reasonably requests and do any and all
other acts and things which may be necessary or advisable to enable such Selling
Holder to consummate the disposition in such jurisdictions of such Registrable
Securities owned by such Selling Holder; use its best efforts to keep each such
registration or qualification (or exemption therefrom) effective during the
period which the Registration Statement is required to be kept effective; and
use its best efforts to do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (e), (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction.
(f) The Company will notify each Selling Holder, Selling Holders
Counsel and any Underwriter and (if requested by any such Person) confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or post-
effective amendment has been filed and, with respect to a Registration Statement
or any post-effective amendment, when the same has become effective, (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of any proceedings for
that purpose, (iii) of the issuance by any state securities commission or other
regulatory authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state securities or
"blue sky" laws or the initiation of any proceedings for that purpose, and (iv)
of the happening of any event which makes any statement made in a Registration
Statement or related Prospectus or any document incorporated or deemed to be
incorporated by reference therein untrue in a material respect or which requires
the making of any changes in such Registration Statement, Prospectus or
documents so that they will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements in the Registration Statement and Prospectus not misleading
in light of the circumstances in which they were made; and, as promptly as
practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such Prospectus so that, as thereafter deliverable to
the buyers of such Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(g) The Company will make generally available an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act no later than
90 days after the end of the 12-month period beginning with the first day of the
Company's first fiscal quarter commencing after the effective date of a
Registration Statement, which earnings statement shall cover said 12-month
period, and which requirement will be deemed to be satisfied if the Company
timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under
the Exchange Act and otherwise complies with Rule 158 under the Securities Act.
-10-
<PAGE>
(h) The Company will enter into customary agreements reasonably
satisfactory to the Company (including, if applicable, an underwriting agreement
in customary form and which is reasonably satisfactory to the Company) and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities.
(i) The Company, during the period when the Prospectus is required to
be delivered under the Securities Act, will file all documents required to be
filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
The Company may require each Selling Holder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the Commission or the National Association of Securities Dealers,
Inc.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.1(f) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent Prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(f) hereof to
the date when the Company shall make available to the Selling Holders covered by
such Registration Statement a Prospectus supplemented or amended to conform with
the requirements of Section 3.1(f) hereof.
SECTION III.2. Registration Expenses. The Company shall pay all
expenses incident to the Company's performance of or compliance with this
Agreement including, without limitation: (i) all registration and filing fees,
(ii) the fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger and
delivery expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses incurred in connection
with the listing or quotation, as appropriate, of the Registrable Securities,
(vi) the fees and disbursements of counsel for the Company and the fees and
expenses for independent certified public accountants retained by the Company
(including the expenses of any special audit or cold comfort letters), (vii) the
fees and expenses of any
-11-
<PAGE>
special experts retained by the Company in connection with such registration,
and (viii) the fees and expenses of the Selling Holders Counsel, provided,
however, that, notwithstanding the foregoing, any Holder whose Registrable
Securities are included in more than one registration statement filed pursuant
to the provisions of Section 2.1 hereof shall pay his pro rata portion of all
the foregoing expenses (based on the number of shares included) with respect to
the second and third registration statement in which such Holders shares are
included. The Company shall have no obligation to pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities and
any of the expenses incurred by Selling Holders which are not payable by the
Company, such costs to be borne by the Selling Holder or Selling Holders.
ARTICLE IV.
