U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended
[X] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from November 1, 1998 to
June 30, 1999
Commission File No. 0-25668
GLOBAL TECHNOLOGIES, LTD.
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(Name of Small Business Issuer in Its Charter)
DELAWARE 11-3197148
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1811 Chestnut Street, Suite 120
Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices)
(215) 972-8191
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on Which Registered
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Class A Common Stock, $0.01 par value per share Nasdaq National Market
</TABLE>
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for the Transition Period ended June 30, 1999 were
$1,582,461.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant on October 15, 1999 was approximately
$17,666,160, based on the closing sales price of the Class A Common Stock on
such date as reported by the Nasdaq National Market.
The number of shares outstanding of the Registrant's Class A Common Stock,
$0.01 par value, on October 15, 1999 was 6,114,217.
Transitional Small Business Disclosure Format: Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
Transition Report on Form 10-KSB
TABLE OF CONTENTS
PAGE
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PART I....................................................................... 1
ITEM 1 - DESCRIPTION OF BUSINESS......................................... 1
ITEM 2 - DESCRIPTION OF PROPERTY.........................................21
ITEM 3 - LEGAL PROCEEDINGS...............................................22
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............24
PART II......................................................................24
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........24
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......26
ITEM 7 - FINANCIAL STATEMENTS............................................43
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................43
PART III.....................................................................43
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT...............43
ITEM 10 - EXECUTIVE COMPENSATION..........................................45
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..49
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................51
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K................................53
SIGNATURES...................................................................59
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
The Company
Global Technologies, Ltd., a Delaware corporation ("Global," and together
with its subsidiaries, the "Company"), is the successor by merger to Interactive
Flight Technologies, Inc., a Delaware corporation (see "Recent Events"), which
in turn is the successor by merger to In-Flight Entertainment Services Corp., a
New York corporation.
In May 1998, former management of Global determined to exit the business of
developing, assembling, installing and operating a computer-based in-flight
entertainment network (the "Entertainment Network") which provided aircraft
passengers with the opportunity to view movies, to play computer games and, in
certain cases where permitted by applicable law, to gamble through an in-seat
video touch screen. The Entertainment Network was capable of supporting
interactive advertising, e-commerce and shopping. Global's only agreement for
the Entertainment Network was with Swissair VKB ("Swissair"). Pursuant to the
Swissair agreement, Global installed and maintained the Entertainment Network in
19 aircraft.
On September 2, 1998, Swissair flight 111 crashed near Halifax, Nova Scotia
and all passengers and crew were killed. To date, the causes of the accident
have not been determined. The Entertainment Network had been installed on the
aircraft which crashed. The crash has led to many lawsuits. See Item 3 - "Legal
Proceedings" and Item 6 - "Management's Discussion and Analysis or Plan of
Operation." On September 28, 1999, the Federal Aviation Administration
issued an Airworthiness Directive that prohibits the installation of the
Entertainment Network as it was configured on the type of aircraft which
crashed. See "Recent Events - FAA Airworthiness Directive (No. 99-20-08)."
For reasons unrelated to the Swissair crash, the former management and
Board of Directors of Global resigned and the current Board of Directors was
elected in September 1998. The current Directors of Global were reelected by the
stockholders at the annual meeting on October 30, 1998. The new Board instated
the current management team.
At the beginning of the last fiscal year, Global's new management was
evaluating whether its in-flight entertainment technology was adaptable to
alternative markets and how to redeploy its capital to exploit
technology-related business opportunities. Ultimately, the new management of
Global developed a strategic plan to take advantage of the opportunities
associated with Global's technologies and management resources. New management
pursued a sale to or a strategic alliance with other entities in the travel and
entertainment business to maximize the potential of the Entertainment Network
and began to evaluate technology-related businesses that could build upon
Global's core competencies, as well as other technology-related business
opportunities.
Consistent with this vision, through a series of acquisitions, investments
and divestitures, Global reorganized itself as a diversified technology-based
company. The subsidiaries and affiliates of the Company operate interactive
entertainment, gaming, networking solutions, e-commerce, and
<PAGE>
telecommunications businesses. In connection with the reorganization, Global
changed its fiscal year-end from October 31 to June 30. The Company's dry
cleaning operation acquired by former management was sold during the Transition
Period ended June 30, 1999.
A graphical depiction of the Company's current corporate structure
(including its affiliate companies) and a description of the Company's business
is set forth below. The ownership percentages are as of October 15, 1999. IFT
Lottoco, Inc., IFT Subco, Inc., IFT Investments and IFT Leasing Limited were all
formed subsequent to June 30, 1999 and had no direct employees as of October 15,
1999.
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<TABLE>
<CAPTION>
GLOBAL
TECHNOLOGIES, LTD.
(a Delaware corporation)
|
|
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
80% | 11.15%* | 100% | 100% | 100% | 100% |
| | | | | |
The Network U.S. Wireless IFT Holdings IFT Lottoco, IFT Subco, Interactive
Connection, Corporation Limited Inc. Inc. Flight
Inc. (a Delaware (a UK company) (a Delaware (a Delaware Technologies
(a Georgia corporation) | corporation) corporation) (Gibraltar) Ltd.
corporation) | | | (a Gibraltar
| | | company)
| | | |
| 99%LP | 1%GP | 24.5% |
| |_________________| |
___________________________|___________________________ | |
27.5% 100% | 100% | |
| | |
Inter Lotto(UK) IFT IFT Leasing IFT Donativos,
Limited Management Limited Investments S.A. de C.V.
(a UK company) Limited (a UK company) (a UK limited (a Mexican
(a UK company) partnership) company)
</TABLE>
* See discussion below under "The Affiliate Companies - U.S. Wireless
Corporation."
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Recent Events
Merger of Interactive Flight Technologies, Inc. into Global
Technologies, Ltd.
On September 30, 1999, the stockholders of Global approved a
reincorporation proposal pursuant to an Agreement and Plan of Merger dated as of
August 16, 1999 (the "Merger Agreement"). Pursuant to the Merger Agreement,
Interactive Flight Technologies, Inc. ("IFT") merged with and into Global
Technologies, Ltd. and all stockholders of the former became stockholders of the
latter on a share-for-share basis.
The primary purpose of the reincorporation proposal was to remove the
restrictions imposed on IFT by Section 203 of the Delaware General Corporation
Law. Section 203 prohibited IFT from engaging in certain transactions, as more
fully described below. Prior to the merger, Global was a non-operating,
wholly-owned subsidiary of IFT formed for the purpose of completing the merger.
As a result of the merger, Global currently owns all assets that were owned
by IFT, is subject to all of the liabilities of IFT, and conducts all of the
business operations previously conducted by IFT. There has been no material
change in the business, management, operations or financial statements of the
Company as a result of the merger. All of IFT's contracts and other assets
vested in Global. The officers and directors of IFT immediately prior to the
merger are now the officers and directors of Global. All benefit plans of IFT
were adopted by Global.
The Certificate of Incorporation of Global is substantially identical to
the Amended and Restated Certificate of Incorporation of IFT, except for the
name of the Company and a provision electing not to be governed by Section 203.
The following is a brief summary of Section 203 and the merger.
Subject to certain exceptions, Section 203 prohibits business combinations
between corporations and "interested stockholders" for a three-year period
following the time that such stockholder becomes an "interested stockholder,"
unless the Board of Directors gives prior approval to such transaction or unless
the business combination is approved by the Board of Directors and the holders
of at least 66-2/3% of the outstanding voting stock of the corporation not owned
by the "interested stockholder." Section 203, the complete text of which is
attached as Exhibit B to the Proxy Statement filed August 17, 1999, defines
"interested stockholder" as "any person that (i) [owns or has the right to
acquire,] 15% or more of the outstanding voting stock of a corporation or (ii)
is an affiliate or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the 3-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder, and the affiliates and the
associates of such person..."
IFT's Chief Executive Officer, Irwin L. Gross was an "interested
stockholder" of IFT pursuant to clause (b) above. As a director and chief
executive officer of IFT, Mr. Gross was deemed an affiliate of IFT and, through
his control of Ocean Castle Partners, LLC ("Ocean
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Castle"), he beneficially owned as much as 33.9% of the voting power of IFT
within the past three years.
Although Section 203 is intended to provide anti-takeover protection for
Delaware corporations by imposing supermajority disinterested stockholder voting
requirements for certain self-dealing transactions with large stockholders, the
Board believed that the potential transactions between Mr. Gross or his
affiliates or associates on the one hand and Global on the other hand would be
beneficial to both Global and its stockholders (other than Mr. Gross or his
affiliates or associates), and that the need to meet the supermajority
disinterested stockholder approval requirements under Section 203 for each such
transaction would have made it more difficult to pursue potentially attractive
business opportunities and more time consuming and expensive to effect them. As
a result of the merger, Global, as successor to IFT, will be able to enter into
business combinations with Mr. Gross or his affiliates or associates without
obtaining the stockholder approval required by Section 203.
FAA Airworthiness Directive (No. 99-20-08)
On September 28, 1999, the Federal Aviation Administration ("FAA") issued
an Airworthiness Directive (the "Directive") applicable to all McDonnell Douglas
Model MD-11 series airplanes (the "MD-11"). The Directive prohibits the
installation of the Entertainment Network, as it was configured on the MD-11
involved in the Swissair Flight 111 crash. The Directive was prompted by the
results of a special certification review of the Entertainment Network installed
on the MD-11 that crashed in the Swissair flight 111 accident. The action taken
by the FAA by way of the Directive is intended to prevent possible confusion as
the flight crew performs its duties in response to a smoke/fumes emergency.
Management believes that adjustments to the way the Entertainment Network is
installed in MD-11 airplanes necessary to address the FAA concerns could be
easily implemented. The Directive provides that no causal factors of the
accident have been determined to date. The Company is unaware of any findings
that would indicate that the Entertainment Network either caused, or was related
to a cause of, the crash.
The Company does not believe that the Directive will have a material
adverse effect on its business or operations. The Company no longer offers the
Entertainment Network for sale to the commercial air transport market. However,
the Company has combined the technologies of the Entertainment Network with the
system architecture of The Network Connection, Inc.'s (a corporation of which
approximately 80% of the capital stock is owned by Global) technologies. The
Company is marketing the resulting system, AirView, to original equipment
manufacturers ("OEMs") and operators of business jets. See Item 1 --
"Description of Business -- The Affiliate Companies -- The Network Connection
Inc. -- TNCi Products and Services."
Business Strategy
In connection with its reorganization, Global's business strategy is to
identify companies capable of being market leaders in the Internet, networking
solutions, telecommunications, or gaming industries and which are at a stage of
development that would benefit from Global's management support, financing, and
market knowledge. Global generally seeks to acquire a large enough stake in an
affiliate company to enable Global to have significant influence over the
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management and policies of the company and to realize a large enough return to
compensate Global for it's investment of management time and effort, as well as
capital.
In assessing the advisability of making an investment in a business in one
of these industries, Global focuses on four major criteria: (1) the size of the
market opportunity, (2) proprietary aspects of the business that offer strong
and sustainable competitive advantages, (3) the quality of the current
management team and (4) the ability of Global to create extra value with
strategic planning and access to capital.
Global gains exposure to emerging companies through management's reputation
as successful developers and operators of technology and telecommunications
companies, referrals from the investment community, management's relationship
with venture capital and private equity funds, and the participation of
directors, officers and employees of the Company in various non-profit and
charitable organizations. Global considers its access to potential affiliate
companies to be good.
Global has capital and managerial resources to provide financing and
strategic, managerial, and operational support to certain emerging companies.
The corporate staff of Global provides hands-on assistance to the managers of
its affiliate companies in the areas of management, financial, marketing, tax,
risk management, human resources, legal and technical services, based on the
affiliate's needs. Global seeks to assist affiliate companies by providing or
locating and structuring financing, identifying and implementing strategic
initiatives, providing marketing assistance, identifying and recruiting
executives and directors, assisting in the development of equity incentive
arrangements for executives and employees, and providing assistance in
structuring, negotiating, documenting, financing, implementing and integrating
mergers and acquisitions.
Global's goal is to maximize the value of its affiliate companies for the
stockholders of the Company.
The Affiliate Companies
The Network Connection, Inc.
General
The Network Connection, Inc., a Georgia corporation ("TNCi") (NASDAQ:
TNCX), is engaged in the development, manufacturing and marketing of
computer-based entertainment and data networks, which provide users access to
information, entertainment, business applications and a wide array of service
options, such as movies, shopping for goods and services, computer games, access
to the World Wide Web, and gambling where permitted by applicable law. The
Company is currently targeting cruise lines, school systems, rail carriers,
business jet OEMs and operators, corporations (for training purposes) and hotel
operators for sales of TNCi's products.
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TNCi's systems can support live-feed, closed-circuit and satellite based
digital television programs in addition to personal interactive entertainment
and video/audio on demand, shopping, multi-player games, gambling, shore
excursion/event booking, karaoke and Internet access, all simultaneously,
independently and with full user control through a keyboard, wireless television
remote control or touch screen display. In addition, attendant or crew
interactive training can be provided at the same time. As part of the turnkey
solution sought by the transportation industry, the Company may also provide and
manage content for use with TNCi's systems on a fee-for-service basis or on a
revenue sharing basis.
TNCi's products are sold under the names TRIUMPH, Cheetah(TM), and related
sub product names. These systems are based upon non-proprietary or open system
PC hardware standards and utilize major commercial components and subsystems in
order to provide flexibility and reliability. TNCi's products are designed to be
compatible with industry standard network operating systems and new network
operating systems as they become available. Product design allows compatibility
with most applications running in such network environments, and enables TNCi's
systems to operate efficiently as servers and work stations for groups of
interconnected PCs arranged in LANs, WANs, intranets and the Internet. TNCi has
distributed its products worldwide principally through its own internal sales
force and strategic resellers.
On May 10, 1999, Global acquired from The Shaar Fund, Ltd. ("Shaar") 1,500
shares of TNCi Series B 8% Convertible Preferred Stock, par value $.01 per
share, stated value $1,000 per share (the "TNCi Series B Shares"), and cash in
the amount of $980,000 (net of $50,000 in legal fees) in exchange for (a) 3,000
shares of Global's Series A 8% Convertible Preferred Stock, par value $.01 per
share, stated value $1,000 per share, and (b) warrants to purchase 87,500 shares
of Global's Class A Common Stock, par value $.01 per share, at an exercise price
of $3.00 per share. In connection with this acquisition, Global also received an
assignment of (a) certain registration rights under a Registration Rights
Agreement dated October 23, 1998 between TNCi and Shaar (the "Registration
Rights Agreement") and (b) certain rights of first refusal held by Shaar with
respect to future TNCi financings.
Also on May 10, 1999, Global acquired directly from TNCi 800 shares of TNCi
Series C 8% Convertible Preferred Stock, par value $.01 per share, stated value
$1,000 per share (the "TNCi Series C Shares"), in consideration for Global's
waiver of all prior TNCi defaults and arrearages arising out of or related to
the TNCi Series B Shares.
In connection with the forgoing acquisitions of the TNCi Series B Shares
and TNCi Series C Shares, Global also acquired the right to convert a Secured
Promissory Note (the "Secured Promissory Note") made by TNCi in January 1999,
payable to the order of Global, into additional TNCi Series C Shares at the rate
of $1,000 per TNCi Series C Share. The original principal amount of the Secured
Promissory Note was $500,000.
On May 18, 1999, Global received from TNCi 1,055,745 shares of TNCi's
common stock and 2,495,400 shares of TNCi's Series D Convertible Preferred Stock
(the "TNCi's Series D Shares") in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of Global's Interactive
Entertainment Division, as defined in the Asset Purchase and Sale
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Agreement dated as of April 29, 1999, as amended (the "TNCi Transaction"). TNCi
did not, however, assume any liability or obligation with respect to claims
arising out of the crash of Swissair flight 111 (See Item 3 - "Legal
Proceedings"). Each share of TNCi Series D Shares is convertible into 6.05
shares of TNCi common stock.
On June 2, 1999, Global acquired from Sigma Designs, Inc. 110,000 shares of
TNCi common stock, and a warrant to purchase another 40,000 shares of TNCi
common stock with an exercise price based on a formula derived from the average
market price for the common stock over a period of time immediately preceding
such exercise, for approximately $254,000.
On July 16, 1999, Global acquired from third parties certain notes issued
by TNCi (collectively, the "TNCi Series A and E Notes"). The TNCi Series A and E
Notes had a principal balance of $1,254,082, and interest, redemption premiums,
and other charges incurred but unpaid thereon to the date of acquisition
totaling $640,925, for a total of $1,895,007. Global agreed to cancel the TNCi
Series A and E Notes in exchange for which TNCi increased the balance due under
the Secured Promissory Note in a corresponding amount. On August 12, 1999,
Global acquired from third parties certain notes issued by TNCi (collectively,
the "TNCi Series D Notes"). The TNCi Series D Notes had a principal balance of
$350,000, and interest, redemption premiums, and other charges incurred but
unpaid thereon to the date of acquisition totaling $127,750. Again Global agreed
to cancel the TNCi Series D Notes in exchange for which TNCi increased the
balance due under the Secured Promissory Note in a corresponding amount.
On August 24, 1999, the Board of Directors of Global elected to convert the
amounts outstanding under the Secured Promissory Note into TNCi common stock.
Such conversion, to the extent it exceeded approximately one million shares of
TNCi's common stock on August 24, 1999, was contingent upon receiving
shareholder approval to increase the authorized share capital which was
subsequently approved on September 17, 1999 at the TNCi shareholder meeting.
On August 24, 1999, the Board of Directors of Global approved a $5 million
secured revolving credit facility by and among Global and TNCi (the "Facility").
The Facility provides that TNCi may borrow up to $5 million for working capital
and general corporate purposes at the prime rate of interest plus 3%. The
Facility matures in September 2001. TNCi paid an origination fee of $50,000 to
Global and will pay an unused line fee of 0.5% per annum. The Facility is
secured by all of the assets of TNCi and is convertible, at Global's option,
into shares of TNCi Series C Shares. Global executed the Facility on October 12,
1999.
Global's investments in TNCi as of October 15, 1999, aggregate
approximately 80% of TNCi's common stock on a fully converted basis.
TNCi Business Strategy
TNCi's strategy is to position itself as a leading provider of
comprehensive interactive information system solutions which are scalable to
accommodate small or large user groups and, are based on a high-speed and secure
network. TNCi can also offer customized video content options and interfaces
with a customer's existing applications and network. Additionally, TNCi
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will continue to position itself as an integrated browser-based software
developer and a content programming, procurement, integration and management
service provider. Content programming and procurement can include educational
and training products, video entertainment, gaming, e-mail and Internet access,
and e-commerce capabilities.
Sales, Marketing And Distribution
TNCi currently distributes its products principally through the efforts of
its internal direct sales force. TNCi also attends trade shows and hosts end
user seminars or meetings to promote and market its products. Additionally, TNCi
may advertise in trade publications. TNCi plans to continue and accelerate these
efforts.
Also, TNCi is developing relationships with strategic "partners" capable of
providing customer solutions through TNCi's products, or encouraging their
customers to purchase TNCi's systems in conjunction with their own products on
the basis that overall system or product performance will be enhanced. TNCi will
assist these partner-vendors by determining the configuration of TNCi's products
that will deliver optimal performance along with the partner-vendor's products.
The purchase price for TNCi's "turn-key" packaged systems depends upon
various factors, such as the size and type of train or ship, and the requested
system features. There can be a relatively long sales cycle for some products,
because of the need to evaluate TNCi's technology, to conduct a test
installation of each customized system, and to negotiate agreements with other
providers. The sales cycle is also dependent upon a number of factors beyond
TNCi's control, such as the financial condition of the customer, safety and
maintenance concerns, regulatory issues and purchasing patterns of particular
operators, and the industry generally. This can result in long and unpredictable
buying patterns for TNCi's transportation-related products. See Item 6
- -- "Management's Discussion and Analysis or Plan of Operation."
Overview Of The TNCi Markets And Industries
The Company is targeting four primary markets for TNCi's products at this
time: (1) multimedia servers for education and corporate training; (2)
interactive entertainment and information systems for cruise ships; (3)
interactive entertainment and information systems for trains; and (4)
interactive information systems for business aviation (as contrasted with
commercial aviation). Corporate training programs and interactive education for
high schools and universities constitute large markets in excess of several
billion dollars per year. Indeed, high schools and universities are beginning to
seek innovative ways of bringing the Internet and interactive courseware to the
classroom. Interactive entertainment and information systems for cruise ships
and trains represent large, relatively untapped markets. For example, there
currently are more than 70 cruise ships in revenue service with 500 or more
guest cabins, and the build schedule for ships of this size shows more than 30
new ships entering revenue service between now and the end of 2001. Only nine
ships to date have had interactive entertainment and information systems
installed. In the case of commuter trains, no interactive entertainment and
information systems have been installed. Finally, OEMs and
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operators of business jets are just beginning to see the benefits of installing
interactive and multimedia servers connected to a high-speed LAN to provide
business travelers with an "office-in-the-sky." Although the Company believes
these markets are large, relatively untapped, and potentially profitable, no
assurances can be given that TNCi will be successful in any of them.
TNCi Products And Services
Interactive Information Systems For Business Aviation (AirView)
AirView is the Company's planned in-flight portal to advertising, shopping,
video and similar features, as well as business-related applications. AirView is
the combination of the Company's Entertainment Network with TNCi's system
architecture, which is intended to be installed on business jets.
In April 1998, the Boeing Company identified TNCi's AirView interactive and
video server as a key element of an "office-in-the-sky" for the new B737-73Q
Business Jet. In November 1998, TNCi received an order from the Raytheon
Company, which was contracted by Boeing Company, to equip the Boeing Business
Jet (BBJ) B737-73Q "Demonstrator" aircraft with TNCi's AirView interactive and
video server and switches. Installation is due to be completed on the
Demonstrator aircraft in the quarter ending December 1999. There can be no
assurance, however, that any additional business jet orders for TNCi's AirView
system will be received. See Item 6- "Management's Discussion and Analysis or
Plan of Operation."
Interactive Entertainment And Information Systems For Cruise Ships
(CruiseView)
CruiseView is an advanced cabin entertainment and information management
system for the Cruise industry. The CruiseView system is a high bandwidth,
high-speed video-enabled intranet, tailored to meet the environmental demands of
cruise conditions. With video and data servers connected to cabin set top PCs,
via a gigabit digital network backbone for voice, video and data, CruiseView
delivers to each cabin, on demand, a unique entertainment and information
experience, independent of all other passengers.
In September 1998, TNCi entered into a Turnkey Agreement (the "Carnival
Agreement") with Carnival Corporation ("Carnival"), a Panamanian registered
corporation, for the purchase, installation and maintenance of CruiseView on one
Carnival Cruise Lines ship. During the four-year period commencing on the date
of the Carnival Agreement, Carnival has the right to designate an unspecified
number of additional ships for the installation of CruiseView by TNCi. The cost
per cabin for CruiseView purchase and installation on each ship is provided for
in the Carnival Agreement. In December 1998, Carnival exercised its right and
ordered the installation of CruiseView on one Carnival Cruise Lines Fantasy
Class ship. Delivery and installation of CruiseView for this Fantasy Class ship
began in December 1998 and has been in operational use, on a test basis, since
August 1999. It is expected to begin commercial operation in the quarter ending
December 31, 1999. In August 1999, Carnival exercised its right and ordered the
installation of CruiseView on one Carnival Cruise Lines Destiny Class ship which
is expected to be completed in the quarter ending December 31, 1999. There can
be no assurance, however,
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that Carnival will exercise its right under the Carnival Agreement to order
CruiseView for installation on any additional ships. See Item 6 -- "Management's
Discussion and Analysis or Plan of Operation -- Liquidity and Capital
Resources."
CruiseView offers passengers video and music libraries; e-commerce
capabilities; casino-style and action games; previews of and the ability to book
shore tours; and integration with ship operations, including billing, room
service, surveys and customer requests.
Interactive Entertainment And Information Systems For Trains (TrainView)
Like CruiseView, TrainView is a browser-based information portal, which
provides advertising, shopping, route and city information, video features,
games and music to the captive train commuter audience.
In February 1999, TNCi received an engineering design order from Alstom
Transport Limited ("Alstom"), a unit of ALSTOM SA, a worldwide leader in
manufacturing high speed passenger trains, to incorporate the design of
TrainView, TNCi's advanced Infoactive Business and Entertainment System, into
Alstom's concept high-speed train design. The TrainView all-digital system
proposed is an adaption of TNCi's existing system currently installed for cruise
customers and in the process of being installed for in-flight business
customers. The system is expected to deliver personal interactive entertainment,
video/audio on demand, e-commerce for shopping, event booking, Internet and
business services to the seat through TNCi's TransPORTAL applications. There can
be no assurance that Alstom or any of its customers will purchase a TrainView
system for installation on any train.
In September 1999, TNCi announced the formation of a Passenger Rail
Division and the hiring of a Division President, based in the United Kingdom.
The focus of the new Division will be to pursue new business opportunities in
the world-wide passenger rail market.
Corporate Training And Academic Solutions
TNCi has developed a high speed multimedia server for use in the education
and training markets. Through this product, students and faculty are able to
access hundreds of hours of multimedia content, search the Internet, and build
interactive courses.
In August 1999, TNCi received an order of approximately $5.3 million to
manufacture and install its Cheetah(TM) multimedia servers in approximately 193
schools as part of the Georgia Metropolitan Regional Education Services Agency
("MRESA") Net 2000 Project. The award is part of a three year state-wide
program, whereby MRESA hopes to bring advanced multimedia learning tools and
technology to all 700 Georgia schools K-12, under the guidance of the Georgia
MRESA. Installation at all 193 schools was completed by September 30, 1999.
There is no assurance that TNCi will receive any further orders in
connection with the MRESA Net 2000 Project, or any orders to put its systems in
any additional schools or to have its systems installed for corporate training
purposes.
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Product Features and Technology
The interactive system's open architecture and compatibility features are
believed by management to permit ease of support for new and emerging content
options. The system is a proven, all digital, in-room or in-seat interactive
system. Dual, fault-tolerant video and file servers serve as the heart of the
system. A gigabit LAN backbone provides 100 megabit connectivity to each client.
The scaleable architecture is based on Intel processors and Microsoft operating
systems. In addition, the core software design allows simple customization of
the user interface and integration of third-party software. The system
interfaces with both color flat panel and TV displays.
Operations, Manufacturing and Suppliers
TNCi currently manufactures all of its products in the United States,
either at its Phoenix, Arizona facility or at its supplier locations. Final
assembly, integration, burn-in, and functional testing are conducted at its
facilities in Phoenix, Arizona.
TNCi obtains electronic components and finished sub-assemblies for its
products "off-the-shelf" from a number of qualified suppliers. TNCi has
established a comprehensive testing protocol to ensure that components and
sub-assemblies meet TNCi's specifications and standards before final assembly
and integration. TNCi has elected to procure off-the-shelf component parts and
sub-assemblies from suppliers to ensure better quality control and pricing. TNCi
does not have formal purchase contracts for supplies, but instead generally
purchases such items under individual purchase orders. To date, TNCi has not
experienced interruptions in the supply of such component parts and
sub-assemblies, and believes that numerous qualified suppliers are available.
The inability of most of TNCi's current suppliers to provide component parts to
TNCi would not adversely affect TNCi's operations on a long-term basis.
Intellectual Property
TNCi relies on a combination of trade secret and other intellectual
property law, nondisclosure agreements with all of its employees and other
protective measures to establish and protect its proprietary rights in its
products. TNCi believes that because of the rapid pace of technological change
in the open systems networking industry, legal protection of its proprietary
information is less significant to TNCi's competitive position than factors such
as TNCi's strategy, the knowledge, ability and experience of TNCi's personnel,
new product development, market recognition and ongoing product maintenance and
support. Without legal protection, however, it may be possible for third parties
to copy aspects of TNCi's products or technology or to obtain and use
information that TNCi regards as proprietary. In addition, the laws of some
foreign countries do not protect proprietary rights in products and technology
to the same extent as do the laws of the United States. Although TNCi continues
to implement protective measures and intends to defend its proprietary rights
vigorously, there can be no assurance that these efforts will be successful. The
failure or inability of TNCi to effectively protect its proprietary information
could have an adverse affect on TNCi's business. TNCi does not believe that its
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technologies infringe on any third-party property rights, but no assurances can
be made that it will not be subject to a suit alleging the same.
Research And Development
The market for TNCi's products is characterized by rapid technological
change and evolving industry standards, and it is highly competitive with
respect to timely product innovation. The introduction of products embodying new
technology and the emergence of new industry standards can render existing
products obsolete and unmarketable. TNCi believes that its future success will
depend upon its ability to develop, manufacture and market new products and
enhancements to existing products on a cost-effective and timely basis. The
system architecture for TNCi's interactive entertainment and information
products was designed to permit hardware and software upgrades over time.
Moreover, the current architecture presents no known limits on a customer's
ability to offer compelling content to the user in a rapid and reliable manner.
Therefore, a major focus of TNCi's research and development efforts is to reduce
the cost of network and client hardware and to enhance the core software of the
system to permit even easier integration of new content.
If TNCi is unable, for technological or other reasons, to develop new
products in a timely manner in response to changes in the industry, or if
products or product enhancements that TNCi develops do not achieve market
acceptance, TNCi's business will be materially and adversely affected. There can
be no assurance that technical or other difficulties in the future will not
delay the introduction of new products or enhancements.
There can be no assurance that alternative technologies will not be
developed in the future which will be capable of providing certain services now
performed by network servers. The development of such technologies could reduce
the need for network servers and adversely affect TNCi's operating results.
TNCi Customers
TNCi's products are sold to end users in a wide range of industries.
Customers that have purchased TNCi's products are financial institutions, health
care companies, academic institutions, communications/broadcasting companies,
governmental agencies, entertainment providers, transportation operators and
end-users operating in various other industries. TNCi's high-end, high
performance, multimedia video capable products currently are targeted to
education and corporate skills training providers, hotel, train and ship
operators, business jet OEMs and operators, and retail facility information
kiosk businesses. Most sales efforts in 1998 and 1999 were focused on larger
system sales into niche markets of TNCi's "turn-key" packaged solutions,
AirView, CruiseView and TrainView. There can be no assurance that TNCi will
successfully negotiate definitive agreements for the purchase of these systems.
The markets for these types of products are new and management believes their
actual aggregate size is impossible to measure accurately. Although management
expects the video server market to experience growth, with the growth to come
principally from the high-performance superserver
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segment of the market, no assurances can be made that TNCi's products will be
accepted within the market.
Competition
The market for the products and services that TNCi offers is very
competitive. Factors for TNCi's success include product quality, technical
capability, system reliability, price, promptness of program performance, and
warranty protection. There are numerous international and U.S. firms that
currently compete, or are capable of competing, with TNCi. Many competitors have
greater financial and human resources than TNCi.
TNCi faces substantial competition from the manufacturers of several
different types of products used as network servers. TNCi expects competition to
intensify as more firms enter the market and compete for market share. In
addition, companies currently in the server market will continue to change
product offerings in order to capture further market share.
With respect to base configuration, TNCi competes with manufacturers of
high-end PCs used as network servers. Competitors offering products in this
market include International Business Machines Corporation ("IBM"), Compaq
Computer, Inc., Gateway Corporation, and Dell Corporation. One of the principal
competitive factors in the market for simple LANs is price, and the economies of
scale available to high-end PC manufacturers may permit them to offer their
products at a lower price. TNCi expects its competitors to continue to improve
the performance, availability, scalability and upgradability features of their
products. TNCi expects all of its competitors in the simple LAN market to
improve the distribution channels for their products used as servers.
With respect to more fully configured high-end video servers for larger and
more complex LANs and more sophisticated or business-critical applications, TNCi
competes indirectly with manufacturers of mainframes and minicomputers.
Manufacturers that promote their products in this market include IBM, Digital
Equipment Corporation, Hewlett-Packard Corporation and UNYSIS, Inc. TNCi's
operating results could be adversely affected if one or more of these
competitors elects to compete more aggressively with respect to price or product
features of their mainframes or minicomputers. TNCi competes in the market for
complex LANs with other manufacturers of superservers, including Sun, Silicon
Graphics and Ncube. TNCi competes in the market for "turn-key" systems for
travel-related entertainment with other manufacturers of complete systems,
including Rockwell Collins Passenger Systems, BE Aerospace, Sony Transcom,
Matsushita, Allin Interactive, and Trans Digital.
As many of TNCi's competitors are more established, benefit from greater
market recognition, and have greater financial, technological, production and
marketing resources than TNCi, establishing and maintaining TNCi's competitive
position will require continued investment by TNCi in research and development
and sales and marketing. There can be no assurance that TNCi will have
sufficient resources to make such investments or survive the sales cycle and
support the receivables collection cycle, or that TNCi will be able to make the
technological advances necessary for it to be competitive. In addition, if more
manufacturers of
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PCs, mainframes or minicomputers were to develop and market their own
superserver class of products, TNCi's operating results could be adversely
affected.
Government Regulation
The installation and use of TNCi's AirView system on any particular
aircraft will require prior certification and approvals from the FAA and may
require certification and approvals from aeronautical agencies of foreign
governments. Other regulatory requirements may apply in the passenger rail,
cruise or other markets to which TNCi markets its products that may affect
TNCi's ability to deliver or install its products on a timely basis. See Item
6 - "Management's Discussion and Analysis or Plan of Operation."
United States law, with certain exceptions, currently prohibits the knowing
transportation of gaming devices operated on modes of interstate transportation.
In addition, states may prohibit the transportation and use of gaming devices.
Federal law also prohibits the installation, transportation or operation of
gaming devices by any U.S. or foreign air carrier or for such carriers to permit
their use on aircraft operated to or from the United States in foreign air
transportation. The laws regarding the transmission of gaming data into, out of,
or within United States territory, even where such data was lawfully obtained in
another jurisdiction, are unclear. As a result, there can be no assurance that
the transmission of such data will not be restricted or prohibited. Because
gaming may generate greater revenues and profitability than other entertainment
options available on TNCi's products, the inability to offer gaming in certain
markets may have a material adverse impact on TNCi's business and on the market
acceptance of TNCi's products. TNCi may also be subject to the laws of foreign
jurisdictions which may similarly restrict or prohibit the gaming or other
activities offered on TNCi's products.
Backlog Orders And Work-In-Progress
As of June 30, 1999, TNCi had no backlog. Work-in-progress consisted of
programs with Carnival Cruise Lines ("Carnival") under TNCi's 1998 contract with
Carnival. In August 1999, TNCi received an order to manufacture and install its
Cheetah(TM) multimedia servers in approximately 193 schools in the State of
Georgia. The total sales price of this order was approximately $5.3 million. All
product was successfully produced and installed by September 30, 1999.
Employees
As of June 30, 1999 TNCi had approximately 22 full-time employees,
including four executive officers. None of the employees are covered by a
collective bargaining agreement. TNCi's success depends to a significant extent
upon the performance of its executive officers and other key personnel. TNCi
considers its relations with its employees to be good.
Warranties
TNCi provides a warranty regarding its products for periods ranging from
one to three years, depending on the requirements of customers. To date, TNCi
has not experienced
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significant claims under warranties, and its ability to meet the full demands of
having a significant number of units sold to customers who require such service
has not been tested. TNCi also passes through to end users the warranties that
it receives from vendors on any separate hardware, software or component parts
that it sells independently of full systems.
U.S. Wireless Corporation
General
U.S. Wireless Corporation, a Delaware corporation ("US Wireless") (NASDAQ:
USWC), has developed a geographic location system designed to pinpoint the
location of wireless telephone subscribers within a wireless network. The system
uses proprietary technology developed by US Wireless. US Wireless believes its
system has advantages over competing technologies which are based on
triangulation or the global positioning system ("GPS"). The US Wireless system
is anticipated to be able to offer to wireless carriers services and
applications, including enhanced 911, live navigation assistance, enhanced 411,
asset and vehicle tracking, ITS systems and network management systems. Thus
far, US Wireless has not generated operating revenues from the sale or licensing
of its technology (or from any other source).
There are approximately 75 million people using wireless telephones in the
United States today. According to the Cellular Telecommunications Industry
Association, March 1999, that number will grow to 120 million by the year 2000.
In addition, there are many millions of wireless telephone subscribers located
outside of the United States. To accommodate the increased consumer demand for
wireless services, the industry has aggressively continued its buildup of
wireless infrastructure, and has implemented more efficient standards and
digital technologies. The introduction of these standards into the market has
additionally served as a selling point for manufacturers and service providers
in the already extremely competitive arena of telecommunications.
The emerging market for value-added services based on location represents
an opportunity for wireless carriers to enhance current and future revenue
streams. The growth in the demand for wireless communications services during
the past decade has resulted in decreased pricing for wireless service, a
favorable regulatory environment, increasing competition among service providers
and a greater availability of wireless value-added services. In addition, many
developing countries are installing wireless telephone networks as an
alternative to installing, expanding or upgrading traditional wireline networks.
Companies competing for market share in the wireless caller-location
industry are typically divided into two categories: those that employ
handset-based techniques and those that employ network-based techniques.
Handset-based techniques rely on the integration of GPS system receivers into
the wireless handsets. GPS-integrated handsets are not currently commercially
available. Adding GPS to handsets may create larger, heavier, more expensive
telephones with shorter battery life. Additionally, GPS will require
retrofitting or replacing the wireless phones currently owned by over 75 million
wireless subscribers and therefore makes GPS an unlikely near-term solution to
the FCC's E-911 Mandate (see below).
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Network-based techniques do not rely on the addition of any dedicated
equipment to the handset, but operate entirely from the wireless network
infrastructure. US Wireless' RadioCamera system falls into the category of
network-based solutions. Competing network-based systems rely on triangulation
techniques such as Angle of Arrival ("AOA") and Time Difference of Arrival
("TDOA"). The RadioCamera system architecture does not rely on triangulation.
Both AOA and TDOA systems require multiple base stations or points of reference
from which to triangulate, and both systems are at a disadvantage in urban
environments where there are rarely direct lines of sight between a wireless
caller and multiple base stations. Due to the lack of line of sight, the
subscribers' wireless transmissions bounce off of buildings and other obstacles,
reaching the base station antennas via multiple paths. By receiving
transmissions from multiple orbiting satellites, GPS units also use
triangulation techniques to establish location, and are also challenged in
environments such as "urban canyons," where line of sight to the multiple
satellites is blocked.
As the demand for wireless service increases, so will the need for
location-based safety services like wireless E-911. According to Yankee Group
(Boston), more than one quarter of all new wireless customers purchase their
phones for security reasons. In 1997, over 30 million cellular calls were placed
to 911 emergency call centers across the United States. Yet, unlike calls placed
from wire-line telephones, calls are not traceable when a caller uses a wireless
phone to call for emergency assistance (the emergency operator does not
automatically know the location of the caller). In response to this and other
safety concerns, the U.S. Federal Communications Commission issued a mandate
requiring wireless service providers to have the ability to locate wireless
calls for emergency assistance within certain parameters and time schedules.
As a result of these and other safety issues, the wireless industry, the
Public Safety Answering Point ("PSAP") (a network of regional emergency call
centers), members of the E-911 community and the FCC began joint efforts in
mid-1994 to solve the technological and policy hurdles in providing location
information for wireless 911 calls. In June 1996, the FCC issued a Report and
Order in Docket 94-102, formalizing certain performance requirements, and
implementing a schedule for wireless service providers to establish geolocation
capabilities. In so doing, the FCC ordered that the deployment and integration
of wireless E-911 features and functions be accomplished in two phases. The
first phase requires wireless service providers to report the callback number
and originating cell site and/or sector of a 911 call to PSAP operators.
Pursuant to the mandate, commencing in October 1997, the service provider must
commence providing such information to qualified requesting PSAPs within six
months of a PSAP's request. Service providers have commenced the implementation
of products in order to meet this requirement. The second phase requires
wireless service providers to pinpoint and report to the PSAPs the location of
all 911 callers with an accuracy of 125 meters in 67% of all cases, using root
mean square techniques. The FCC has mandated completion of Phase II by October
1, 2001. In December 1998, the FCC's Wireless Telecommunications Bureau released
a public notice outlining a filing schedule for requests for waivers of the
Phase II E-911 requirements. Various wireless carriers have submitted requests
for waivers, and various other parties have subsequently filed comments with the
FCC regarding the question of waivers. The issue of waivers and/or modifications
of the E-911 Phase II requirements is being reviewed by the FCC in
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an ongoing public forum. To date, the FCC has not granted any waivers of the
Phase II E-911 conditions, nor has it made any modifications to the mandate.
US Wireless is working to build upon the promising results of its field
trials and complete the development and refinement of the RadioCamera systems
that support all cellular/PCS protocols. US Wireless intends to work with
wireless carriers, information content providers, and equipment vendors on a
nationwide and international basis. In addition to the FCC-mandated E-911
service that requires precise location information, there are additional
applications that could provide considerable value in the private and public
sectors. US Wireless will seek to establish its leadership position by
contracting with strong well-known suppliers and hiring an experienced
operations management team. Presently, US Wireless is assessing and evaluating
the timing and resource requirements necessary to implement this plan.