INDEMNIFICATION AND CONTRIBUTION
SECTION IV.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each
Selling Holder, its partners, officers, directors, employees, advisors and
agents, and each Person, if any, who controls such Selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
together with the partners, officers, directors, employees, advisors and agents
of such controlling Person (collectively, the "Controlling Persons"), from and
against any loss, claim, damage, liability, attorneys' fees, cost or expense and
costs and expenses of investigating and defending any such claim (collectively,
the "Damages") and any action in respect thereof to which such Selling Holder,
its partners, officers, directors, employees, advisors and agents, and any such
Controlling Person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such Damages (or proceedings in respect thereof) arise
out of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus or any
preliminary Prospectus, or arise out of, or are based upon, any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are based upon information furnished in writing to the Company by a
Selling Holder expressly for use therein, and shall reimburse each Selling
Holder, its partners, officers, directors, employees, advisors and agents, and
each such Controlling Person for any legal and other expenses reasonably
incurred by that Selling Holder, its partners, officers, directors, employees,
advisors and agents, or any such Controlling Person in investigating or
defending or preparing to defend against any such Damages or proceedings;
provided, however, that the Company shall not be liable to any Selling Holder or
other indemnitee to the extent that any such Damages arise out of or are based
upon an untrue statement or omission made in any preliminary Prospectus if (i)
such Selling Holder failed to send or deliver a copy of the final Prospectus
with or prior to the delivery of written confirmation of the sale by such
Selling Holder to the Person asserting the claim from which such Damages arise
in any case where such delivery of the Prospectus (as amended or supplemented)
is required by the Securities Act, and (ii) the final Prospectus would have
corrected such untrue statement or such omission, where such failure to deliver
the Prospectus was not a result of non-compliance by the Company under Section
3.1(f) of this
-12-
<PAGE>
Agreement. The Company also agrees to indemnify any Underwriters of the
Registrable Securities, their officers and directors and each Person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Selling Holders provided in this Section 4.1.
SECTION IV.2. Indemnification by Selling Holders. Each Selling
Holder agrees, severally but not jointly, to indemnify and hold harmless the
Company, its officers, directors, employees, advisors and agents and each
Person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the partners,
officers, directors, employees, advisors and agents of such Controlling Person,
to the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with reference to information related to such Selling Holder,
or its plan of distribution, furnished in writing by such Selling Holder
expressly for use in any Registration Statement or Prospectus, or any amendment
or supplement thereto, or any preliminary Prospectus; provided, however, that
such Selling Holder shall not be liable in any such case to the extent that
prior to the filing of any such Registration Statement or Prospectus or
amendment or supplement thereto, such Selling Holder has furnished in writing to
the Company information expressly for use in such Registration Statement or
Prospectus or any amendment or supplement thereto which corrected or made not
misleading information previously furnished to the Company. In no event shall
the liability of any Selling Holder be greater in amount than the dollar amount
of the proceeds received by such Selling Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. In case any action
or proceeding shall be brought against the Company or its officers, directors,
employees, advisors or agents or any such Controlling Person or its officers,
directors, employees or agents, in respect of which indemnity may be sought
against such Selling Holder, such Selling Holder shall have the rights and
duties given to the Company, and the Company or its officers, directors,
employees or agents, or such Controlling Person, or its officers, directors,
employees, advisors or agents, shall have the rights and duties given to such
Selling Holder, by the preceding paragraph.
SECTION IV.3. Conduct of Indemnification Proceedings. Promptly after
receipt by any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of
the claim or the commencement of such action; provided that the failure to
notify the Indemnifying Party shall not relieve it from any liability which it
may have to an Indemnified Party otherwise than under Section 4.1 or 4.2 except
to the extent of any actual prejudice resulting therefrom. If any such claim or
action shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable
-13-
<PAGE>
to the Indemnified Party for any legal or other expenses subsequently incurred
by the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its Controlling Persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) in the opinion of counsel to such Indemnified Party, representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interest between them, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such claim or action or
separate but substantially similar or related claims or actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for all Indemnified
Parties. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any claim or pending or threatened
proceeding in respect of which the Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability arising out of such claim or proceeding. Whether or not
the defense of any claim or action is assumed by the Indemnifying Party, such
Indemnifying Party will not be subject to any liability for any settlement made
without its consent, which consent will not be unreasonably withheld.