In March 1999, Global invested $3 million in US Wireless in exchange for
30,000 shares of Series B Preferred Stock ("US Wireless Series B"). Each share
of US Wireless Series B is convertible into approximately 67 shares of common
stock of US Wireless until March 2000, after which each such share is
convertible into 100 shares of common stock of US Wireless. The US Wireless
Series B is subject to mandatory conversion into common stock at any time at a
conversion rate of 100 shares of common stock of US Wireless in the event the
closing price for US Wireless' common stock as reported on NASDAQ is at least
$5.00 per share for 30 consecutive trading days.
The US Wireless Series B entitles the holder to receive $100 per share
liquidation preference before any distributions to the holders of common stock
in the event of a liquidation of US Wireless. In addition, the Company and other
holders of the US Wireless Series B have, as a separate class, elected one
member to US Wireless' Board of Directors and one additional individual as an
observer to the Board. The Company elected Irwin L. Gross, Global's Chairman and
Chief Executive Officer, to serve on the US Wireless Board. As a condition to
making the investment, the Company also obtained certain registration rights
relating to the registration under the Securities Act of 1933 of those shares of
common stock of US Wireless into which the US Wireless Series B held by the
Company is convertible. The Company has waived its registration rights.
Based on the foregoing, the Company currently beneficially owns 11.15% of
the common stock of US Wireless (based on a conversion rate of 67 shares of
common stock per share of US Wireless Series B) and, assuming no further share
issuances until March 2000, will beneficially own 15.25% of the common stock of
US Wireless at that time (based on a conversion rate of 100 shares of common
stock per share of US Wireless Series B). Both percentages assume full
conversion of US Wireless Series A preferred stock (into 560,000 shares) and US
Wireless Series B (into 3,350,000 and 5,000,000 shares based on conversion at
the 67 share rate and 100 share rate, respectively). The fair market value of
the Company's investment in US Wireless Series B at June 30, 1999, assuming
conversion into 67 shares or 100 shares, of common stock for each share of US
Wireless Series B and a discount of 25% (which discount might actually be higher
or lower, depending upon market conditions) for potential lack of marketability
of the unregistered shares, are estimated to be $5.7 million and $8.6 million,
respectively. The corresponding figures as of October 15, 1999 were $6.9 and
$10.4 million, respectively.
There is no assurance that the Company will realize any gain on its
investment in US Wireless.
Donativos
Donativos, S.A. de C.V. ("Donativos") is a Mexican corporation formed for
the purpose of operating an entertainment center in Monterrey, Nuevo Leon,
Mexico (the "Center"). The Center is located in a two-story structure containing
approximately 16,000 square feet of floor space. The Center offers 332 slot
machines and food and beverages. Monterrey is a city of
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approximately five million people and is located approximately 300 miles south
of San Antonio, Texas. Currently customers at the Center are unable under
Mexican law to win cash in the games offered. Rather, customers are able to win
lottery tickets for the Loteria Nacional or to obtain rights usable for future
play at the Center. Donativos is seeking to obtain a secondary prize permit
which would also allow customers to win valuable merchandise such as a new car.
There is no assurance, however, that Donativos will obtain such a permit.
In May 1999, Global, through its wholly-owned subsidiary, Interactive
Flight Technologies (Gibraltar) Ltd., a Gibraltar company ("IFT Gibraltar"),
loaned approximately $1.6 million to Donativos and acquired a 24.5% equity
interest in the venture. In addition to IFT Gibraltar, other partners in the
venture include Regal Gaming and Entertainment, Inc., a Minnesota corporation
("Regal Gaming"), which also has a 24.5% equity interest, and a Mexican
national, who has a 51% interest. The IFT Gibraltar loan bears interest at an
annual rate equal to the prime rate plus three percent (3%) and matures on April
30, 2001. The Company has also provided a letter of credit in the amount of
$913,445 to secure payment of the purchase price of the slot machines acquired
by IFT Gibraltar, and which are leased to Donativos at the rate of $37,500 per
month. In addition to its 24.5% equity interest in Donativos, in consideration
for making the loan and providing the letter of credit, the Company will receive
25% of any profits generated by Donativos and, for a term of 10 years, the
Company will have an equity interest of at least 10% in any gaming venture in
which Regal Gaming, or a subsidiary or affiliate of Regal Gaming, is an investor
and which relates to gaming activities in Mexico.
The Center was scheduled to open in June 1999, but the opening was delayed
until mid-August 1999. In addition, the costs of opening the Center, which were
anticipated to approximate $1.6 million and for which the Company's loan was
made, in fact were considerably higher. Cost overruns on the Center's
construction left insufficient funds for budgeted marketing and promotional
activities. The Company does not have complete records at present as to the
extent of the cost overrun. Regal Gaming and its three principals and their
spouses (all of who are United States nationals) are contractually responsible
to Global for the amount of the cost overrun up to a maximum of $500,000, but
thus far, the cost overruns have not been paid by Regal Gaming or its principals
or their spouses. On October 25, 1999, Global initiated a lawsuit against Regal
Gaming, its principals and their spouses with respect to the non-payment by them
of these cost overruns. See Item 3 - "Legal Proceedings." The Company is not
contractually obligated to fund any cost overruns. See Item 6 - "Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources."
Since the Center opened, operating expenses have continuously exceeded
revenues by a significant amount of money, and, as a result, the slot machine
equipment lease payments owed to the Company by Donativos have not been made,
nor has Donativos made the contractually required interest and principal
payments on its approximately $1.6 million obligation to the Company.
Furthermore, as a result of the cash flow shortfall, it is possible that third
party vendors have also not been paid. Management believes that operational
shortfalls are not likely to improve significantly unless Donativos is
successful in obtaining the secondary prize permit referred to above, and, even
if such permit is received, there is no assurance of such improvement.
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Regal Gaming was responsible for managing the Center under a management
agreement. The Company and the majority shareholder of Donativos believe that
Regal Gaming failed to perform several material obligations under the management
agreement, and further believe that Regal Gaming's financial controls over the
construction and opening of the Center and over its operations since opening
have been inadequate. As a result, Donativos terminated the management agreement
with Regal Gaming effective October 21, 1999. Donativos has identified two
potential replacement managers who are believed to be capable of running the
Center on behalf of Donativos, and is discussing with each of them the
possibility of their engagement as promptly as possible. Until one of these
full-time managers is engaged by Donativos, Donativos is operating the Center
through the use of qualified consultants. Donativos has commenced legal action
in Mexico against Regal Gaming and its principals in connection with these
transactions.
Inter Lotto
In most jurisdictions around the world, the government owns the lottery and
subcontracts its management to a service provider. In the United Kingdom,
private companies or individuals can secure a license to run a lottery.
Currently Camelot Group PLC ("Camelot") holds the exclusive license to run the
National Lottery. Separately, the Gaming Board for Great Britain is responsible
for issuing a certificate to manage Society or Local Authority lotteries. In
1996-1997 (latest available) the United Kingdom gaming industry was estimated to
have had annual gaming revenue of (pound)40.5 billion (approximately $66.4
billion at current exchange rates).
In May 1999, Global completed the acquisition of a 27.5% equity interest in
Inter Lotto (UK) Limited ("Inter Lotto") through its wholly owned subsidiary,
IFT Holdings Limited, a United Kingdom company ("IFT Holdings"). The balance of
the shares of Inter Lotto is owned by seven shareholders. The only shareholder
with a greater ownership interest than that of IFT Holdings is HGI House &
General Investment Foundation, a Liechtenstein foundation, which has a 48.5%
equity interest.
Inter Lotto was granted a license by the Gaming Board for Great Britain to
operate lotteries on behalf of charities throughout the United Kingdom. By
way of an Operating Agreement between Inter Lotto and IFT Management Limited
("IFT Management"), a United Kingdom company and wholly-owned subsidiary of IFT
Holdings, Inter Lotto appointed IFT Management as Inter Lotto's exclusive
service provider in connection with the lotteries. As such, IFT Management has
been granted authority to perform substantially all services necessary or
appropriate for the conduct of the lotteries subject to the direction and
control of Inter Lotto's Board and to the extent permitted by United Kingdom
gaming laws. Inter Lotto will retain responsibility for charity recruiting and
certain other functions as required under United Kingdom gaming laws. For its
services under the Operating Agreement, IFT Management will retain a portion of
the revenues generated by the lotteries. IFT Management has engaged two
individuals to consult with and assist it in connection with these
responsibilities. These two individuals are principals of Regal Gaming.
On September 9, 1999, IFT Leasing Limited, a United Kingdom company and
wholly-owned subsidiary of IFT Holdings ("IFT Leasing"), entered into an
agreement with International
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Lottery & Totalizator Systems, Inc., a California corporation ("ILTS"), to
purchase an on-line lottery system for the operation of the Inter Lotto
lotteries. The base sale price of the lottery system purchased from ILTS is
$12.3 million. In addition, IFT Management entered into an eight year facilities
management agreement with ILTS to provide operational and technology support for
the system. Under this agreement, IFT Management is required to make weekly
payments to ILTS of $72,000 plus additional amounts based on the number of
installed terminals in excess of 3,500 and plus a percentage of the average
daily sales.
Financing for the gaming operations, including funding for the ILTS
equipment, is expected to be provided through several wholly-owned subsidiaries
of Global which have been formed for the purpose of providing such financing.
IFT Lottoco, Inc. and IFT Subco, Inc., each a Delaware corporation, are partners
in a United Kingdom limited partnership, IFT Investments, which is expected to
provide funding to IFT Leasing to acquire the equipment necessary for the
operation of the lotteries. IFT Leasing is expected to own the gaming equipment,
but is expected to lease such equipment to IFT Management for use in operating
the lotteries on behalf of Inter Lotto. The funds to purchase the gaming
equipment for IFT Leasing are expected to be obtained through debt financing,
although no assurances can be made that such financing will be available. If the
Company is unable to secure such financing, such inability would have a material
adverse effect on Inter Lotto's operations and also on the Company's liquidity.
The Inter Lotto lottery operation is expected to begin operations in the
first quarter of calendar 2000. Inter Lotto's most significant competition comes
from Camelot. Camelot is a consortium of four companies, Cadbury Schweppes
(26.67%), Racal (26.67%), De La Rue (26.67%) and ICL (20%), and is responsible
for managing the National Lottery.
Other
In May 1999, the Company completed the sale of Johnny Valet, Inc. for
$750,000 in cash less fees and expenses of approximately $50,000. This
divestiture terminates the Company's involvement in the dry cleaning business.
Employees
As of October 15, 1999, Global employed 7 people on a full-time basis and 1
person on a temporary basis. No employee is covered by a collective bargaining
agreement. Global considers its relations with its employees to be good.
ITEM 2 - DESCRIPTION OF PROPERTY
Global's principal executive offices, located in Philadelphia,
Pennsylvania, consists of approximately 1,500 square feet of office space. The
space is leased to Ocean Castle and Global reimburses Ocean Castle for the rent
and related expenses in connection therewith in the approximate monthly amount
of $2,700. Ocean Castle is owned by Irwin L. Gross, the Chief Executive Officer
and Chairman of the Board of Directors of Global.
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Similarly, pursuant to an agreement with First Lawrence Capital Corp.
("First Lawrence"), Global occupies approximately 1,500 square feet of office
space in Larchmont, New York which is leased to First Lawrence. Global pays
monthly rent for the use of such space of approximately $4,100.
Global has recently executed a lease for approximately 5,000 square feet of
executive office space in New York City. The lease expires in October 2009. The
lease provides for monthly rent of approximately $23,500 for the first 5 years,
and of approximately $24,300 for the last 5 years. It is expected that
activities currently conducted at the Larchmont facility will be transferred to
this facility.
Global also leases office space, and the assembly and warehouse facilities
for the Company, in Phoenix, Arizona. This space contains approximately 17,500
square feet and is occupied pursuant to a lease providing for monthly rent of
approximately $9,100. The lease expires in July 2002.
Global has no policy regarding investments in real estate or interests in
real estate, real estate mortgages or securities of persons primarily engaged in
real estate activities. Global currently holds no such investments.
ITEM 3 - LEGAL PROCEEDINGS
Since September of 1998, claims have been filed by the families of many
victims of the Swissair flight 111 crash. These cases are consolidated in the
multi-district litigation captioned Swissair/MDL-1269, In re Air Crash Near
Peggy's Cove, Nova Scotia, on September 2, 1998. The Swissair MD-11 aircraft
involved in the crash was equipped with an Entertainment Network system.
Following the crash, investigations were conducted and continue to be conducted
by Canadian and United States agencies concerning the cause of the crash. No
investigative agency has linked the Entertainment Network, which is certified by
the Federal Aviation Administration, to the crash or to a fire on board the
aircraft believed to have broken out before the crash. Estates for the victims
of the crash have filed lawsuits throughout the United States against Swissair,
Boeing, DuPont and various other defendants, including Global. The victims'
litigation is a multi-district litigation matter in the United States district
courts that is being overseen by the United States District Court for the
Eastern District of Pennsylvania. Global denies all liability for the crash.
Global is being defended by its aviation insurer in connection with these claims
and denies that it has any liability or responsibility for the crash. On
September 28, 1999, the FAA issued the Directive. (See Item 1, "Business --
Recent -- Events FAA Airworthiness Directive"). Global does not believe that the
Directive will have any material affect on the litigation.
On April 7, 1999, a complaint captioned Fidelity and Guaranty Insurance
Company v. Interactive Flight Technologies, Inc., CV No. 99-410, was filed in
the United States District Court for the District of Minnesota. This is a
declaratory judgment action where Global and its insurers are seeking a
declaration of the applicability of an excess liability policy to claims made by
the estates of victims of the crash of Swissair flight 111.
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On May 5, 1999, a complaint captioned First Lawrence Capital Corp. v. James
Fox, Irwin Gross and Interactive Flight Technologies, Inc., No. 7196/99 was
filed in the Supreme Court of the State of New York. This is a claim made
against Global arising from the hiring of James Fox, a former First Lawrence
employee, by Global. First Lawrence asserts that business opportunities of First
Lawrence were diverted to Global by James Fox. This case was settled by the
issuance to First Lawrence of 250,000 shares of common stock of Global and the
agreement by IFT Holdings to pay First Lawrence 24 monthly installments of
$41,667 beginning February 1, 2000. In exchange, First Lawrence will be
available to perform management consulting services to IFT Holdings.
On May 6, 1999, a complaint captioned Interactive Flight Technologies, Inc.
v. Swissair Swiss Air Transport Company, Ltd., et al., No. Civ. 99-0936PHXSMM,
was filed in the United States District Court for the District of Arizona. This
is a claim by Global against Swissair for $6,773,906, being sums owed by
Swissair to Global for equipment and warranty contracts. Global has also
asserted claims for business torts arising from the unjustified deactivation of
the Entertainment Network systems following the crash of Swissair flight 111.
On August 18, 1999, a complaint captioned Eric Schindler ("Schindler") v.
Interactive Flight Technologies, Inc. Et Al., case no. 99-V51560685, was filed
in the state court for Fulton County, Georgia. The lawsuit names Global and TNCi
as defendants. The complaint alleges that TNCi and Global failed to pay
severance pay pursuant to a written employment contract following Schindler's
resignation as an employee and vice president of TNCi in May 1999. Specifically,
the complaint alleges (1) breach of contract (against TNCi), (2) conspiracy and
interference with contract rights (against TNCi and Global), and (3)
interference with contract rights (against the Company). The Complaint seeks
$85,000 in severance pay on the contract claims, unspecified damages for loss of
stock options, punitive damages of at least $450,000, attorneys' fees and costs.
TNCi and Global deny any liability, intend to defend themselves vigorously and
are considering counterclaims. No responsive pleading has yet been filed.
In September of 1999, IFT filed a lawsuit against Barrington Capital Group,
L.P. in Maricopa County Superior Court, Arizona, seeking a declaratory judgment
that no sums were owed to Barrington Capital pursuant to a Financial Advisory
Service Agreement dated in October of 1998. In October of 1999, Barrington
Capital Group filed a lawsuit on the same contract in the Supreme Court of the
State of New York, County of New York, Index No. 99-604606, captioned Barrington
Capital Group, L.P. v. Interactive Flight Technologies, Inc., alleging that
Barrington is owed $1,750,471 in connection with services alleged to have been
performed pursuant to the Financial Advisory Service Agreement. IFT denies all
liability and denies that any sums are owed to Barrington.
On October 25, 1999, Global filed a lawsuit against Regal Gaming (and its
principals and their spouses) in the United States District Court for the
Southern District of Florida seeking judgment in favor of Global on the $500,000
promissory note made by Regal Gaming (and guaranteed by its principals and their
spouses) to Global. The promissory note was made to secure Regal Gaming's
obligations to fund cost overruns at the Center.
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Until October 1, 1999, Global's Class A Common Stock was traded on the
Nasdaq National Market under the symbol FLYT, and since such date, under the
symbol GTLL.
The following table sets forth the high and low last sale prices for
Global's Class A Common Stock for each quarter within its last two fiscal years
and for the quarter ended September 30, 1999, as reported by the Nasdaq National
Market.
Class A Common Stock High Low
- -------------------- ------ ------
November 1, 1997 through January 31, 1998........... $4.625 $1.875
February 1, 1998 through April 30, 1998............. 3.688 2.375
May 1, 1998 through July 31, 1998................... 3.500 1.875
August 1, 1998 through October 31, 1998............. 3.125 1.875
November 1, 1998 through January 31, 1999........... 3.625 1.313
February 1, 1999 through April 30, 1999............. 4.313 1.813
May 1, 1999 through June 30, 1999................... 4.875 3.594
July 1, 1999 through September 30, 1999............. 4.625 3.000
The closing sales price of the Class A Common Stock on October 15, 1999, as
reported by the Nasdaq National Market, was $3.03 per share.
As of October 15, 1999, there were approximately 60 record holders and
approximately 2,700 beneficial owners of Class A Common Stock.
On October 30, 1998, the Global stockholders approved a one-for-three
reverse stock split of Global's capital stock. The reverse stock split was
effective on November 2, 1998. All references to the number of shares, price per
share and stock option data contained in this Transition Report have been
restated as appropriate to reflect the effect of the reverse stock split for all
periods presented.
On December 17, 1997 and October 30, 1998, the Board of Directors
authorized Global to repurchase shares of its Class A Common Stock on the open
market. Through October 31, 1998, Global had purchased a total of 844,667 shares
of its Class A Common Stock in open market activities at a total cost of
$2,315,983. All 844,667 shares were retired on January 11, 1999. As of October
15, 1999, Global had repurchased an additional 78,600 shares at prices
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ranging from $2.47 to $2.94 per share. Global may make additional open market
purchases in the future.
The Company has not paid any dividends on the common stock of the Company
during the last two fiscal years and does not intend to do so in the foreseeable
future.
Unregistered Issuances
In November 1996, Global executed a Strategic Alliance Agreement with Hyatt
Ventures, Inc. ("Hyatt"), an affiliate of Hyatt Corporation. The president of
Hyatt is also a former director of Global. Under the terms of the Strategic
Alliance Agreement, Hyatt, directly and through certain of its affiliates,
agreed to use its best commercial efforts to assist Global in advancing Global's
business with respect to the Entertainment Network. The Alliance Agreement was
terminated in November 1997 as a result of changing market conditions. In
January 1997, Global issued 20,000 unregistered shares of Class A common stock
to Hyatt in connection with Hyatt's acting as a guarantor on behalf of Global in
certain contract negotiations. The issuance was made in private offering
pursuant to Section 4(2) of the Securities Act of 1933.
On May 11, 1999, Global issued 3,000 shares of its Series A Convertible
Preferred Stock and warrants to purchase 87,500 shares of Global's Class A
Common Stock to The Shaar Fund, Ltd. In exchange for 1,500 shares of TNCi Series
B 8% Convertible Preferred Stock and cash in the amount of $980,000 (net of
$50,000 in legal fees). The issuance was made in private offering pursuant to
Section 4(2) of the Securities Act of 1933. The Series A Convertible Preferred
Stock is convertible into shares of the Company's common stock at a conversion
price of $3.00 per share; provided, however, that no conversion is permitted if
such conversion would cause the holder of the Series A Convertible Preferred
Stock to be converted, on account of such conversion, to be the beneficial owner
of more than 19.99% of the outstanding common stock of the Company.
On July 16, 1999, Global issued an aggregate of 272,610 shares of its Class
A Common Stock and cash in the amount of $555,000 to various holders of TNCi's
Series A and Series E Notes in exchange for such Notes. The issuance was made in
a private offering pursuant to Section 4(2) of the Securities Act of 1933.
On August 9, 1999, Global issued an aggregate of 115,000 shares of its
Class A Common Stock to various holders of TNCi's Series D Notes in exchange for
such Notes and for warrants to purchase 70,000 shares of TNCi common stock. The
issuance was made in a private offering pursuant to Section 4(2) of the
Securities Act of 1933.
On August 13, 1999, Global issued 250,000 shares of its Class A Common
Stock to First Lawrence Capital Corp., pursuant to the terms of a Release and
Settlement Agreement executed by First Lawrence, Global, Irwin L. Gross, James
W. Fox and IFT Holdings. The issuance was made in private offering pursuant to
Section 4(2) of the Securities Act of 1933.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's Consolidated Financial Statements
and the Notes thereto appearing elsewhere herein. Historical results are not
necessarily indicative of trends in operating results for any future period.
Acquisitions and Investments
The Network Connection, Inc.
On May 18, 1999, the Company received from The Network Connection, Inc.
("TNCi") 1,055,745 shares of its common stock and 2,495,400 shares of its Series
D Convertible Preferred Stock in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of the Company's
Interactive Entertainment Division ("IED"), as defined in the Asset Purchase and
Sale Agreement dated April 30, 1999, as amended (the "Transaction"). The Company
has consolidated the results of operations of TNCi from the date of the
transaction forward. TNCi is a majority-owned subsidiary of the Company whose
ownership, through a combination of the Transaction described above and the
Company's purchase of Series B 8% preferred stock and 110,000 shares of TNCi's
common stock from third-party investors, approximates 80% (as of October 15,
1999) of TNCi on an if-converted common stock basis.
In an Agreement dated as of June 19, 1997, TNCi entered into an AirView
Purchase Agreement (the "AirView Agreement") with Fairlines, a French
corporation engaged in the start-up operation of a commercial airline, for the
purchase of up to ten AirView systems for installation on ten Fairlines
aircraft. Fairlines filed for bankruptcy under French law in the first quarter
of calendar year 1998. Although TNCi does not expect to recover its investment
in this program, TNCi is pursuing its remedies, contractual and otherwise, in
respect to collection of amounts due and damages incurred under the AirView
Agreement.
In October, 1997, the Company entered into a revised agreement with
Swissair which required the Company to install and maintain the Entertainment
Network in the first, business and economy class sections of three aircraft at
no cost to Swissair and in the first and business classes of another sixteen
aircraft at an average price of $1.7 million per aircraft. As of October 31,
1998, the Company had completed all installations under the initial Swissair
program. The Company was responsible for maintenance costs through September
1998 for all nineteen aircraft and specific software and hardware upgrades to
the Entertainment Network that are not yet completed. The Swissair agreement
also provided for a one-year warranty on the Entertainment Network. The Company
entered into a contract dated April 1, 1998 with Swissair for $3,975,000 to
extend the warranty on the installed system for a second and third year. Through
May 18, 1999, the Company has been paid $707,500 under this contract. No
subsequent payments have been received from Swissair.
In April 1998 and October 1998, the Company entered into additional
contracts with Swissair for a $4.7 million order for first and business class
installations on four Swissair MD-11
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aircraft that are being added to the Swissair fleet. As of February 26, 1999,
Swissair has made payments of $1,450,000 on the $4.7 million order for the four
installations.
On September 2, 1998, Swissair Flight 111 crashed. The aircraft involved in
the crash was an MD-11 equipped with the Entertainment Network. Despite the fact
that there is no evidence that the Entertainment Network had anything to do with
the crash, on October 29, 1998, the Company was notified by Swissair of the
airline's decision to deactivate the Entertainment Network on all Swissair
aircraft. Until April 1999, the Company and its system integrator/installation
contractor had been working closely with Swissair to take the necessary steps
that would allow Swissair to reactivate the systems as quickly as possible.
However, by April 1999, discussions between the Company and Swissair regarding
outstanding financial matters related to current accounts receivable, inventory,
purchase commitments and extended warranty obligations, as well as planning
discussions for an October 1999 reactivation ceased to be productive.
On May 6, 1999, the Company filed a lawsuit against Swissair in the United
States District Court for the District of Arizona seeking damages for Swissair's
failure to honor its obligations for payment and reactivation of the Company's
Entertainment Network. Swissair has failed to make payments to the Company under
installation and warranty contracts and has harmed the Company's business and
reputation by failing to honor its commitments to reactivate the Entertainment
Network on Swissair aircraft. Even though there has been no evidence that the
Entertainment Network contributed in any way to the crash of Swissair Flight No.
111 on September 2, 1998, Swissair has continued to use the unfortunate
circumstances of the crash as an excuse to avoid its obligations.
The Swissair agreements are not assignable to third parties under the terms
of such agreements. However, in connection with the Transaction, the Company has
agreed to pay to TNCi any net proceeds received from Swissair as a result of the
above litigation or otherwise. Further, TNCi, as a subcontractor to the Company,
will assume any operational responsibilities of the Swissair agreement in the
event that such requirement arises. TNCi has not assumed any liabilities or
obligations arising out of the crash of Swissair Flight No. 111. See "Item 3 --
Legal Proceedings."
As a result of the above events, management concluded that its only source
of future payment, if any, will be through the litigation process. In addition,
with the deactivation of the entertainment system and Swissair's breach of its
agreements with the Company, TNCi believes it will not be called upon by
Swissair to perform any ongoing warranty, maintenance or development services.
Swissair's actions have rendered TNCi's accounts receivable, inventory and
deposits worthless as of June 30, 1999. Accordingly, TNCi has recognized
deferred revenue on equipment sales to the extent of cash received of $876,000;
charged off inventory to cost of equipment sales in the amount of $1,517,000;
wrote off deposits of $655,000 to special charges; and reversed all warranty and
maintenance accruals totaling $5,164,000.
TNCi entered into a CruiseView Purchase Agreement, dated as of February 13,
1998 (the "Star Agreement"), with Continuous Network Advisors ("CNA") on behalf
of Star Cruises Management Limited ("Star"), an Isle of Man corporation engaged
in the operation of a
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commercial cruise line, for the purchase of CruiseView systems for installation
on up to two Star cruise vessels. Certain issues arose during the contract
installation period which lead to a settlement agreement between Star and CNA
dated June 1999 whereby Star would return the TNCi's equipment by December 31,
1999. No cash payments are required to be made to TNCi pursuant to the
settlement agreement. TNCi is objecting to the settlement agreement although
TNCi believes modifying such settlement and receiving payment at this time is
unlikely.
US Wireless Corporation
In March 1999, the Company invested $3 million in US Wireless in exchange
for 30,000 shares of Series B Preferred Stock ("US Wireless Series B"). As of
June 30, 1999, the Company accounts for this investment at cost. Each share of
US Wireless Series B is convertible into approximately 67 shares of common stock
of US Wireless until March 2000, after which each such share is convertible into
100 shares of common stock of US Wireless. The US Wireless Series B is subject
to mandatory conversion into common stock at any time at a conversion rate of
100 shares of common stock of US Wireless in the event the closing price for US
Wireless' common stock as reported on NASDAQ is at least $5.00 per share for 30
consecutive trading days.
The US Wireless Series B entitles the holder to receive $100 per share
liquidation preference before any distributions to the holders of common stock
in the event of a liquidation of US Wireless. In addition, the Company and other
holders of the US Wireless Series B have, as a separate class, elected one
member to US Wireless' Board of Directors and one additional individual as an
observer to the Board. As a condition to making the investment, the Company also
obtained certain registration rights relating to the registration under the
Securities Act of 1933 of those shares of common stock of US Wireless into which
the US Wireless Series B held by the Company is convertible. The Company has
waived its registration rights.
Based on the foregoing, the Company currently beneficially owns 11.15% of
the common stock of US Wireless (based on a conversion rate of 67 shares of
common stock per share of US Wireless Series B) and, assuming no further share
issuances until March 2000, will beneficially own 15.25% of the common stock of
US Wireless at that time (based on a conversion rate of 100
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shares of common stock per share of US Wireless Series B). Both percentages
assume full conversion of US Wireless Series A preferred stock (into 560,000
shares) and US Wireless Series B (into 3,350,000 and 5,000,000 shares based on
conversion at the 67 share rate and 100 share rate, respectively). The fair
market value of the Company's investment in US Wireless Series B at June 30,
1999, assuming conversion into 67 shares or 100 shares, of common stock for each
share of US Wireless Series B and a discount of 25% (which discount might
actually be higher or lower, depending upon market conditions) for potential
lack of marketability of the unregistered shares, are estimated to be $5.7
million and $8.6 million, respectively. The corresponding figures as of October
15, 1999 were $6.9 and $10.4 million, respectively.
There is no assurance that the Company will realize any gain on its
investment in US Wireless.
Inter Lotto (UK) Limited
IFT Leasing entered into an agreement with International Lottery &
Totalizator Systems, Inc., a California corporation ("ILTS"), to purchase an
on-line lottery system for the operation of the Inter Lotto lotteries. The base
purchase price of the lottery system purchased from ILTS is $12.3 million. In
addition, IFT Management entered into an eight-year facilities management
agreement with ILTS to provide operational and technology support for the
system. Under this agreement, IFT Management is required to make weekly payments
to ILTS of $72,000 plus additional amounts based on the number of installed
terminals in excess of 3,500 and plus a percentage of the average daily sales.
As of June 30, 1999, the Company's investment in Inter Lotto was $1,050,775
consisting of working capital advances, notes receivable and capitalized
acquisition costs. During the Transition Period ended June 30, 1999, the Company
recorded its proportionate share of losses of Inter Lotto and equity goodwill
amortization of $167,493 which has been recorded as equity in loss of
non-consolidated affiliates in the consolidated statement of operations.
Donativos
In May 1999, the Company, through its wholly-owned subsidiary, Interactive
Flight Technology (Gibraltar) Ltd., a Gibraltar company ("IFT Gibraltar"),
loaned $1,632,000 to Donativos and acquired a 24.5% interest in the venture. The
Company accounts for this investment under the equity method. In addition to IFT
Gibraltar, other partners in the venture include Regal Gaming, which also has a
24.5% interest, and Manuel G. Caldera, a Mexican national, who has a 51%
interest. The IFT Gibraltar loan bears interest at an annual rate equal to the
prime rate plus three percent (3%) and matures on April 30, 2001. The Company
has also provided a letter of credit in the amount of $913,445 to secure
repayment of the purchase price of certain gaming equipment to be acquired by
IFT Gibraltar and leased to Donativos. In addition to its 24.5% equity interest
in Donativos, in consideration for making the loan and providing the letter of
credit, the Company will receive 25% of any profits generated by Donativos and,
for a term of 10 years, the Company will have an equity interest of at least 10%
in any gaming venture in which Regal Gaming, or a subsidiary or affiliate of
Regal Gaming, is an investor and which relates to gaming activities in Mexico.
As of June 30, 1999, the Company's investment in Donativos was $1,664,555
consisting of the $1,632,000 loan receivable and capitalized acquisition costs.
During the Transition Period
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ended June 30, 1999, the Company recorded its proportionate share of losses of
Donativos and equity goodwill amortization of $28,211 which has been recorded as
equity in loss of non-consolidated affiliates in the consolidated statement of
operations.
Change in Fiscal Year-End
Global elected to change its fiscal year-end from October 31 to June 30.
Accordingly, the eight-month period resulting from this change, November 1, 1998
through June 30, 1999, is referred to as the "Transition Period."
Results of Operations
The unaudited results of operations for the eight months ended June 30,
1998 are as follows and are presented for comparative purposes only.
Eight Months Ended
June 30, 1998
(Unaudited)
------------------
Revenues $18,383,360
Cost of equipment sales 15,239,568
Cost of service income 13,533
Research and development 1,092,316
General and administrative expenses 4,023,760
Interest expense 8,873
Interest income 1,490,025
Other income 10,679
-----------
Net loss to common stockholders $ 493,986
===========
Revenue for the Transition Period ended June 30, 1999 was $1,582,461, a
decrease of $16,800,899 (or 91%) compared to revenue of $18,383,360 (unaudited)
for the corresponding period ended June 30, 1998. Revenue for the Transition
Period ended June 30, 1999 consisted of equipment sales of $875,957 and service
income of $706,504. The decline in revenue is the result of Swissair's refusal
to take delivery of additional Entertainment Networks and a lack of new customer
orders. The equipment sales were generated from payments received from Swissair
for one of four Entertainment Networks billed per the April 1998 contract. The
service income was principally generated from the Company's dry cleaning plant
which was sold on May 13, 1999. Revenue for the eight-month period ended June
30, 1998 consisted of equipment sales of $17,949,591 (unaudited) and service
income of $433,769 (unaudited). The equipment sales were principally generated
from the installation of the Entertainment Networks on ten Swissair aircraft.
The service income was generated from services provided to Swissair pursuant to
the media programming, services agreement, the Company's share of gaming profits
generated by the Swissair systems and revenue earned under the Swissair Letter
of Intent to extend the warranty.
Revenue for the year ended October 31, 1998 was $19,142,961, an increase of
$8,042,252 (or 72%) over revenue of $11,100,709 for the year ended October 31,
1997. Revenues in each year consist of equipment sales (principally from the
installation of the Entertainment Networks
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on Swissair aircraft) and service income. During the year ended October 31,
1998, the Company completed installations on-board Swissair aircraft under the
initial Swissair program in ten business classes and eighteen first classes
whereas installations completed in fiscal 1997 were in nine business classes and
one first class. Revenues from equipment sales rose 71% from $10,524,828 in
fiscal 1997 to $18,038,619 in fiscal 1998 due to the increased installations in
fiscal 1998. Service income of $1,104,342 for the year ended October 31, 1998
was principally generated from programming services provided to Swissair, the
Company's share of gaming profits generated by the Swissair systems and revenue
earned under the Swissair extended warranty Letter of Intent. Also included in
service income for the year ended October 31, 1998 is revenue of $326,000
generated by the Company's dry cleaning operations acquired on July 24, 1998.
Service income of $575,881 for the year ended October 31, 1997 was primarily
derived from a Product Identification/Product Development Agreement with an
airline and entertainment programming services provided to customers.
Cost of equipment sales for the Transition Period ended June 30, 1999 was
$1,517,323, a decrease of $13,722,245 (or 90%) compared to cost of equipment
sales of $15,239,568 (unaudited) for the corresponding period ended June 30,
1998. Cost of equipment sales includes materials, installation and maintenance
costs, as well as estimated warranty costs and costs of upgrades. For the eight
months ended June 30, 1998 cost of sales resulted from the installation of
equipment on ten Swissair aircraft whereas the decreased cost of sales in the
Transition Period ended June 30, 1999 resulted from material costs for only four
Swissair aircraft. Cost of service income for the Transition Period ended June
30, 1999 was $445,585, an increase of $432,052 compared to cost of service
income of $13,533 (unaudited) for the eight months ended June 30, 1998. Cost of
service income for the Transition Period ended June 30, 1999 is primarily
related to the Company's dry cleaning operation which was acquired on July 24,
1998.
Cost of equipment sales and service income for the year ended October 31,
1998 was $15,762,119, a decrease of $9,116,341 (or 37%) over the comparable
figure of $24,878,460 for the fiscal year ended October 31, 1997. The decrease
in cost of equipment sales is primarily a result of the inclusion of provisions
for inventory obsolescence, unusable inventory and rework adjustments of
$11,496,748 in cost of equipment sales for fiscal 1997. The 1997 provision for
inventory obsolescence was a result of the Company's purchasing inventory for
installation in the economy sections of Swissair aircraft but actually
completing only three economy installations. The unusable inventory and rework
adjustments primarily resulted from the Company's redesign of the tray table
used in the Entertainment Networks for the economy section of an aircraft. The
decrease in cost of equipment sales for fiscal 1998 is also attributable to
reductions in maintenance costs and estimated one-year warranty costs as the
reliability of the Entertainment Networks has improved. Additionally, the
Company recognized a reduction in installation costs from its subcontractor
during fiscal 1998. Included in cost of service income for fiscal 1998 is
$225,047 of production costs related to the Company's dry cleaning operations.
Provisions for doubtful accounts for the Transition Period ended June 30,
1999 were $30,092 compared to zero (unaudited) for the corresponding period
ended June 30, 1998. Fiscal
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1999 provisions resulted primarily from entertainment programming services
provided to Swissair.
Provisions for doubtful accounts for the year ended October 31, 1998 were
$9,869 compared to $216,820 for the year ended October 31, 1997. Fiscal 1998
provisions resulted from the Company's dry cleaning operations and fiscal 1997
provisions resulted from entertainment programming services provided to a
previous customer.
Bad debt recoveries of $1,064,284 during the year ended October 31, 1997
resulted from the recovery of accounts receivable under a customer agreement
which were reserved for during the Company's fourth quarter of its fiscal year
ended October 31, 1996.
There were no research and development expenses for the Transition Period
ended June 30, 1999, compared to $1,092,316 (unaudited) for the corresponding
period ended June 30, 1998. The decrease in expenses reflects the Company's
decision not to develop the next generation of the Entertainment Network and the
resulting reduction in staff and professional fees.
Research and development expenses for the year ended October 31, 1998 were
$1,092,316, a decrease of $6,729,324 (or 86%) over expenses of $7,821,640 for
the year ended October 31, 1997. The decrease in expenses reflects the Company's
decision not to develop the next generation of the Entertainment Network and the
resulting reduction in staff and professional fees. The Swissair agreement
requires the Company to provide specific upgrades to the Entertainment Network.
The Company has ceased development of these upgrades as a result of Swissair's
breach of its agreement and does not plan to develop any further upgrades to the
Entertainment Network.
General and administrative expenses for the Transition Period ended June
30, 1999 were $6,688,813, an increase of $2,665,053 (or 66%) over expenses of
$4,023,760 (unaudited) for the corresponding period ended June 30, 1998.
Significant components of general and administrative expenses include costs of
consulting agreements, legal and professional fees and corporate insurance
costs. Significant components attributable to the increase in general and
administrative expenses from 1998 to 1999 include legal and consulting fees
related to the Donativos and Inter Lotto investments, legal fees related to the
investment in TNCi and a 1999 accrual of approximately $1.6 million to write-off
certain consulting agreements determined, in the current period, to have no
future value.
General and administrative expenses for the year ended October 31, 1998
were $11,387,872, a decrease of $1,186,351 (or 9%) over expenses of $12,574,223
for the year ended October 31, 1997. The decrease in expenses reflects the
Company's reduction in staff in administrative areas, including production,
marketing and program management departments. As of May 29, 1998, the Company
terminated almost all sales and marketing efforts related to IED. The decrease
in expenses during fiscal 1998 was partly offset by the payment of $3,053,642 in
severance to three former executives of the Company.
For the Transition Period ended June 30, 1999 the Company recorded
warranty, maintenance, commission and support cost accrual adjustments of
$5,117,704, $504,409,
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$303,321 and $1,225,959 respectively. Such adjustments to prior period
estimates, which totaled $7,151,393 resulted from an evaluation of specific
contractual obligations and discussions between the new management of the
Company and other parties related to such contracts. Based on the results of the
Company's findings during fiscal 1999, such accruals were no longer considered
necessary. If these accruals had not been adjusted, the Company's loss for the
Transition Period would have been approximately $9.6 million.
Special charges for the Transition Period ended June 30, 1999 were
$2,485,660 compared to zero (unaudited) for the corresponding period of the
previous fiscal year. Special charges resulted from a $521,590 write-off of
accounts receivable and deposits due from Swissair, offset by deferred revenue
under the Swissair extended warranty contract. Swissair's actions, as described
above, have rendered the Company's accounts receivable and deposits from
Swissair worthless as of June 30, 1999 and, accordingly, the Company wrote-off
such assets. Also included in special charges are expenses of $1,843,750 and
$120,320 for the settlement of litigation matters with First Lawrence Capital
Corp. and FortuNet, Inc., respectively
Special charges for the year ended October 31, 1998 were $400,024 compared
to $19,649,765 for the year ended October 31, 1997. Special charges in fiscal
1998 primarily resulted from equipment write-offs of $1,006,532. The write-offs
were for excess computers, furniture and other equipment that the Company is not
utilizing in its operations and is in the process of disposing. The equipment
write-offs were partly offset by a recovery of special charges expensed in
fiscal 1997. During fiscal 1998, a recovery of $190,000 was recognized as a
special charge credit as a result of a reduction in the number of Entertainment
Networks requiring maintenance. The Company also recognized a recovery of
$416,508 related to Swissair's decision to not develop the system for the front
row in the economy sections of its aircraft. Special charges in fiscal 1997
primarily resulted from the installment of the Entertainment Networks on three
Swissair aircraft and installations required by the Debonair agreement. The
Company was responsible for the costs of installing the system on three Swissair
aircraft, including materials, installation, upgrades, a one-year warranty and
maintenance through September of 1998. The costs for these three systems of
$14,292,404 were recorded as a special charge during fiscal 1997. Due to the
termination of the Debonair agreement, the costs of the installed system
($956,447) and all inventory on-hand under the Debonair agreement ($2,881,962)
were written off as a special charge in fiscal 1997. Additionally, the Company
recorded a special charge of $1,518,952 for the write-off of a system
integration lab utilized in software development and testing. The lab equipment
will not be utilized in the Company's future operations.