SECTION IV.4. Contribution. If the indemnification provided for in
this Article 4 is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Damages in such proportion
as is appropriate to reflect the relative benefits received by the Company on
the one hand and the Selling Holders on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits but also the relative fault of the Company on the one hand and the
Selling Holders on the other in connection with the statements or omissions
which resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an
-14-
<PAGE>
Indemnified Party as a result of the Damages referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Selling Holder were offered to
the public exceeds the amount of any damages which such Selling Holder has
otherwise paid by reason of such untrue or alleged untrue statement or omission
or alleged omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Each Selling Holder's obligations to contribute pursuant to
this Section 4.4 is several in the proportion that the proceeds of the offering
received by such Selling Holder bears to the total proceeds of the offering
received by all the Selling Holders and not joint.
ARTICLE V.
MISCELLANEOUS
SECTION V.1. Participation in Underwritten Registrations. No Person
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
registration rights.
SECTION V.2. Lock-up Agreement. For so long as the Holders have the
right to have Registrable Securities included in any registration pursuant to
this Agreement, each member of management of the Company executing a signature
page hereto agrees in connection with any registration of the Company's
securities not to sell, make any short sale of, pledge, grant any option for the
purchase of or otherwise dispose of any shares of Common Stock without the prior
written consent of the Holders for a period of 180 days after the closing of the
offering in connection with such registration, provided, however, that this
provision shall not apply to the sale of up to 100,000 shares of Common Stock by
each management stockholder in any twelve month period, and provided further,
however, that this provision shall not apply from and after the time that a
registration statement or statements with respect to the sale of at least one
half of the Registrable Securities has been filed and has been effective for a
180 day period (or, in the case of an underwritten offering, such lesser time
until the closing of such underwritten offering) so long as the average Market
Price of the Common Stock during such 180 day period (or the gross sales price
in the case of an underwritten offering) is $4.00 or more (as such price may be
adjusted for stock dividends, splits and similar events) and provided further
that this provision shall not apply from and after the time that a registration
statement or statements with respect to the sale of all the Registrable
Securities has been filed and has been effective for a 180 day
-15-
<PAGE>
period (or, in the case of an underwritten offering, such lesser time until the
closing of such underwritten offering). This provision shall apply only if any
Registrable Securities of the Holder are included in such offering.
SECTION V.3. Rule 144 and 144A. The Company covenants that it will
file any reports required to be filed by it under the Securities Act and the
Exchange Act and that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable
Holders to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 or Rule
144A under the Securities Act, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
SECTION V.4. Amendment and Modification. Any provision of this
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the holders of at least 66 2/3% of the Registrable
Securities (calculated on an as converted basis); provided, however, that
without the consent of all the Holders, no amendment or modification which
materially and adversely affects the ability of such Holders to have the offer
and sale of securities registered hereunder may be effected. No course of
dealing between or among any Persons having any interest in this Agreement will
be deemed effective to modify, amend or discharge any part of this Agreement or
any rights or obligations of any Person under or by reason of this Agreement.
SECTION V.5. Successors and Assigns; Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto, each subsequent Holder and their respective
successors and assigns and executors, administrators and heirs. Holders are
intended third party beneficiaries of this Agreement and this Agreement may be
enforced by such Holders.
SECTION V.6. Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
SECTION V.7. Headings. Subject headings are included for convenience
only and shall not affect the interpretation of any provisions of this
Agreement.
SECTION V.8. Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or sent by
telecopy, on the business day after notice is delivered to a courier or mailed
by express mail if sent by courier delivery service or
-16-
<PAGE>
express mail for next day delivery and on the third day after mailing if mailed
to the party to whom notice is to be given, by first class mail, registered,
return receipt requested, postage prepaid and addressed as follows:
If to the Company to:
7th Level, Inc.
1110 East Collins Boulevard, Suite 122
Richardson, Texas 75081
Attention: President
Fax: (972) 498-0111
With a copy to:
Donald Schupak
The Schupak Group
730 Fifth Avenue, Suite 1901
New York, New York 10022
Fax: (212) 262-1031
With a copy to:
Shereff, Friedman, Hoffman and Goodman, LLP
919 Third Avenue
New York, New York 10022
Attention: Gerald Adler, Esq
Fax: (212) 758-9526
If to a Holder, to the Holder
at the most current address given by such
Holder to the Company in writing.