Expenses associated with investments of $550,000 for the fiscal year ended
June 30, 1999 represent $150,000 and $250,000 write-offs of investments deemed
to have no value and a $150,000 standstill fee related to the Inter Lotto
acquisition.
Interest expense was $74,684 for the Transition Period ended June 30, 1999
compared to $8,873 (unaudited) for the period ended June 30, 1998. The 1999
Transition Period expense is attributable principally to long-term debt
obligations, whereas the expense for the eight months
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ended June 30, 1998 is attributable to the Company's capital leases for
furniture that expire in September 1999.
Interest expense was $11,954 for the year ended October 31, 1998
compared to $13,423 for the year ended October 31, 1997. The expense is
attributable to the Company's capital leases for furniture that expired in
September of 1999.
Interest income for the Transition Period ended June 30, 1999 was
$1,060,229, a decrease of $429,796 (or 29%) compared to income of $1,490,025
(unaudited) for the corresponding period ending June 30, 1998. The interest
arose principally out of short-term investments of working capital. The decrease
in income is due to the lower average cash balance during 1999 compared to 1998.
Interest income for the year ended October 31, 1998 was $2,251,055, an
increase of $80,380 (or 4%) over income of $2,170,675 for the year ended October
31, 1997. The interest arose principally out of short-term investments of
working capital. The increase in income is due to the higher average cash
balance during 1998 compared to 1997.
Other income for the Transition Period ended June 30, 1999 was $61,252
compared to $10,679 (unaudited) for the corresponding period ended June 30,
1998. Other income in fiscal 1999 represents sublet income for the sublease of
office space and proceeds from the sale of office furniture and equipment to
employees. Other income in fiscal 1998 represents proceeds from the sale of
equipment and scrapped inventory.
Other income of $10,179 for the year ended October 31, 1998 represents
proceeds from the sale of scrapped inventory. Other expense of $203,649 for the
year ended October 31, 1997 represents the loss on disposals of property and
equipment.
For the Transition Period ended June 30, 1999 the Company recorded a gain
of $133,396 on the sale of its dry cleaning operation. The dry cleaning
operation was sold in May 1999.
For the Transition Period ended June 30, 1999 the Company recorded its
proportionate share of its equity interest in losses of Inter Lotto in the
amount of $195,704.
Liquidity and Capital Resources
At June 30, 1999, the Company had cash, cash equivalents, and short-term
investments of approximately $19.8 million. Prior to the last fiscal year, the
Company's primary source of funding had historically been through equity
offerings. Subsequent to June 30, 1999, the Company obtained orders consisting
of a $5.3 million purchase order for the manufacture, delivery and installation
of 193 Cheetah(TM) multimedia servers to certain Georgia schools, and a service
order under the Carnival Agreement for installation of a second CruiseView
system. As of October 25, 1999, all 193 servers had been delivered and the
Company has received payment. The Company received an installment payment from
Carnival in August 1999. Excluding the benefit of the Georgia program, cash,
cash equivalents, and short-term investments will continue to decrease as the
Company continues to invest in inventory for the
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Carnival service order, invest in business development and cover overhead
expenses, contribute capital into affiliate companies and complete new
transactions which may not generate cash flow in the next twelve months.
During the Transition Period ended June 30, 1999, the Company used $5.2
million of cash for operating activities, an increase of $2.0 million from the
$3.2 million of cash used by operating activities for the fiscal year ended
October 31, 1998. Cash utilized in operations during the Transition Period
resulted primarily from general and administrative expenses and a reduction in
accounts payable. The cash used in operations during the year ended October 31,
1998 is primarily a result of increases in accounts receivable and increases in
inventories and an increase in accrued product warranties, offset by decreases
in accounts payable and deferred revenue.
During the Transition Period ended June 30, 1999, restricted cash increased
by $373,000 as a result of payments of $540,000 made under consulting and
severance agreements with three former executives of the Company, offset by an
increase of $913,000 representing cash collateral posted by the Company to
secure its contingent obligation under a letter of credit.
Cash flows used in investing activities were $7.7 million during the
Transition Period ended June 30, 1999. Investments in affiliates of $7.6 million
accounted for the majority of the use of cash. Investments primarily include US
Wireless, Inter Lotto and Donativos. Increases in restricted cash and purchases
of investment securities in excess of sales and maturities of investment
securities, offset by proceeds from the sale of Johnny Valet, Inc., accounted
for the balance of the change.
Cash provided from financing activities during the Transition Period ended
June 30, 1999 of $588,000 resulted primarily from Global's issuance of its
Series A 8% Convertible Preferred Stock ("Series A Preferred") offset by
payments on notes and purchases of treasury stock.
The holder of Series A Preferred is entitled to receive, when, as and if
declared by the Board of Directors, an annual cumulative dividend of $80 per
share payable quarterly in cash or common stock. Cumulative undeclared and
unpaid dividends at June 30, 1999 total $33,333. At the option of the holder,
beginning November 6, 1999, each share of Series A Preferred is convertible into
common stock at a price equal to $3.00 per share or into Series B Preferred
Stock at the rate of 1.19 shares of Series B Preferred Stock for each share of
Series A Preferred Stock. Global's Series B Preferred Stock is entitled to one
vote for each share of common stock into which it may convert. There are no
shares of Series B Preferred Stock outstanding.
Global may redeem the Series A Preferred at prices ranging from 115% to
125% of stated value, plus accrued and unpaid dividends at any time between
November 6, 1999 and May 4, 2000. If the Series A Preferred is not redeemed or
converted into shares of Global's Series A Common Stock by May 5, 2000, then the
Series A Preferred automatically converts into shares of Global's Series B 8%
Convertible Preferred Stock at the rate of 1.25 shares of Series B Preferred
Stock for each share of Series A Preferred Stock.
Shares of Series B 8% Convertible Preferred Stock are, in turn, convertible
into Class A Common Stock of Global at a price per share equal to the lower of
(a) 82% of Market Price (as
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defined in the Certificate of Rights, Preferences, and Designations of the
Series B Preferred Stock) or (b) $3.00 per common share. Because the terms of
any such conversion into Series B 8% Convertible Preferred Stock are unfavorable
to Global, it is likely that Global will redeem the Series A 8% Convertible
Preferred Stock. On November 6, 1999, the redemption price will be approximately
115% of stated value per share ($3,450,000) plus accrued and unpaid dividends,
which will be approximately $120,000 at that time.
Global may be required to commit additional funds to its affiliate
companies, TNCi, Donativos and Inter Lotto, which would come from existing
working capital of the Company. Such additional funds, if required, could have a
material adverse effect on the Company's ability to acquire new operating
companies or make new investments. In particular, because of the cash flow
deficit being experienced by Donativos (see Item 1 "Description of Business -
Donativos"), the Company will probably be forced to service the obligations
associated with its purchase of 332 slot machines without receiving
corresponding timely equipment rental payments from Donativos. As of October 15,
1999, the balance due for the slot machines is approximately $856,000.
The Company had no purchase commitments as of June 30, 1999. In September
1999, the Company entered into an agreement to purchase $12.3 million of lottery
systems in connection with its investment in Inter Lotto. The Company paid $2.8
million towards the purchase price and expects to finance the balance of this
commitment with debt financing to be obtained from a financial institution. No
assurances can be made that such financing will be available to the Company. If
the Company is unable to obtain such financing, such inability would have a
material adverse effect on the Company's liquidity. The Company also entered
into a facilities management agreement for servicing of the lottery systems.
Under this agreement, IFT Management is required to make weekly payments to ILTS
of $72,000 plus additional amounts based on the number of installed terminals in
excess of 3,500 and plus a percentage of the average daily sales.
On August 13, 1999, the Company and two of its officers entered into a
Release and Settlement Agreement ("Agreement") with First Lawrence Capital Corp.
("First Lawrence") whereby the Company issued 250,000 shares of its Class A
common stock and agreed that its wholly-owned subsidiary, IFT Holdings, will pay
First Lawrence 24 consecutive monthly payments of $41,667 each beginning
February 1, 2000. In exchange, First Lawrence will be available to perform
management consulting services to IFT Holdings. Funding for the consulting
services is expected to be derived from operating cash flow of Inter Lotto.
Should Inter Lotto not generate sufficient cash flow to IFT Holdings, then the
consulting payment may not be made.
On August 24, 1999, the Board of Directors of Global approved a $5 million
secured revolving credit facility in favor of TNCi ("the Facility"). The
Facility provides that TNCi may borrow up to $5 million for working capital and
general corporate purposes at an annual interest rate equal to the prime rate
plus 3%. The Facility matures in September 2001. TNCi paid an origination fee of
$50,000 to the Company and will pay an unused line fee of 0.5% per annum.
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The Facility is secured by all of the assets of TNCi and is convertible, at the
Company's option, into shares of the Series C preferred Stock or TNCi Common
Stock.
A note payable of TNCi due September 5, 1999 was in default at June 30,
1999. Subsequent to year-end, the note was converted into 200,000 shares of
TNCi's common stock.
The terms of the Carnival Agreement provide that Carnival may return the
CruiseView system within the Acceptance Period, as defined in the Carnival
Agreement. For the Fantasy Class ship on which CruiseView was installed in
December 1998, the Acceptance Period is 12 months. As of June 30, 1999, the
Company recorded deferred revenue of $365,851, reflecting amounts paid by
Carnival. As of June 30, 1999, the Company has not recognized any revenue in
association with the Carnival Agreement.
The Company is required to provide a performance bond or standby letter of
credit in favor of Carnival ensuring Carnival's ability to be repaid amounts
previously paid to the Company in the event Carnival determines not to accept
the system as permitted under the Carnival Agreement. The Company has not
provided a bond or letter of credit. If Carnival requires the Company to do so,
the Company may be required to provide cash collateral to a financial
institution to secure such a financial instrument.
Moreover, if Carnival does not accept the system the Company will be
obliged to return the purchase price, which would have a material effect on
liquidity.
Cautionary Factors That May Affect Future Results
In addition to the risks articulated elsewhere in this report with respect
to Donativos, Inter Lotto, and US Wireless, the following risks are associated
with TNCi.
Risks Inherent In Development Of New Products And Markets. TNCi's strategy
includes developing new applications for its interactive entertainment and
information technologies and entering new markets, such as the train industry.
This strategy presents risks inherent in assessing the value of development
opportunities, in committing capital in unproven markets and in integrating and
managing new technologies and applications. Within these new markets, TNCi will
encounter competition from a variety of sources. It is also possible that TNCi
will experience unexpected delays or setbacks in developing new applications of
its technology. There can be no assurance that TNCi's new products and
applications will generate additional revenue for TNCi or that TNCi will
successfully penetrate these additional markets.
Risk Of Technological Obsolescence. The ability of TNCi to maintain a
standard of technological competitiveness is a significant factor in TNCi's
strategy to maintain and expand its customer base, enter new markets and
generate revenue. While TNCi believes that its systems are currently
technologically competitive, TNCi's continued success will depend in part upon
its ability to identify promising emerging technologies and to develop, refine
and introduce high quality services in a timely manner and on competitive terms.
There can be no assurance that future technological advances by direct
competitors or other providers will not result in improved
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systems that could adversely affect TNCi's business, financial condition and
results of operations. Additionally, TNCi may fail to identify emerging
technologies.
Management Of Growth. TNCi's growth strategy will require its management to
conduct operations and respond to changes in technology and the market, while
substantially expanding operations and personnel. If TNCi's management is unable
to manage growth effectively, its business, financial condition and results of
operations will be materially adversely affected.
Risk Of System Failure Or Inadequacy. The failure of one of TNCi's systems
at any particular time could occur as a result of component malfunction,
operator error or some other reason. Although system interruptions historically
have been inconsequential, any system failure could harm TNCi's reputation,
cause a loss or delay in market acceptance of TNCi's systems, and have a
material adverse effect on TNCi's business, financial condition and results of
operations. To reduce the risk of system failure, TNCi performs extensive
testing of its systems and engages in ongoing quality assurance efforts
involving the use of redundant systems and sophisticated diagnostic tools to aid
in system maintenance and trouble-shooting. Despite these measures, there can be
no assurance that system failures or interruptions will not occur.
Dependence On Key Personnel. TNCi's success is dependent on a number of key
management, research and operational personnel for the management of operations,
development of new products and timely installation of its systems. The loss of
one or more of these individuals could have an adverse effect on TNCi's business
and results of operations. TNCi depends on its continued ability to attract and
retain highly skilled and qualified personnel. There can be no assurance that
TNCi will be successful in attracting and retaining such personnel.
Dependence On Transportation Industry And Continued Operation Of
Transportation Industry Customers. A substantial portion of TNCi's revenue is
expected to be generated in the near term from its transportation industry
operations, thereby making TNCi's business dependent upon the transportation
industry in general and the continued operations of TNCi's transportation
industry customers. A significant reduction in the operations of any of these
customers could, depending on the extent of the reduction, have a material
adverse effect on TNCi. Additionally, the transportation industry is dependent
on customers having disposable income. Therefore, a general economic downturn or
a recession could negatively impact the transportation industry before affecting
other segments of the economy, even though transportation providers typically
offer promotional pricing and incentives during recessionary periods to ensure a
steady occupancy rate.
Concentration of Customer Base. TNCi has only two principal customers -
Carnival in the transportation industry and MRESA in the educational industry.
If TNCi is unable to maintain good relations with these customers or expand its
customer base, or if either customer determines not to continue purchasing
servers at all, there is a risk that results of operations will be materially
adversely affected.
Competition. The market for entertainment networks is rapidly evolving and
highly competitive. Many of TNCi's current and potential competitors have longer
operating histories
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and significantly greater financial, technical, marketing and other resources
than TNCi and therefore may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Although TNCi's business
strategy targets certain markets which it believes offer a competitive
advantage, there can be no assurance that TNCi will be able to compete
effectively with current or future competitors or that the competitive pressures
faced by TNCi will not have a material adverse effect on TNCi's business,
financial condition and results of operations.
Government Regulation And Legal Uncertainties. TNCi is subject, both
directly or indirectly, to various laws and governmental regulations relating to
its business. TNCi believes that it is currently in compliance with such laws
and that they do not have a material impact on its operations. However, as a
result of rapid technology growth and other related factors, laws and
regulations may be adopted which significantly impact TNCi's business.
Long Sales Cycles; Lack Of Existing Backlog. The sales cycle for TNCi's
systems is relatively long because it involves the evaluation of TNCi's
technology for each project, a test installation of each customized system, and
negotiation of related agreements from other providers such as movie and
Internet access providers and computer gaming operators. All of these items
requires a large investment on the part of TNCi and occurs before a contract is
signed with an end-user. The long sales cycles for TNCi's products, combined
with the fact that TNCi had no backlog orders as of June 30, 1999, could place a
significant strain on TNCi's financial and other resources. The failure by TNCi
to build a backlog of orders in the future would have a material adverse effect
on TNCi's financial condition.
Unproven Business Strategy. In connection with the acquisition of IED, TNCi
has retained a new management team. TNCi's new management has shifted TNCi's
business strategy to position itself as a provider of comprehensive systems
solutions and as an integrated browser-based software developer and content
programming, procurement, integration and management service provider. Moreover,
TNCi has recently begun focusing its sales efforts on the business jet, train
and cruise transportation industries and on the training and academic solution
provider industry. Since this new strategy has been implemented recently, TNCi
has a minimal operating history to reflect the results of this strategy.
Therefore, there can be no assurance that TNCi will succeed in implementing its
strategy or that it will obtain financial returns sufficient to justify its
investment in the markets in which it plans to participate.
Insurance And Potential Excess Liability. The Company maintains liability
insurance to protect against claims arising for it. These policies have limits
of up to $10 million in the aggregate and insures against both property damage
and personal injury. The policies are written on an "occurrence" basis, which
provides coverage for insured risks that occur during the policy period,
irrespective of when a claim is made. Higher policy limits are sometimes
purchased for individual projects when contractually required. If the Company
incurs liability in excess of the Company's policy coverage, the Company's
financial condition could be adversely affected.
Economic And General Risks Of Business. The Company's success will depend
upon factors that are beyond its control and that cannot clearly be predicted at
this time. Such factors include general economic conditions, both nationally and
internationally, changes in tax laws,
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fluctuating operating expenses, changes in governmental regulations, changes in
technology, and trade laws.
Inflation and Seasonality
The Company does not believe it is significantly affected by inflation.
Company operations are not seasonal in nature, except to extent fluctuations in
quarterly operating results occur due to the specifically cyclical nature of
government funding to be obtained in connection with education programs.
Risks Associated With Year 2000
The commonly referred to Year 2000 ("Y2K") problem results from the fact
that many existing computer programs and systems use only two digits to identify
the year in the date field. These programs were designed and developed without
considering the impact of a change in the century designation. If not corrected,
computer applications that use a two-digit format could fail or create erroneous
results in any computer calculation or other processing involving the Year 2000
or a later date. The Company has identified two main areas of Y2K risk:
1. Internal computer systems or embedded chips could be disrupted or
fail, causing an interruption or decrease in productivity in the Company's
operations, and
2. Computer systems or embedded chips of third parties including
(without limitation) financial institutions, suppliers, vendors, landlords,
customers and service providers and others ("material third parties") could
be disrupted or fail, causing an interruption or decrease in the Company's
ability to continue operations.
The Company has developed, or is in the process of developing, plans for
implementation and testing of any necessary modifications to its key computer
systems and equipment with embedded chips to ensure that it is Y2K compliant.
The Company believes that its internal systems are Y2K compliant. The Company
believes that the Y2K issue will not pose significant operational problems for
it. However, if the modifications and conversions made are not sufficient, Y2K
could have a material impact on its operations. The Company has performed an
assessment of its TRIUMPH products for Y2K issues. The TRIUMPH products use a
four-digit identifier and, therefore, the Company believes the TRIUMPH products
are Y2K compliant.
The Company's cost of addressing Y2K has been insignificant to date. The
financial impact of making any additional systems changes, or other remediation
efforts, if any, cannot be known precisely at this time, but it is not expected
to be material to the Company's financial position, results of operations, or
cash flows.
In addition, the Company has identified and is communicating with material
third parties to determine their Y2K status and any possible affect on the
Company as a result of dealing with them. The Company will continue to track and
evaluate its long-term relationships with material third parties based on the
responses it receives and on information learned from other sources. If any of
the Company's material third parties are not Y2K ready and such non-compliance
causes a
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material disruption to any of their respective businesses, the Company's
business could be materially adversely affected. Disruptions could include,
among other things: the failure of a material third party's business; a
financial institution's inability to take and transfer funds; an interruption in
delivery of supplies from vendors; a loss of voice and data connections; a loss
of power to the Company's facilities; and other interruptions in the normal
course of the Company's operations, the nature and extent of which the Company
cannot foresee. The Company will continue to evaluate the nature of these risks,
but at this time the Company is unable to determine the probability that any
such risk will occur, or if it does occur, what the nature, length or other
effects, if any, that it may have on the Company. If a significant number of
material third parties experience failures in their computer systems or
operations due to Y2K non-compliance, it could affect the Company's ability to
process transactions or otherwise engage in similar normal business activities.
For example, while the Company expects its internal systems to be Y2K ready, the
Company and its customers will be dependent upon the Y2K readiness of many
providers of communications services and in turn, those providers' vendors and
suppliers. If, for example, such providers and others are not Y2K ready, the
Company and its customers may not be able to send and receive data and
electronic transmissions, which would have a material adverse effect on the
business and revenues of the Company and its customers. While many of these
risks are outside the Company's control, the Company has instituted a process to
identify material third parties and to address any non-compliance issues.
Although the Company believes that it is adequately addressing the Y2K
issue, there can be no assurance that its Y2K analysis will be completed on a
timely basis, or that the cost and liabilities associated with the Y2K issue
will not materially adversely impact its business, prospects, revenues or
financial position. The Company is uncertain as to its most reasonably likely
worst case Y2K scenario, and it has not yet developed a contingency plan to
handle a worst case scenario.
Forward-Looking Information
This Report contains certain forward-looking statements and information
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The cautionary statements made in this
Report should be read as being applicable to all related forward-looking
statements wherever they appear in this Report. Forward-looking statements, by
their very nature, include risks and uncertainties. Accordingly, the Company's
actual results could differ materially from those discussed herein. A wide
variety of factors could cause or contribute to such differences and could
adversely impact revenues, profitability, cash flows and capital needs. Such
factors, many of which are beyond the control of the Company, include, without
limitation, the following: resolution of the Swissair-related litigation;
maintenance of the Donativos permit for operation of the Center; obtaining a
secondary prize permit by Donativos for use at the Center; obtaining financing
for the Inter Lotto gaming equipment; remedying or improving dramatically the
cash shortfall in Donativos' operations; the inability to cover the obligations
to ILTS from the operations of a start-up venture in an untried game in the UK
market; the Company's success in obtaining new contracts; the volume and type of
work orders that are received under such contracts; the accuracy of the cost
estimates for the projects; the Company's ability to complete its projects on
time and within budget; levels of, and ability to
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collect accounts receivable; availability of trained personnel and utilization
of the Company's capacity to complete work; competition and competitive
pressures on pricing; and economic conditions in the United States and in other
regions served by the Company.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes standards for
the accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. This
statement generally requires recognition of gains and losses on hedging
instruments, based on changes in fair value or the earnings effect of forecasted
transactions. As issued, SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--An
Amendment of FASB Statement No. 133," which deferred the effective date of SFAS
No. 133 until June 15, 2000. The Company is currently evaluating the impact of
SFAS No. 133.
On November 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and unrealized
gains and losses on investment securities net of taxes and is presented in the
consolidated statements of stockholders' equity and comprehensive income; it
does not affect the Company's financial position or results of operations.
On November 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise" replacing
the "industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosure about
products and services, geographical areas, and major customers. The adoption of
SFAS No. 131 does not affect results of operations or financial position but
does affect the disclosure of segment information.
On November 1, 1998, the Company adopted Statement of Position (SOP) 98-5
"Reporting on the Costs of Start-Up Activities" issued by the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants. SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs. The SOP requires start-up activities and
organization costs to be expensed as incurred. The adoption of SOP 98-5 did not
have a material impact on the Company's results of operations.
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ITEM 7 - FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company for the
Transition Period ended June 30, 1999 are located beginning at page F-1 of this
Transition Report.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no items or circumstances to be disclosed under this Item 8.
PART III
ITEM 9 - Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act.
The following sets forth biographical information about each of Global's
directors and executive officers as of June 30, 1999:
Name Age Position/Office
- ---- --- ---------------
Irwin L. Gross 55 Chief Executive Officer and Chairman of the Board
James W. Fox 49 President, Chief Operating Officer and Director
Morris C. Aaron 35 Vice President and Chief Financial Officer
David N. Shevrin 37 Vice President and Secretary
M. Moshe Porat 52 Director
Charles T. Condy 59 Director
Stephen Schachman 55 Director
Irwin L. Gross has been the Chairman of the Board of Directors and Chief
Executive Officer of Global since September 1998 and Chairman of the Board of
Directors and Chief Executive Officer of TNCi since May 18, 1999. He is a
founder of Rare Medium, Inc., a publicly held company listed on the NASDAQ
National Market, and was Chairman and a Director of Rare Medium, Inc. from 1984
to 1998. In addition, Mr. Gross served as the Chief Executive Officer of
Engelhard/ICC, a joint venture between Rare Medium and Engelhard. In December of
1998, Mr. Gross became a director of ORBIT/FR, a publicly held company
specializing in the design and manufacture of sophisticated automated microwave
test measurement systems for the wireless communication, satellite and aerospace
industries. Mr. Gross has served as a consultant to, investor in and director
of, numerous publicly held and private companies. Mr. Gross also serves on the
board of directors of several charitable organizations. Mr. Gross has a Bachelor
of Science degree in Accounting from Temple University and a Juris Doctor degree
from Villanova University
James W. Fox is the President and Chief Operating Officer of Global. He was
formerly the Managing Partner of First Lawrence, and was responsible for the
firm's management and the
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growth of its mergers and acquisitions advisory and principal investment
activities. From 1989 to 1996, Mr. Fox was a director with national practice
development and management responsibility with Coopers & Lybrand in New York,
with primary responsibility for mergers and acquisitions activities. He has held
senior mergers and acquisitions positions with General Foods Corp., Arthur Young
and W.R. Grace Co. Mr. Fox has a Bachelor of Arts degree in Mathematics and
History from Amherst College and an M.B.A. in Finance from the University of
Pennsylvania's Wharton School.
Morris C. Aaron, is the Chief Financial Officer of Global. Since May 18,
1999, Mr. Aaron has also served as an executive officer and a Director of TNCi.
Prior to his involvement in Global, from January 1996 to September 1998, Mr.
Aaron was the Chief Financial Officer and Treasurer of Employee Solutions, Inc.,
a publicly-held company listed on the NASDAQ National Market. From 1986 to 1996,
Mr. Aaron was with the firm of Arthur Andersen, LLC in the corporate finance and
corporate restructuring group. Mr. Aaron holds a Bachelors Degree in Accounting
from Pennsylvania State University, an M.B.A. from Columbia University and is a
Certified Public Accountant in the State of New York.
David N. Shevrin, has served as Vice President and Secretary of the Company
since September 1998, with primary responsibility for business development and
analysis. Prior thereto, from July 1998, Mr. Shevrin was Vice President of Ocean
Castle Investments, LLC, another affiliate of Irwin L. Gross. His
responsibilities there were also in the areas of business development and
analysis. From November 1994 to July 1998, Mr. Shevrin was Assistant to the
Chairman and Chief Executive Officer of Rare Medium, Inc. Before then, Mr.
Shevrin served as a Product Manager with Kraft General Foods.
M. Moshe Porat has been a Director of Global since September 1998 and a
Director of TNCi since May 18, 1999. Since September 1996, Dr. Porat has served
as the Dean of the School of Business and Management at Temple University. He is
the Chairholder of the Joseph E. Boettner Professorship in Risk Management and
Insurance. From 1988 to 1996 he was Chairman of the Risk Management, Insurance
and Actuarial Science Department at Temple University. He received his
undergraduate degree in economics and statistics (with distinction) from Tel
Aviv University. His M.B.A. (Magna Cum Laude) is from the Recanati Graduate
School of Management at Tel Aviv University. He completed his doctoral work at
Temple University. Prior to his academic work, Dr. Porat served as deputy
general manager of a large international insurance brokerage firm and insurance
company as an economic and financial consultant. Dr. Porat has authored several
monographs on captive insurance companies and their use in risk management, has
published numerous articles on captive insurance companies, self insurance and
other financial and risk topics, has served as an expert witness and has won
several awards. Dr. Porat holds the CPCU professional designation and is a
member of ARIA (American 25 Risk and Insurance Association), IIS (International
Insurance Society), RIMS (Risk and Insurance Management Society) and Society of
CPCU.
Charles T. Condy has been a Director of Global since September 1998 and has
been a director of Rare Medium, Inc. since June 1996. Mr. Condy is the founder,
chairman and chief executive officer of Next Century Restaurants, Inc., a
private company which is the owner of Aqua, and
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<PAGE>
Charles of Nob Hill, both of which are in San Francisco, and Aqua of Las Vegas.
He is founder and has been chairman and chief executive officer of Proven
Alternatives, Inc., a privately held international energy management company,
since 1991. Mr. Condy was chairman and chief executive officer of California
Energy Company, Inc., a geothermal energy company which he founded in 1971, and
which become the largest geothermal energy company in the world. Prior to
founding California Energy Company, Mr. Condy was executive vice
president--Western region of John Nuveen and Company, members of the New York
Stock Exchange. In the public policy area, Mr. Condy helped found and has served
as a board member of the Business Council for a Sustainable Energy Future and
the Coalition for Energy Efficiency and Renewable Technologies. Mr. Condy
currently advises the U.S. Department of Energy, the U.S. Agency for
International Development, and the U.S. Asian Environmental Partnership on
energy efficiency technology transfer and related funding to developing
economies.
Stephen Schachman has been a Director of Global since September 1998. Mr.
Schachman became a Director of TNCi on May 18, 1999 and currently is a
consultant to TNCi. Since 1995, Mr. Schachman has been the owner of his own
consulting firm, Public Affairs Management, which is located in the suburban
Philadelphia area. From 1992 to 1995, Mr. Schachman was an executive officer and
consultant to Penn Fuel Gas Company, a supplier of natural gas products. Prior
thereto, he was an attorney with the Philadelphia law firm Dilworth, Paxson,
Kalish & Kaufman. Mr. Schachman was also an Executive Vice President of Bell
Atlantic Mobile System and prior thereto, President of the Philadelphia Gas
Works, the largest municipally owned gas company in the United States. Mr.
Schachman has a Bachelor of Arts degree from the University of Pennsylvania and
Juris Doctor degree from the Georgetown University Law School.
Officers serve at the discretion of the Board of Directors, subject to
rights, if any, under contracts of employment.
Compliance With Section 16(a) Of The Securities Exchange Act Of 1934
The SEC has comprehensive rules relating to the reporting of securities
transactions by directors, officers and stockholders who beneficially own more
than 10% of Global's Class A Common Stock (collectively, the "Reporting
Persons"). These rules are complex and difficult to interpret. Based solely on a
review of Section 16 reports received by Global from Reporting Persons, Global
believes that no Reporting Person has failed to file a Section 16 report on a
timely basis during the most recent fiscal year.
ITEM 10 - EXECUTIVE COMPENSATION.
The summary compensation table below sets forth the aggregate compensation
paid or accrued by Global for the Transition Period ended June 30, 1999 and
Global's last two fiscal years ended October 31, 1998 and October 31, 1997 to
(i) the Chief Executive Officer (the "CEO"), (ii) Global's most highly paid
executive officers other than the CEO who were serving as executive officers at
the end of the last completed fiscal year and whose total annual salary and
bonus exceeded $100,000, and (iii) one other employee for whom such information
would have been disclosed pursuant to the preceding clause, but for the fact
that such employee was not an executive officer at the end of the last completed
fiscal year (collectively, the "Named Executives").
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<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Sec. Underlying
---------------------------- Stock Option
Name And Principal Position Year Salary ($) Bonus ($) Awards (#)
--------------------------- ---- --------- --------- ----------------
<S> <C> <C> <C> <C>
Irwin L. Gross, 1999 -- -- --
Chief Executive Officer 1998 -- -- --
1997 -- -- --
James W. Fox, President (1) 1999 104,718 -- 70,000
1998 -- -- 30,000
1997 -- -- --
Morris C. Aaron, 1999 130,289 -- 50,000
Chief Financial Officer (2) 1998 18,590 -- --
1997 -- -- --
David Shevrin, Secretary (3) 1999 71,924 -- 50,000
1998 8,462 -- --
1997 -- -- --
Frank Gomer, President, 1999 101,042 43,797 --
Interactive Entertainment Division (4) 1998 153,686 54,445 7,667
1997 90,658 20,000 9,000
</TABLE>
- ------------
(1) Mr. Fox started employment with Global on January 1, 1999.
(2) Mr. Aaron started employment with Global on September 25, 1998.
(3) Mr. Shevrin started employment with Global on September 15, 1998.
(4) Dr. Gomer started employment with Global on February 10, 1997. The
amount for the annual bonus during the 1997 fiscal year represents a
signing bonus.
Option Grants In Fiscal Year
The following table sets forth the stock option grants made during the
Transition Period to the Named Executives:
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted To
Underlying Options Employees In Exercise Price
Name Granted (#) Transition Period (1) ($/Share) Expiration Date
---- ------------------ --------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Irwin L. Gross -- -- -- --
James W. Fox (2) 70,000 33.2% 2.50 01/01/2009
Morris C. Aaron (3) 50,000 23.7% 1.69 12/12/2008
David Shevrin (4) 50,000 23.7% 1.69 12/12/2008
Frank Gomer (5) 4,500 2.2% 2.63 02/19/2008
</TABLE>
- ----------
(1) Based on a total of 210,698 options granted to employees during the 1999
fiscal year.
(2) 14,000 options are immediately exercisable, and 14,000 become exercisable
on each of January 1, 2000, December 31, 2000, January 1, 2002 and December
31, 2002.
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<PAGE>
(3) 10,000 options are immediately exercisable, and 10,000 become exercisable
on each of December 12, 1999, 2000, 2001 and 2002.
(4) 16,667 options become exercisable on each of December 12, 1999, 2000 and
2001.
(5) Represents 2,000 and 2,500 options repriced from $21.94 and $13.50,
respectively, on April 10, 1999.
Option Exercises In Last Fiscal Year And Fiscal Year-End Values
The following table sets forth the stock options exercises made during the
Transition Period by the Named Executives, as well as the value of their
unexercised stock options as of the end of the Transition Period:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-The-Money Options at
Acquired on Value June 30, 1999 June 30, 1999
Name Exercise (#) Realized ($) Exercisable/Unexercisable (1) Exercisable/Unexercisable ($)
---- ------------ ------------ ----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Irwin L. Gross -- -- -- --
James W. Fox -- -- 14,000/86,000 24,500/172,750
Morris C. Aaron -- -- 10,000/40,000 25,620/102,480
David Shevrin -- -- --/50,000 --/128,100
Frank Gomer -- -- 7,065/9,102 11,481/18,541
</TABLE>
- ----------
(1) Subject to reduction as described above under "Option Grants in Fiscal
Year," all of these options had an exercise price less than the closing bid
price per share of Global's Class A Common Stock on the Nasdaq National
Market of $4.25 at June 30, 1999.
Director Compensation
Outside directors receive $1,000 for each meeting of the Board of
Directors, and $500 for each committee meeting, attended in person or by
telephone. In addition, all directors are reimbursed for expenses actually
incurred in connection with each meeting of the Board of Directors or any
Committee thereof attended. Each director has also received grants of options
under the Company's 1997 Stock Option Plan.
Global's 1994 Stock Option Plan (the "1994 Plan") provides for the
automatic grant of non-qualified stock options to directors of Global who are
not employees or principal stockholders of the Company ("Eligible Directors") to
purchase shares of common stock ("Director Options"). On the date an Eligible
Director becomes a director of Global, he or she is granted Director Options to
purchase 10,000 shares of Global's Class A Common Stock (the "Initial Director
Options"). On the day immediately following the date of the annual meeting of
stockholders for Global for each fiscal year, each Eligible Director, other than
directors who received Initial Director Options since Global's prior annual
meeting, is granted Director Options to purchase 1,000 shares of Global's Class
A Common Stock (each an "Automatic Grant"), as long as such director is a member
of the Board of Directors on such day. The exercise price for each share subject
to a Director Option shall be equal to the fair market value of the Class A
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Common Stock on the date of grant, except for directors who receive incentive
options and who own more than 10% of the voting power, in which case the
exercise price shall be not less than 110% of the fair market value on the date
of grant. Director Options are exercisable in four equal annual installments,
commencing one year from the date of grant. Director Options will expire the
earlier of 10 years after the date of grant or 90 days after the termination of
the director's service on the Board of Directors. The 1994 Plan and Global's
1997 Stock Option Plan (the "1997 Plan") also allow grants to directors in
addition to or in lieu of an Automatic Grant.
During the Transition Period, Messrs. Gross, Fox, Porat, Condy and
Schachman each received an Automatic Grant. No Initial Director Options were
granted.
Employment And Severance Agreements
Dr. Frank Gomer serves as President and Chief Operating Officer of TNCi
pursuant to the terms of an employment agreement that terminates on June 10,
2001. Dr. Gomer receives a minimum annual base salary of $215,000. Beginning
June 11, 1999 and ending June 11, 2003, Dr. Gomer also receives 50,000 10-year
options under the Company's Stock Option Plan, which vest in increments of
10,000 options per year pursuant to the terms and conditions of the employment
agreement. The employment agreement also provides for a severance payment in the
event that the Company terminates Dr. Gomer other than for "cause" as defined in
the employment agreement. The severance payment would be equal to two times the
remaining balance of his base salary for the remainder of the then current term.
The employment agreement also provides a payment in the event the Company
terminates Dr. Gomer due to a termination of the Company's business as defined
in the employment agreement or upon termination without cause following a change
in control. In either such event, Dr. Gomer would receive an amount equal to two
times his remaining base salary for the then current term, but not less than his
annual base salary for one year. The employment agreement also provides that the
company may pay other incentive compensation as may be set by the Board of
Directors from time to time, and for such other fringe benefits as are paid to
other executive officers of the Company. Such fringe benefits take the form of
medical and dental coverage and an automobile allowance of $500 per month.
Morris C. Aaron serves as Executive Vice President and Chief Financial
Officer of TNCi pursuant to the terms of an employment agreement that terminates
on June 10, 2001. Mr. Aaron receives a minimum annual base salary of $215,000.
Beginning June 11, 1999 and ending June 11, 2003, Mr. Aaron also receives 50,000
10-year options under the Company's Stock Option Plan, which vest in increments
of 10,000 options per year pursuant to the terms of the employment agreement.
The employment agreement provides for a severance payment in the event that the
Company terminates Mr. Aaron other than for "cause" as defined in the employment
agreement. The severance payment would be equal to two times the remaining
balance of his base salary for the remainder of the then current term. The
employment agreement also provides a payment in the event the Company terminates
Mr. Aaron due to a termination of the Company's business as defined in the
employment agreement. In the event of the termination of the Company's business,
Mr. Aaron would receive an amount equal to two times his remaining base salary
for the then current term, but not less than his annual base salary for one
year. The
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<PAGE>
employment agreement also provides that the company may pay other incentive
compensation as may be set by the Board of Directors from time to time, and for
such other fringe benefits as are paid to other executive officers of the
Company. Such fringe benefits take the form of medical and dental coverage and
an automobile allowance of $500 per month.
James W. Fox serves as President and Chief Operating Officer pursuant to
the terms of an employment agreement that terminates on December 31, 2000. Mr.
Fox receives a minimum annual base salary of $225,000 and, subject to the
achievement of assigned goals, bonuses of not less than 20% of his annual
salary. Mr. Fox also received 70,000 10-year options under the Company's 1997
Stock Option Plan, which vest in increments of 14,000 options per year pursuant
to the terms of the employment agreement. The employment agreement provides for
a severance payment in the event that the Company terminates Mr. Fox other than
for "cause" as defined in the employment agreement. The severance payment would
be equal to two times the remaining balance of his base salary for the remainder
of the then current term. The employment agreement also provides a payment in
the event the Company terminates Mr. Fox due to a termination of the Company's
business as defined in the employment agreement. In the event of the termination
of the Company's business, Mr. Fox would receive an amount equal to two times
his remaining base salary for the then current term, but not less than his
annual base salary for one year. The employment agreement also provides that the
company may pay other incentive compensation as may be set by the Board of
Directors from time to time, and for such other fringe benefits as are paid to
other executive officers of the Company. Such fringe benefits take the form of
medical and dental coverage and an automobile allowance of $450 per month.
Stock Option Repricings
On February 10, 1998, Global's former Board of Directors adopted a plan to
reduce the exercise price on the stock options under the 1994 Plan and the 1997
Plan. The exercise price on one-half of each outstanding option was reduced to
$2.625 per share (the closing price for Global's stock on February 10, 1998) on
October 10, 1998, and on the other half of each outstanding option on April 10,
1999, provided the option holder was still employed by Global on such dates. The
plan amendment was approved by the Board of Directors to retain key employees,
retain appropriate levels of incentive and maintain competitive compensation
levels.
As a result of this action, 4,000 options and 5,000 options held by Dr.
Gomer with exercise prices of $21.939 and $13.50, respectively, were repriced to
$2.625.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of October 15, 1999
regarding the ownership of Global's Class A Common Stock and Series A Preferred
Stock and of TNCi's common stock by (i) each person known by Global to own
beneficially more than five percent of any class of Global's voting securities,
(ii) each director of Global, (iii) each executive officer of Global and (iv)
all executive officers and directors of Global as a group.
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<PAGE>
<TABLE>
<CAPTION>
Series A
Class A Convertible TNCi
Common Stock Preferred Stock Common Stock
-------------------------- --------------------- ----------------------
Name and Address of Number of Percent of Number Percent Number Percent
Beneficial Owner (1) Shares Class (2) of Shares of Class of Shares of Class
- -------------------- ----------- ---------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Irwin L. Gross
Ocean Castle Partners, LLC 522,874 (3) 8.3% -- -- 66,667 1%
Charles T. Condy 13,750 (4) * -- -- -- --
Stephen M. Schachman 10,000 (5) * -- -- -- --
M. Moshe Porat 652,610 (6) 10.7% -- -- -- --
David N. Shevrin 16,667 (7) * -- -- -- --
Morris C. Aaron 24,100 (8) * -- -- 10,000(13) --
James W. Fox 24,000 (9) * -- -- -- --
The Shaar Fund, Ltd. 87,500 (10) 1.4% 3,000 100% -- --
Ruki Renov 431,014 (11) 7.0% -- -- -- --
Esther Stahler 381,781 (12) 6.2% -- --
All executive officers and
direcors of the Company
as a group (7 persons) 1,264,001 19.6% -- --- 76,667 1%
</TABLE>
- -------------------
* Less than 1%.