SECTION V.9. Governing Law; Forum; Process. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of New York
as applied to contracts made and to be performed entirely in the State of New
York without regard to principles of conflicts of law. Each of the parties
hereto hereby irrevocably and unconditionally submits to the exclusive
jurisdiction of any court of the State of New York or any federal court sitting
in the State of New York for purposes of any suit, action or other proceeding
arising out of this Agreement (and agrees not to commence any action, suit or
proceedings relating hereto except in such courts). Each of the parties hereto
agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of
-17-
<PAGE>
venue of any action, suit or proceeding arising out of this Agreement, which is
brought by or against it, in the courts of the State of New York or any federal
court sitting in the State of New York and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION V.10. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.
SECTION V.11. Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
SECTION V.12. No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
SECTION V.13. Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
SECTION V.14. Remedy for Breach. The Company hereby acknowledges that in
the event of any breach or threatened breach by the Company of any of the
provisions of this Agreement, the Holder would have no adequate remedy at law
and could suffer substantial and irreparable damage. Accordingly, the Company
hereby agrees that, in such event, the Holder shall be entitled, without the
necessity of proving damages or posting bond, and notwithstanding any election
by any Holder to claim damages, to obtain a temporary and/or permanent
injunction, without proving a breach therefor, to restrain any such breach or
threatened breach or to obtain specific performance of any such provisions, all
without prejudice to any and all other remedies which any Holder may have at law
or in equity.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
7TH LEVEL, INC.
By: /s/ DONALD SCHUPAK
---------------------------------------
Name: Donald Schupak
Title: Chairman of the Board
-19-
<PAGE>
By executing in the space below, the following members of the Company's
management agree to be bound solely with regard to the provisions of Section 5.2
hereof.
/s/ DONALD SCHUPAK
--------------------------------------------
Donald Schupak
/s/ ROBERT A. EZRIN
--------------------------------------------
Robert A. Ezrin
/s/ W. SCOTT PAGE
--------------------------------------------
W. Scott Page
/s/ MERV ADELSON
--------------------------------------------
Merv Adelson
/s/ JAMES A. CANNAVINO
--------------------------------------------
James A. Cannavino
/s/ TIMOTHY J. CAHILL
--------------------------------------------
Timothy Cahill
/s/ RICHARD MERRICK
--------------------------------------------
Richard Merrick
/s/ CURT MARVIS
--------------------------------------------
Curt Marvis
-20-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
--------------------------------------------
Print Name
--------------------------------
If a legal entity:
DNK Investments LLP
--------------------------------------------
(type in name)
/s/ DOUGLAS MORGAN
/s/ KENNETH W. GOLDSTEIN
By:
---------------------------------------
General Partner Douglas Morgan
Title: General Partner Kenneth W. Goldstein
-------------------------------------
Address:
21 Vouga Ln.
--------------------------------------------
St. Louis, MO 63131
--------------------------------------------
--------------------------------------------
Telephone No.: 314-432-6607
Fax No.: 314-432-2665
-21-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
/s/ OZZIE SILNA
----------------------------------
Print Name Ozzie Silna
-----------------------
If a legal entity:
----------------------------------
(type in name)
By:
-------------------------------
Title:
----------------------------
Address:
23301 Palm Canyon Lane
----------------------------------
Malibu, CA 90265
----------------------------------
----------------------------------
Telephone No.: 310-456-8054
Fax No.: 310-456-7594
-22-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
-------------------------------------
Print Name
--------------------------
If a legal entity:
Mayfirst Associates Ltd.