(1) Unless otherwise noted, all persons named in the table have sole voting and
investment power with respect to all shares beneficially owned by them.
Except as otherwise indicated below, the address of each beneficial owner
is c/o Global Technologies, Ltd., 1811 Chestnut Street, Philadelphia,
Pennsylvania 19103.
(2) Based on 6,114,217 shares of Class A Common Stock outstanding, except that
shares underlying options and warrants to purchase Class A Common Stock
exercisable within sixty (60) days are deemed to be outstanding for
purposes of calculating the percentage owned by the holder(s) of such
options and warrants.
(3) Includes 99,542 shares owned by Ocean Castle Partners, LLC, an entity
controlled by Mr. Gross, and 33,963 shares owned by trusts for the benefit
of Mr. Gross' children as to which Mr. Gross disclaims beneficial
ownership. Also includes 250,000 shares issuable to Mr. Gross upon exercise
of options exercisable within 60 days.
(4) Includes 10,000 shares issuable to Mr. Condy upon exercise of options
exercisable within 60 days.
(5) Represents 10,000 shares issuable to Mr. Schachman upon exercise of options
exercisable within 60 days.
(6) Includes 637,610 shares owned by third parties over which Mr. Porat retains
voting power pursuant to certain proxy agreements, and 10,000 shares
issuable to Mr. Porat upon exercise of options exercisable within 60 days.
(7) Represents 16,667 shares issuable to Mr. Shevrin upon exercise of options
exercisable within 60 days.
(8) Includes 20,000 shares issuable to Mr. Aaron upon exercise of options
exercisable within 60 days.
(9) Represents 24,000 shares issuable to Mr. Fox upon exercise of options
exercisable within 60 days.
(10) Represents 87,500 shares issuable to The Shaar Fund, Ltd. upon exercise of
a Warrant exercisable within 60 days. The address of The Shaar Fund, Ltd.
is c/o Shaar Fund Advisory Services, Ltd., 62 King George Road, Apartment
4F, Jerusalem, Israel.
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<PAGE>
(11) According to Amendment No. 2 to Schedule 13G dated September 29, 1999 filed
by Ruki Renov, Mrs. Renov's address is 172 Broadway, Lawrence, NY 11559.
Mrs. Renov has sole voting power over 9,000 shares owned directly by her,
and options to purchase 86,332 additional shares, which options are
exercisable within 60 days. Mrs. Renov also has shared voting power over
250,000 shares which are owned by an entity of which she is a director.
Mrs. Renov may also be deemed to be the beneficial owner of 34,566 shares
owned by a family limited partnership controlled by her, 42,783 shares
owned jointly by Mrs. Renov and her spouse, and 9,333 shares owned by her
spouse.
(12) According Amendment No. 1 to Schedule 13G dated September 29, 1999 filed by
Esther Stahler, Mrs. Stahler's address is 10 Lakeside Drive, Lawrence, NY
11559. Mrs. Stahler has sole voting power over 3,666 shares owned directly
by her, and options to purchase 86,332 additional shares, which options are
exercisable within 60 days. Mrs. Stahler also has shared voting power over
250,000 shares which are owned by an entity of which she is a director, and
may also be deemed to be the beneficial owner of 41,783 shares owned
jointly by her and her spouse.
(13) Represents 10,000 shares issuable to Mr. Aaron upon exercise of options
exercisable within 60 days.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CONSULTING ARRANGEMENTS
Global's Chief Executive Officer is a principal of Ocean Castle Partners,
LLC which maintains administrative offices for Global's Chief Executive Officer,
Corporate Secretary and certain other employees. During the year ended October
31, 1998, Ocean Castle executed consulting agreements with two principal
stockholders of Global. The rights and obligations of Ocean Castle under the
agreements were assumed by TNCi in connection with the TNCi Transaction. The
consulting agreements require payments aggregating $1,000,000 to each of the
consultants through December 2003 in exchange for advisory services. Each of the
consultants also received stock options to purchase 33,333 shares of Global's
Class A Common Stock at an exercise price of $4.50. As of June 30, 1999, TNCi
determined that the consulting agreements had no future value due to TNCi's
shift away from in-flight entertainment into alternative markets such as leisure
cruise and passenger rail transport. Only limited services were provided in 1999
and no future services will by utilized. Accordingly, TNCi recorded a charge to
general and administrative expenses in the Transition Period of $1.6 million
representing the balance due under such contracts.
The Company has entered into a consulting agreement with First Lawrence
Capital Corp. to perform various financial advisory services related to ongoing
business development and management. The former managing director of First
Lawrence was also a director of the Company. The Company retained, on a full
time basis as President and Chief Operating Officer, the services of the former
managing director of First Lawrence effective December 12, 1998. Accordingly,
the Company has entered into an employment contract with such individual. During
the year ended October 31, 1998, the Company paid $11,846 under the First
Lawrence consulting agreement. The Company executed a consulting agreement with
the Whitestone Group, LLC, a shareholder of First Lawrence. Pursuant to the
agreement, the Company paid $250,000 for consulting services received during
fiscal 1998.
On September 15, 1998, Global entered into consulting agreements with
Messrs. Michail Itkis, Thomas M. Metzler and John W. Alderfer in connection with
Global's agreements with Swissair. In consideration for such services, Global
has paid Mr. Itkis $200,000 through September 15, 1999, Mr. Metzler $300,000
through June 15, 1999 and Mr. Alderfer $235,000 through March 15, 1999.
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<PAGE>
FORTUNET LICENSE
In October 1994, Global entered into an Intellectual Property License and
Support Services Agreement with FortuNet, Inc. ("FortuNet"), which was amended
and restated on November 7, 1996 (as amended, the "FortuNet License"). The
FortuNet License grants Global a worldwide, perpetual license to FortuNet's
current and future patents, copyrights, trade secrets and related know-how
covering a computerized system for use in all fields other than bingo halls.
Further, this license is exclusive to Global within the airline industry. As
consideration, Global must pay FortuNet an annual license fee of $100,000 in
monthly installments through November 2002. Global was previously also required
to compensate FortuNet for certain development, support and maintenance
services, but this obligation has been terminated. Further, the restated version
of the FortuNet License no longer prohibits Global from engaging in any gaming
activities outside of airplanes. In exchange for these amendments to the
FortuNet License and certain other modifications, on November 7, 1996, Global
issued to FortuNet a warrant to purchase 16,667 shares of Class A Common Stock
at a price of $29.25 per share, which was repriced on January 6, 1997 to $24.00
per share. Under the FortuNet License, an aggregate of $100,000 was paid to
FortuNet in fiscal 1998. Subsequent to June 30, 1999, the Company agreed to a
termination of this agreement and paid FortuNet $100,000 plus legal fees. During
the Transition Period ended June 30, 1999, the Company had revised its estimated
accrual to $200,000 which is included in accrued liabilities in the consolidated
balance sheet at June 30, 1999. Additionally, the Company repriced the exercise
price of the stock purchase warrants to $4.50 per share.
Yuri Itkis, a former director of Global, is the President and sole
stockholder of FortuNet and Boris Itkis, a former director of Global and a son
of Yuri Itkis, is an employee of FortuNet. Michail Itkis, the former Chief
Executive Officer and a former director of Global, is also a son of Yuri Itkis
and was an employee of FortuNet until October 1994.
STOCKHOLDERS' AGREEMENT
In October 1994, Global entered into a stockholders' agreement with Yuri
Itkis, Michail Itkis, Boris Itkis, Steven M. Fieldman, Donald H. Goldman and
Lance Fieldman (the "Stockholders' Agreement"). In connection with the May 1996
and November 1996 resignations of Messrs. Goldman, Steven Fieldman and Lance
Fieldman, and in connection with the execution of the Strategic Alliance
Agreement with Hyatt, the parties to the Stockholders' Agreement entered into
agreements which terminated the Stockholders' Agreement as to Messrs. Goldman,
Steven Fieldman and Lance Fieldman, added Hyatt as a Stockholder under the
Stockholders' Agreement, and amended certain terms of the Stockholders'
Agreement. On November 10, 1997 with the termination of the Alliance Agreement
with Hyatt, the Stockholders' Agreement was amended again to terminate Hyatt's
rights.
As amended, the Stockholders' Agreement provided that Michail Itkis and
Yuri Itkis shall each be entitled to designate one nominee to Global's Board of
Directors. No other parties had any continuing right under the Stockholders'
Agreement to nominate a director. Each stockholder who was a party to the
Stockholders' Agreement agreed to vote all the shares of Common Stock owned by
him for the election of the directors so nominated and not to take any action to
remove
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<PAGE>
any director so elected (except for the director(s) nominated by such
stockholder). The Stockholders' Agreement was terminated on September 15, 1998.
PURCHASE OF SHARES
Pursuant to the settlement of various lawsuits and other claims instituted
by Barrington Capital Group, L.P. ("Barrington") against Global, Ocean Castle
and others, Ocean Castle purchased from Barrington 99,542 shares of Class A
Common Stock of Global at $4.50 per share on October 21, 1998. Global
temporarily loaned the funds to Ocean Castle to effectuate such purchase and
Ocean Castle has subsequently repaid such loan.
EMPLOYMENT MATTERS
Global has employment agreements with certain of its executive officers and
has granted such officers options to purchase shares of Class A Common Stock.
See Item 10 -- "Executive Compensation -- Employment and Severance Agreements".
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
The following Index to Exhibits lists the Exhibits filed as part of this
Annual Report on Form 10-KSB. Where so indicated, Exhibits which were previously
filed are incorporated by reference. Documents filed herewith are denoted with
an asterix (*).
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<PAGE>
Exhibit
Number Description
- ------- -----------
2.1 Asset Purchase and Sale Agreement dated as of April 29, 1999 between
the Registrant and TNCi. (8)
2.2 First Amendment to Asset Purchase and Sale Agreement dated as of May
14, 1999 between the Registrant and TNCi. (8)
3.1 Certificate of Ownership and Merger. (1)
3.2 Amended and Restated Certificate of Incorporation of the
Registrant. (1)
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant dated November 2, 1998. (9)
3.4 Certificate of Designations, Preferences, and Rights of Series A
Convertible Preferred Stock of the Registrant. (9)
3.5 Certificate of Designations, Preferences, and Rights of Series B
Convertible Preferred Stock of the Registrant. (9)
3.6 By-laws of the Registrant. (1)
4.1 Warrant Agreement, dated as of March 7, 1995 among the Registrant,
D. H. Blair Investment Banking Corp. and American Stock Transfer &
Trust Company. (1)
4.2 Amendment to March 7, 1995 Warrant Agreement, among the Registrant,
D. H. Blair Investment Banking Corp. and American Stock Transfer &
Trust Company. (4)
4.3 Warrant Agreement dated as of October 24, 1996 among the Registrant,
D. H. Blair Investment Banking Corp. and American Stock Transfer &
Trust Company. (4)
4.4 Amendment to October 24, 1996 Warrant Agreement, among the Registrant,
D. H. Blair Investment Banking Corp., and American Stock Transfer &
Trust Company. (4)
4.5 Form of Underwriter's Unit Purchase Option. (1)
4.6 Stock Purchase Warrant dated as of November 7, 1996 issued to FortuNet,
Inc. (4)
4.7 Stock Purchase Warrant dated as of November 12, 1996 issued to Houlihan
Lokey Howard & Zukin. (4)
4.8* Form of Warrant issued to The Shaar Fund Ltd. dated May 10, 1999
4.9* Registration Rights Agreement dated May 6, 1999 between the Registrant
and The Shaar Fund Ltd.
54
<PAGE>
Exhibit
Number Description
- ------- -----------
10.1 Amended and Restated 1994 Stock Option Plan. (3)
10.2 Employment Agreement between the Registrant and Michail Itkis dated as
of October 31, 1994. (l)
10.3 Employment Agreement between the Registrant and John Alderfer dated as
of October 2, 1996. (4)
10.4 Severance Agreement between the Registrant and Lance Fieldman dated as
of November 4, 1996. (4)
10.5 Amended and Restated Shareholders' Agreement by dated as of October 6,
1994 Yuri Itkis, Michail Itkis, Boris Itkis, Steven M. Fieldman, Donald
H. Goldman, Lance Fieldman and Registrant [still applicable]. (l)
10.6 Amended and Restated Intellectual Property License and Support Services
Agreement dated as of November 7, 1996 between FortuNet, Inc. and
Registrant. (4)
10.7 Amended and Restated Escrow Agreement between the Registrant, American
Stock Transfer & Trust Company, Yuri Itkis, Michail Itkis, Boris Itkis,
Steven M. Fieldman, Donald H. Goldman and Lance Fieldman. (1)
10.8 Sublease and Consent dated July 16, 1996 between the Registrant and AGF
4041 Limited Partnership. (4)
10.9 Office Lease dated July 15, 1996 between the Registrant and AGF 4041
Limited Partnership. (4)
10.10 Standard Industrial/Commercial Single-Tenant Lease-Net, dated as of
June 27, 1996, between the Registrant and 44th Street and Van Buren
Limited Partnership. (4)
10.11 Form of Indemnification Agreement. (1)
10.12 Strategic Alliance Agreement dated as of November 12, 1996 between the
Registrant and Hyatt Ventures, Inc. (4)
10.13 Registration Rights Agreement dated as of November 12, 1996 between the
Registrant and Hyatt Ventures, Inc. (4)
10.14 Amendment No. 2 to Amended and Restated Shareholders' Agreement dated
as of November 12, 1996. (4)
10.15 Employment Agreement between the Registrant and Thomas Metzler dated as
of November 18, 1996. (5)
10.16 Termination Agreement dated November 10, 1997 between the Registrant
and Hyatt Ventures, Inc.
10.17 Lease Surrender Agreement dated as of May 12, 1998. (6)
55
<PAGE>
Exhibit
Number Description
- ------- -----------
10.18 Amendment to Severance Compensation Agreement dated as of August 28,
1998 between the Registrant and Michail Itkis. (7)
10.19 Second Amendment to Employment Agreement dated as of August 28, 1998
between the Registrant and John Alderfer. (7)
10.20 Second Amendment to Employment Agreement dated as of August 28, 1998
Between the Registrant and Thomas Metzler. (7)
10.21* Office Lease dated as of September 10, 1999 between the Registrant and
135 East 57th Street LLC.
10.22 Securities Purchase Agreement dated as of May 10, 1999 between the
Registrant and The Shaar Fund, Ltd. (9)
10.23* Assignment dated May 10, 1999 of rights under the Securities Purchase
Agreement and the Registration Rights Agreement, both dated October 23,
1998 between TNCi and the Shaar Fund Ltd. to the Registrant.
10.24* Amendment dated May 10, 1999 to Registration Rights Agreement dated
October 23, 1998 between Registrant and TNCi.
10.25* Securities Purchase Agreement dated as of May 10, 1999 between TNCi and
the Registrant for TNCi Series C Convertible Preferred Stock.
10.26* Form of Securities Purchase Agreement dated as of June 25, 1999.
10.27* Registration Rights Agreement dated July 1999 respecting shares issued
pursuant to the Securities Purchase Agreement dated as of June 25,
1999, for the purchase of TNCi Series A and Series E Notes
10.28* Form of Put/Call Agreement dated July 1999.
10.29* Securities Purchase Agreement dated August 9, 1999 for the purchase of
TNCi Series D Notes.
10.30* Form of Warrant Purchase Agreement dated August 9, 1999 between
Registrant and certain TNCi Warrant holders.
10.31* Registration Rights Agreement dated August 12, 1999 among the
Registrant, XCEL Capital, LLC and Elaine Martin.
10.32* Registration Rights Agreement dated August 12, 1999 among the
Registrant, Robert E. Benninger, Jr., Sara Anne Benninger, Will
Brantley and Elaine Martin.
10.33* Form of Put/Call Agreement dated August 12, 1999 respecting shares
issued pursuant to the Warrant Purchase Agreement between the
Registrant and certain TNCi Warrant holders.
10.34* Employment Agreement between the Registrant and James W. Fox.
56
<PAGE>
Exhibit
Number Description
- ------- -----------
23* Consent of KPMG
27* Financial Data Schedule
99.1 Certificate of Designations of Series B Convertible Preferred Stock of
TNCi dated October 23, 1998. (8)
99.2 Amendment dated as of April 29, 1999 to Certificate of Designations of
Series B Convertible Preferred Stock of TNCi. (8)
99.3 Certificate of Designations of Series C Convertible Preferred Stock of
TNCi dated as of April 30, 1999. (8)
99.4 Certificate of Designations of Series D Convertible Preferred Stock of
TNCi dated as of May 5, 1999. (8)
99.5* Agreement for the Sale and Purchase of Shares in Inter Lotto (UK)
Limited dated April 29, 1999 between Crown Leisure Sales Limited and
IFT Holdings Limited.
99.6* Shareholders Agreement dated April 29, 1999 by and between Norman
Feinstein & Others and IFT Holdings Limited and Inter Lotto (UK)
Limited.
99.7* Operating Agreement dated April 29, 1999 between Inter Lotto (UK)
Limited and IFT Management Limited.
99.8 Secured Promissory Note dated January 29, 1999 made by TNCi and payable
to the order of the Company. (8)
99.9 Allonge to Secured Promissory Note dated January 29, 1999. (8)
99.10 Second Allonge to Secured Promissory Note dated March 19, 1999. (8)
99.11 Third Allonge to Secured Promissory Note dated March 24, 1999. (8)
99.12 Fourth Allonge to Secured Promissory Note dated May 10, 1999. (8)
99.13* Fifth Allonge to Secured Promissory Note dated July 16, 1999.
99.14* Sixth Allonge to Secured Promissory Note dated August 9, 1999.
99.15* Seventh Allonge to Secured Promissory Note dated August 24, 1999.
99.15 Opinion of ValueMetrics, Inc. addressed to TNCi dated May 14, 1999. (8)
- ----------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 33-86928.
(2) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal period ended July 31, 1996, filed with the Securities
and Exchange commission on September 16, 1996, File No. 0-25668.
(3) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 333-02044.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form S-3, Registration No. 333-14013.
(5) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended January 31, 1997, filed with the
Securities and Exchange Commission on March 17, 1997, File No. 0-25668.
57
<PAGE>
(6) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended April 30, 1998, filed with the
Securities and Exchange Commission on June 5, 1998, File No. 0-25668.
(7) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended July 31, 1998, filed with the
Securities and Exchange Commission on September 15, 1998, File No. 0-25668.
(8) Incorporated by reference from the Registrant's Current Report on Form 8-K
dated May 17, 1999, filed with the Securities and Exchange Commission on
June 1, 1999, File No. 0-25668.
(9) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended April 30, 1999, filed with the
Securities and Exchange Commission on June 14, 1999, File No. 0-25668.
(10) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1998, filed with the Securities and
Exchange Commission on January 20, 1999, File No. 0-25668.
Reports on Form 8-K.
On May 17, 1999 Global filed a report on Form 8-K regarding the sale of the
Interactive Entertainment Division to TNCi, the acquisition of the TNCi Series B
Preferred Stock from The Shaar Fund, Limited and the Fourth Allonge to the
Secured Promissory Note from TNCi. This filing was amended on August 2, 1999 to
provide certain pro forma financial information with respect to the transaction
with TNCi.
58
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBAL TECHNOLOGIES, LTD.