-------------------------------------
(type in name)
By: /s/ RUDY VALNER
-------------------------------------
Title: Agent
-------------------------------------
Address:
10100 Santa Monica Blvd., Suite 945
-------------------------------------
Los Angeles, CA 90067
-------------------------------------
-------------------------------------
Telephone No.: 310-553-8336
Fax No.: 310-553-7132
-23-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
-------------------------------------
Print Name
--------------------------
If a legal entity:
STEPHEN LEROY KLING AND
ROSALYN H. KLING, TRUSTEES OF
THE LEE KLING REVOCABLE TRUST
U/T/A 1/20/82
-------------------------------------
(type in name)
By: /s/ S. LEE KLING
---------------------------------
S. Lee Kling
Title: Principal
------------------------------
Address:
1401 S. Brentwood Blvd.
-------------------------------------
St. Louis, MO 63144
-------------------------------------
-------------------------------------
Telephone No.: 314-963-2501
Fax No.: 314-968-1255
-24-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
-----------------------------------
Print Name
------------------------
If a legal entity:
Alpine Associates, a limited partnership
By: Eckert Corp., its general partner
-----------------------------------
(type in name)
By: /s/ VICTORIA ECKERT
-------------------------------
Victoria Eckert
Title: President
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Telephone No.:
Fax No.:
-25-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
----------------------------------
Print Name
-----------------------
If a legal entity:
East West Capital Associates, Inc.
----------------------------------
(type in name)
By: /s/ PAUL NADEL
----------------------------------
Title: President
----------------------------------
Address:
10900 Wilshire Blvd. #750
----------------------------------
Los Angeles, CA 90024
----------------------------------
----------------------------------
Telephone No.: 310-209-6150
Fax No.: 310-209-6160
-26-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
/s/ LANCE MAISS
----------------------------------
Print Name Lance Maiss
-----------------------
If a legal entity:
----------------------------------
(type in name)
By:
-------------------------------
Title:
----------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
Telephone No.:
Fax No.:
-27-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
/s/ ANDREW SCHUPAK
----------------------------------
Print Name Andrew Schupak
-----------------------
If a legal entity:
----------------------------------
(type in name)
By:
------------------------------
Title:
---------------------------
Address:
350 West 50th St. , Apt. #5PP
----------------------------------
New York, NY 10019
----------------------------------
----------------------------------
Telephone No.: 212-581--7197
Fax No.: 212-265-5264
-28-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
----------------------------------
Print Name
-----------------------
If a legal entity:
DLJ Capital Corp.
----------------------------------
(type in name)
By: /s/ MARJORIE WHITE
------------------------------
Title: Secretary
---------------------------
Address:
277 Park Avenue
----------------------------------
New York, NY 10172
----------------------------------
----------------------------------
Telephone No.: 212-892-7232
Fax No.: 212-892-7272
-29-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
----------------------------------
Print Name
-----------------------
If a legal entity:
Nevada Anderson, Inc.
----------------------------------
(type in name)
By: /s/ CORBE G. ANDERSON
-------------------------------
Corbe G. Anderson
Title: PRESIDENT
----------------------------------
Address:
1400 Colorado Street
----------------------------------
Boulder City, Nevada 89005
----------------------------------
----------------------------------
Telephone No.: 515-784-8755
Fax No.: 515-784-8199
-30-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
----------------------------------
Print Name
-----------------------
If a legal entity:
Bond Fund Series for the account
Of Oppenheimer Convertible
Securities Fund
----------------------------------
(type in name)
By: /s/ MICHAEL S. ROSEN
------------------------------
Michael S. Rosen
Title: Vice President
----------------------------------
Address:
Two World Trade Center, 34th Floor
----------------------------------
New York, NY 10048-0203
----------------------------------
----------------------------------
Telephone No.: 212-323-0867
Fax No.: 212-323-0860
-31-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
----------------------------------
Print Name
-----------------------
If a legal entity:
Castlerock Partners
----------------------------------
(type in name)
By: /s/ PAUL P. TANICO
------------------------------
Title: General Partner
----------------------------------
Address:
Castlerock Partners
----------------------------------
101 Park Avenue
----------------------------------
New York, NY 10178
----------------------------------
Telephone No.: 878-7654
Fax No.:
-32-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
/s/ ERIC J MAISS
----------------------------------
Print Name Eric J Maiss
-----------------------
If a legal entity:
----------------------------------
(type in name)
By:
------------------------------
Title:
---------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
Telephone No.:
Fax No.:
-33-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
/s/ DAVID CHU
----------------------------------
Print Name David Chu
-----------------------
If a legal entity:
----------------------------------
(type in name)
By:
-------------------------------
Title:
----------------------------
Address:
--------------------------
----------------------------------
----------------------------------
Telephone No.:
Fax No.:
-34-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
----------------------------------
Print Name
-----------------------
If a legal entity:
Entec Associates
----------------------------------
(type in name)
By: /s/ MICHAEL R. MILKEN
------------------------------
Michael R. Milken
Title:
---------------------------
Address:
844 Moraga Drive
----------------------------------
Los Angeles, CA 90049
----------------------------------
----------------------------------
Telephone No.: 310-440-5475
Fax No.: 310-440-5490
-35-
<PAGE>
SIGNATURE PAGE OF
PURCHASER
TO THE REGISTRATION RIGHTS AGREEMENT OF
7TH LEVEL, INC.
This Signature Page to that certain Registration Rights Agreement, dated as
of May 6, 1998, by and among 7th Level, Inc., a Delaware corporation and the
Purchasers parties thereto (the "Registration Rights Agreement") is hereby
executed by the undersigned, as a Purchaser (as defined therein), as of the date
of the execution of the Registration Rights Agreement.
If an individual:
/s/ STANLEY ABER
----------------------------------
Print Name Stanley Aber
-----------------------
If a legal entity:
----------------------------------
(type in name)
By:
-------------------------------
Title:
----------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
Telephone No.:
Fax No.:
-36-
<PAGE>
EXHIBIT 10.42
[CERTIFICATE APPEARS HERE]
7TH LEVEL, INC.
NUMBER [DRAWING OF EAGLE] SHARES
P1
See legend on
reverse 15,000 SHARES PAR VALUE $0.01 EACH
SERIES A PREFERRED STOCK
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE
CORPORATION.
THIS CERTIFIES THAT ____________________________________ is the owner of
____________________________________________________________ fully paid and
non-assessable Shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated May 6, 1998
-----------------------------
- ---------------------------------- ----------------------------------
Chairman of the Board Vice President
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE
COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT IS AVAILABLE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
TEN COM --as tenants in common UNIF GIFT MIN ACT --.....Custodian....(Minor)
TEN ENT --as tenants by the under Uniform Gifts to Minors Act.......
entireties ..................................(State)
JT TEN --as joint tenants with
right of survivorship
and not as tenants in
common
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby ______________________________
sells, assigns and transfers unto | |
|____________________________|
................................................................................
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
................................................................................
..........................................................................Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints........................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,...........................
In presence of ..........................................
.....................................
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 780,308 2,465,079
<SECURITIES> 0 0
<RECEIVABLES> 149,112 1,112,026
<ALLOWANCES> 0 0
<INVENTORY> 0 18,477
<CURRENT-ASSETS> 619,078 752,847
<PP&E> 4,218,528 4,960,560
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 6,011,512 9,854,726
<CURRENT-LIABILITIES> 5,302,787 6,543,924
<BONDS> 0 0
0 0
0 0
<COMMON> 137,837 137,837
<OTHER-SE> (219,857) 2,321,618
<TOTAL-LIABILITY-AND-EQUITY> 6,011,512 9,854,726
<SALES> 0 0
<TOTAL-REVENUES> 461,753 4,197,836
<CGS> 84,920 2,666,135
<TOTAL-COSTS> 2,761,479 8,092,059
<OTHER-EXPENSES> 156,829 (99,112)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,541,475) (6,461,246)
<EPS-PRIMARY> (.18) (.48)
<EPS-DILUTED> (.18) (.48)
</TABLE>