Dated: October 26, 1999 By: /s/ IRWIN L. GROSS
-----------------------
Irwin L. Gross,
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Irwin L. Gross Chief Executive Officer October 26, 1999
- ------------------------------------ and Director
Irwin L. Gross
/s/ James W. Fox President and Director October 26, 1999
- ------------------------------------
James W. Fox
/s/ Morris C. Aaron Chief Financial Officer October 26, 1999
- ------------------------------------ (Principal Financial Officer)
Morris C. Aaron
/s/ Director October __, 1999
- ------------------------------------
Charles T. Condy
/s/ Stephen Schachman Director October 26, 1999
- ------------------------------------
Stephen Schachman
Director October __, 1999
- ------------------------------------
M. Moshe Porat
</TABLE>
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................................ F-2
Consolidated Balance Sheets as of June 30, 1999 and October 31, 1998................................ F-3
Consolidated Statements of Operations for the Transition Period Ended June 30, 1999
and the Years Ended October 31, 1998 and 1997.............................................. F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the Transition Period Ended June 30, 1999 and the Years Ended
October 31, 1998 and 1997.................................................................. F-5
Consolidated Statements of Cash Flows for the Transition Period Ended June 30, 1999
and the Years Ended October 31, 1998 and 1997 ............................................. F-6
Notes to Consolidated Financial Statements ................................................. F-7 to F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Global Technologies, Ltd. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Global
Technologies, Ltd. and subsidiaries as of June 30, 1999 and October 31, 1998 and
the related consolidated statements of operations, changes in stockholders'
equity and comprehensive income and cash flows for the Transition Period ended
June 30, 1999 and each of the years in the two-year period ended October 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Global Technologies,
Ltd. and subsidiaries as of June 30, 1999 and October 31, 1998 and the results
of their operations and their cash flows for the Transition Period ended June
30, 1999 and each of the years in the two-year period ended October 31, 1998, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Phoenix, Arizona
October 22, 1999
F-2
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, OCTOBER 31,
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,521,275 $ 27,914,551
Restricted cash 1,412,736 1,039,311
Investments 4,594,751 3,690,604
Accounts receivable, net 128,489 1,135,342
Notes receivable from related parties 98,932 447,939
Inventories, net 1,400,000 1,005,427
Prepaid expenses 607,900 567,601
Assets held for use -- 699,196
Assets held for sale 800,000 --
Other current assets 470,273 379,046
------------- -------------
Total current assets 25,034,356 36,879,017
Investments 5,752,599 --
Note receivable from related party 75,000 --
Property and equipment, net 1,369,392 780,035
Intangibles, net 7,119,806 --
Other assets 61,468 605,150
------------- -------------
Total assets $ 39,412,621 $ 38,264,202
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,530,675 $ 1,447,815
Accrued liabilities 2,292,609 3,939,633
Deferred revenue 365,851 453,022
Accrued product warranties -- 5,369,008
Current maturities of notes payable 24,391 76,840
Notes payable to related parties 68,836 125,000
------------- -------------
Total current liabilities 5,282,362 11,411,318
Notes payable 3,467,045 --
Accrued litigation settlement 1,843,750 --
------------- -------------
Total liabilities 10,593,157 11,411,318
------------- -------------
Minority interest 1,165,098 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized
Series A 8% Convertible preferred stock, 3,000 shares
designated, issued and outstanding (liquidation preference
of $1,200 per share) 30 --
Series B 8% Convertible preferred stock, 3,000 shares designated,
zero shares issued and outstanding -- --
Class A common stock, one vote per share, par value $0.01 per share,
40,000,000 shares authorized;5,460,636 and
6,125,908 shares issued and outstanding, respectively 54,606 61,259
Class B common stock, six votes per share, par value $0.01 per
share, 4,000,000 shares authorized; 0 and 1,225,445 shares
issued and outstanding, respectively. The latter including 1,066,667
shares placed in escrow -- 12,445
Additional paid-in capital 113,462,394 112,371,141
Accumulated other comprehensive income:
Net unrealized gain (loss) on investment securities (10,107) 6,754
Accumulated deficit (85,658,567) (83,282,732)
Treasury stock, at cost; 78,600 and 844,667 shares respectively (193,990) (2,315,983)
------------- -------------
Total stockholders' equity 27,654,366 26,852,884
------------- -------------
Total liabilities and stockholders' equity $ 39,412,621 $ 38,264,202
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED
JUNE 30, YEAR ENDED OCTOBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Equipment sales $ 875,957 $ 18,038,619 $ 10,524,828
Service income 706,504 1,104,342 575,881
------------ ------------ ------------
1,582,461 19,142,961 11,100,709
------------ ------------ ------------
Costs and expenses:
Cost of equipment sales 1,517,323 15,523,282 24,646,334
Cost of service income 445,585 238,837 232,126
Provision for doubtful accounts 30,092 9,869 216,820
Research and development expenses -- 1,092,316 7,821,640
General and administrative expenses 6,688,813 11,387,872 12,574,223
Special charges 2,485,660 400,024 19,649,765
Expenses associated with investments 550,000 -- --
Reversal of warranty, maintenance and commission accruals (7,151,393) -- --
Bad debt recoveries -- -- (1,064,284)
------------ ------------ ------------
4,566,080 28,652,200 64,076,624
------------ ------------ ------------
Operating loss (2,983,619) (9,509,239) (52,975,915)
Other:
Interest expense (74,684) (11,954) (13,423)
Interest income 1,060,229 2,251,055 2,170,675
Equity in loss of nonconsolidated affiliates (195,704) -- --
Gain on sale of assets 133,396 -- --
Other income (expense) 61,252 10,179 (203,649)
------------ ------------ ------------
Net loss before minority interest and preferred dividends (1,999,130) (7,259,959) (51,022,312)
------------ ------------ ------------
Minority interest (376,705) -- --
Net loss before preferred dividends $ (2,375,835) $ (7,259,959) $(51,022,312)
Cumulative dividend on preferred stock (33,333) -- --
------------ ------------ ------------
Net loss attributable to common stockholders $ (2,409,168) $ (7,259,959) $(51,022,312)
============ ============ ============
Basic and diluted net loss per share of common stock $ (0.44) $ (1.22) $ (8.89)
============ ============ ============
Weighted average shares outstanding: basic and diluted 5,416,124 5,933,004 5,738,987
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance as of October 31, 1996 2,700,683 $ 27,007 1,320,000 $ 13,200
Class A common stock issued for services received
(20,000 shares) 20,000 200 -- --
Class A common stock issued pursuant to Class B
warrant exercise offer 3,266,587 32,666 -- --
Registration costs -- -- -- --
Redemption of Class B warrants -- -- -- --
Class A common stock issued under stock option
plan pursuant to cashless exercise option 507 5 -- --
Automatic conversion of Class B shares to
Class A shares upon sale to non-holder of
Class B shares 75,555 755 (75,555) (755)
Net loss -- -- -- --
--------- --------- ---------- ---------
Balance as of October 31, 1997 6,063,332 $ 60,633 1,244,445 $ 12,445
Issuance of common stock pursuant to bonus plan 62,576 626 -- --
Treasury stock purchases (844,667 shares) -- -- -- --
Comprehensive income (loss):
Unrealized gains on available for sale securities -- -- -- --
Net loss -- -- -- --
Total comprehensive loss -- -- -- --
--------- --------- ---------- ---------
Balance as of October 31, 1998 6,125,908 $ 61,259 1,244,445 $ 12,445
Contribute to capital Class B shares held in escrow -- -- (1,066,667) (10,667)
Voluntary conversion of Class B shares to Class A shares 177,778 1,778 (177,778) (1,778)
Exercise of stock options 1,617 16 -- --
Treasury stock purchases (78,600 shares) -- -- -- --
Issuance of Series A preferred stock -- -- -- --
Issuance of Class A warrants -- -- -- --
Compensation expense -- -- -- --
Unearned compensation, net -- -- -- --
Equity attributable to minority interest -- -- -- --
Retirement of Treasury Stock (844,667) (8,447) -- --
Comprehensive income (loss):
Unrealized loss on available for sale securities -- -- -- --
Net loss -- -- -- --
Total comprehensive loss -- -- -- --
--------- --------- ---------- ---------
Balance as of June 30, 1999 5,460,636 $ 54,606 -- $ --
========= ========= ========== =========
<CAPTION>
SERIES A NET UNREALIZED
PREFERRED STOCK ADDITIONAL GAINS (LOSSES)
------------------------- PAID-IN ON INVESTMENT
SHARES AMOUNT CAPITAL SECURITIES
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance as of October 31, 1996 -- $ -- $ 42,668,125 $ --
Class A common stock issued for services received
(20,000 shares) -- -- 466,675 --
Class A common stock issued pursuant to Class B
warrant exercise offer -- -- 73,557,109 --
Registration costs -- -- (4,481,164) --
Redemption of Class B warrants -- -- (40,576) --
Class A common stock issued under stock option
plan pursuant to cashless exercise option -- -- 13,869 --
Automatic conversion of Class B shares to
Class A shares upon sale to non-holder of
Class B shares -- -- -- --
Net loss -- -- -- --
------- -------- ------------- ---------
Balance as of October 31, 1997 -- $ -- $ 112,184,038 $ --
Issuance of common stock pursuant to bonus plan -- -- 187,103 --
Treasury stock purchases (844,667 shares) -- -- -- --
Comprehensive income (loss):
Unrealized gains on available for sale securities -- -- -- 6,754
Net loss -- -- -- --
Total comprehensive loss -- -- -- --
------- -------- ------------- ---------
Balance as of October 31, 1998 -- $ -- $ 112,371,141 $ 6,754
Contribute to capital Class B shares held in escrow -- -- 10,667 --
Voluntary conversion of Class B shares to Class A shares -- -- -- --
Exercise of stock options -- -- 4,228 --
Treasury stock purchases (78,600 shares) -- -- -- --
Issuance of Series A preferred stock 3,000 30 4,079,970 --
Issuance of Class A warrants -- -- 391,802 --
Compensation expense -- -- 120,320 --
Unearned compensation, net -- -- (73,449) --
Equity attributable to minority interest -- -- (1,134,749) --
Retirement of Treasury Stock -- -- (2,307,536) --
Comprehensive income (loss):
Unrealized loss on available for sale securities -- -- -- (16,861)
Net loss -- -- -- --
Total comprehensive loss -- -- -- --
------- -------- ------------- ---------
Balance as of June 30, 1999 3,000 $ 30 $ 113,462,394 $ (10,107)
======= ======== ============= =========
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCKHOLDERS'
DEFICIT STOCK EQUITY
------------- ------------- -------------
<S> <C> <C> <C>
Balance as of October 31, 1996 $ (25,000,461) $ -- $ 17,707,871
Class A common stock issued for services received
(20,000 shares) -- -- 466,875
Class A common stock issued pursuant to Class B
warrant exercise offer -- -- 73,589,775
Registration costs -- -- (4,481,164)
Redemption of Class B warrants -- -- (40,576)
Class A common stock issued under stock option
plan pursuant to cashless exercise option -- -- 13,874
Automatic conversion of Class B shares to
Class A shares upon sale to non-holder of
Class B shares -- -- --
Net loss (51,022,312) -- (51,022,312)
------------- ----------- ------------
Balance as of October 31, 1997 $ (76,022,773) $ -- $ 36,234,343
Issuance of common stock pursuant to bonus plan -- -- 187,729
Treasury stock purchases (844,667 shares) -- (2,315,983) (2,315,983)
Comprehensive income (loss):
Unrealized gains on available for sale securities -- -- --
Net loss (7,259,959) -- --
Total comprehensive loss -- -- (7,253,205)
------------- ----------- ------------
Balance as of October 31, 1998 $ (83,282,732) $(2,315,983) $ 26,852,884
Contribute to capital Class B shares held in escrow -- -- --
Voluntary conversion of Class B shares to Class A shares -- -- --
Exercise of stock options -- -- 4,244
Treasury stock purchases (78,600 shares) -- (193,990) (193,990)
Issuance of Series A preferred stock -- -- 4,080,000
Issuance of Class A warrants -- -- 391,802
Compensation expense -- -- 120,320
Unearned compensation, net -- -- (73,449)
Equity attributable to minority interest -- -- (1,134,749)
Retirement of Treasury Stock -- 2,315,983 --
Comprehensive income (loss):
Unrealized loss on available for sale securities -- -- --
Net loss (2,375,835) -- --
Total comprehensive loss -- -- (2,392,696)
------------- ----------- ------------
Balance as of June 30, 1999 $ (85,658,567 $ (193,990) $ 27,654,366
============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED
JUNE 30, YEAR ENDED OCTOBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,375,835) $ (7,259,959) $(51,022,312)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 394,317 1,338,017 1,815,779
Expense recognized upon issuance of stock options, warrants
and shares of Class A common stock -- -- 480,749
Provision for doubtful accounts 30,092 9,869 216,820
Change in inventory valuation allowance (892,010) -- 8,297,933
Equity in loss of nonconsolidated affiliates 195,704 -- --
Loss applicable to minority interest 376,705 -- --
Special charges 2,365,340 (606,507) 19,649,765
Gain on sale of Johnny Valet, Inc. (133,396) -- --
Non cash compensation expense 139,649 -- --
Non cash expenses associated with investments 550,000 -- --
Reversal of warranty, maintenance and commission accruals (7,151,393) -- --
Loss on disposals of property and equipment -- 1,006,531 203,649
Changes in assets and liabilities, net of acquisition:
Decrease (increase) in accounts receivable (560,439) 4,505,074 (3,815,139)
Decrease in provision for doubtful accounts -- -- (1,949,197)
Decrease (increase) in inventories 1,897,437 5,105,334 (12,563,721)
Increase in note receivable -- (447,939) --
(Increase) decrease in prepaid expenses, other current assets
and other assets (152,919) (532,338) 183,394
(Decrease) increase in accounts payable (1,218,791) (4,284,167) 1,673,893
(Decrease) increase in accrued liabilities 153,682 (892,345) (584,655)
(Decrease) increase in deferred revenue 1,138,048 (1,930,882) 2,383,904
Increase in accrued product warranties -- 758,321 836,667
------------ ------------ ------------
Net cash used in operating activities $ (5,243,809) $ (3,230,991) $(34,192,471)
------------ ------------ ------------
Cash flows from investing activities:
Maturities of investment securities 1,049,995 2,468,880 6,810,275
Purchases of investment securities (3,891,176) (4,015,616) (2,137,084)
Sales of investment securities 1,913,768 -- --
Investments in affiliates (7,572,409) -- --
Payments received on related party note receivable 509,391 -- --
Issuance of related party note receivable (75,000)
Purchases of property and equipment (56,255) (77,013) (10,341,561)
Proceeds from sale of equipment 7,200 3,620 --
Increase in restricted cash (373,425) (1,039,311) --
Purchase of Johnny Valet, Inc. -- (688,736) --
Proceeds from sale of Johnny Valet, Inc. 750,000 -- --
------------ ------------ ------------
Net cash used in investing activities $ (7,737,911) $ (3,348,176) $ (5,668,370)
------------ ------------ ------------
Cash flows from financing activities:
Payments on capital lease obligations -- (80,753) (53,085)
Payments on notes payable (201,840) -- --
Purchase of treasury stock (193,990) (2,315,983) --
Proceeds from issuance of common stock 4,244 -- 73,589,775
Proceeds from sale of Series A 8% Convertible Preferred Stock 980,030 -- --
Registration costs -- -- (4,481,164)
Redemption of Class A and Class B warrants -- -- (40,576)
------------ ------------ ------------
Net cash provided by (used in) financing activities $ 588,444 $ (2,396,736) $ 69,014,950
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (12,393,276) (8,975,903) 29,154,109
Cash and cash equivalents at beginning of year 27,914,551 36,890,454 7,736,345
------------ ------------ ------------
Cash and cash equivalents at end of year $ 15,521,275 $ 27,914,551 $ 36,890,454
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
Global Technologies, Ltd. (formerly known as Interactive Flight
Technologies, Inc.), and subsidiaries (the "Company" or "GTL") is a
diversified technology-oriented operating company that develops and
operates investments in the areas of e-commerce, interactive
entertainment, networking solutions, telecommunications and gaming. The
most significant of the Company's subsidiaries is The Network Connection,
Inc. ("TNCi"). TNCi is engaged in the development, manufacturing and
marketing of computer-based entertainment and data networks, which
provides users access to information, entertainment and a wide array of
service options, such as movies, shopping for goods and services,
computer games, access to the World Wide Web and gambling, where
permitted by applicable law. The Company's primary markets for its
products are cruise ships, passenger trains, schools and corporate
training. Secondary markets include business jets and hotel operators,
among others. TNCi was acquired by the Company effective May 18, 1999
(May 1, 1999 for accounting purposes). Prior to the Transaction with
TNCi, the consolidated financial statements for all periods presented
included the results of operations of the Company's Interactive
Entertainment Division ("IED") which was the primary business of the
Company.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Global Technologies, Ltd. and its wholly-owned subsidiaries: IFT Holdings
UK, Ltd., IFT Management, Ltd., Interactive Flight Technologies
Gibralter, Ltd., and MTJ Corp; and the majority-owned and controlled
subsidiary TNCi. The ownership interest of minority shareholders in
TNCi are recorded as "minority interest" on the accompanying consolidated
financial statements. All significant intercompany accounts and
transactions have been eliminated.
The equity method of accounting is used for the Company's 50% or
less owned affiliates over which the Company has the ability to exercise
significant influence. The amount by which the Company's carrying value
exceeds its share of the underlying net assets of equity affiliates
("Equity Goodwill") is amortized over five years on a straight-line basis
which adjusts the Company's share of the affiliates earnings or losses.
The Company has an investment that is accounted for at cost.
The Company continually evaluates investments for indications of
impairment based on the market value of each investment relative to cost,
financial condition, near-term prospects of the investment, and other
relative factors. If impairment is determined the carrying value is
adjusted to fair value.
(C) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements. Additionally, such
estimates and assumptions affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
F-7
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) CHANGE IN FISCAL YEAR END
The Company has changed its fiscal year end from October 31 to
June 30. Accordingly, the eight-month period resulting from this change,
November 1, 1998 through June 30, 1999, is referred to as the "Transition
Period".
(E) REVERSE STOCK SPLIT
On October 30, 1998, the stockholders of the Company approved a
one-for-three reverse stock split on the Company's Class A common stock
and Class B common stock. One share was issued for three shares of Common
Stock held by stockholders of record as of the close of business on
November 2, 1998.
All references to the number of common shares, per share amounts
and stock option data elsewhere in the consolidated financial statements
and related footnotes have been restated as appropriate to reflect the
effect of the reverse split for all periods presented prior to the
reverse split.
(F) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities at the date of purchase of three months or less to be cash and
cash equivalents.
(G) RESTRICTED CASH
At June 30, 1999 and October 31, 1998, the Company held restricted
cash of $1,412,736 and $1,039,311, respectively. At June 30, 1999 and
October 31, 1998, included in restricted cash was $52,612 and $601,809,
respectively, held in a trust fund for payments required under consulting
and severance agreements with three former executives of the Company, and
$446,679 and $437,502 as of June 30, 1999 and October 31, 1998,
respectively, for payments which may be required for one of the three
former executives. See Note 17. At June 30, 1999, restricted cash also
included $913,445 held in a certificate of deposit with a commercial bank
as collateral for a letter of credit issued to secure repayment of
equipment purchases for the Mexican Gaming project.
(H) INVESTMENT SECURITIES
Investment securities consist of debt securities with a maturity
greater than three months at the time of purchase. In accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115") the
debt securities are classified as available-for-sale and carried at fair
value, based on quoted market prices. The net unrealized gains or losses
on these investments are reported in stockholders' equity. The specific
identification method is used to compute the realized gains and losses
on the debt securities.
(I) INVENTORIES
Inventories consisting principally of entertainment network
components are stated at the lower of cost (first-in, first-out method)
or market.
(J) INTANGIBLES
Intangibles consist of goodwill and trademarks. Goodwill
represents the excess of the purchase price over the fair value of the
net assets acquired and is amortized over ten years using the
straight-line method.
F-8
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trademarks are stated at fair market value at the date of acquisition
and are amortized over ten years using the straight-line method.
The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful lives of
intangibles may warrant revision or that the remaining balances may not
be recoverable. When factors indicate that the assets should be evaluated
for possible impairment, the Company uses an estimate of the undiscounted
net cash flows over the remaining life of the assets in measuring whether
the asset is recoverable.
(K) PROPERTY AND EQUIPMENT
Property and equipment are stated at the lower of cost or net
realizable value. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the assets
ranging from three to seven years. Leasehold improvements are depreciated
using the straight-line method over the shorter of the underlying lease
term or asset life.
Assets acquired under capital lease arrangements have been
recorded at the present value of the future minimum lease payments and
are being amortized on a straight line basis over the estimated useful
life of the asset or lease term, whichever is shorter. Amortization of
this equipment is included in depreciation and amortization expense.
(L) REVENUE RECOGNITION
The Company's revenue derived from sales and installation of
equipment is recognized upon installation and acceptance by the customer.
Fees derived from servicing installed systems is recognized when earned,
according to the terms of the service contract. Revenue pursuant to
contracts that provide for revenue sharing with the customer and/or
others is recognized as cash is received in the amount of the Company's
retained portion of the cash pursuant to the revenue sharing agreement.
Revenue earned pursuant to extended warranty agreements is recognized
ratably over the warranty period.
(M) DEFERRED REVENUE
Deferred revenue at June 30, 1999 represents cash received on
advance billings of equipment sales as allowed under installation
contracts. At October 31, 1998, deferred revenue represents the gross
profit on advance billings of equipment sales as allowed under
installation and extended warranty contracts.
(N) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred except for
development costs required by a customer contract. Development costs
incurred pursuant to contractual obligations are allocated to deliverable
units. These development costs are expensed as cost of equipment sales
upon installation of the complete product and acceptance by the customer.
(O) WARRANTY COSTS
The Company provides, by a current charge to income, an amount it
estimates will be needed to cover future warranty obligations for
products sold with an initial warranty period. Revenue and expenses under
extended warranty agreements are recognized ratably over the term of the
extended warranty.
F-9
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(P) IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. If impairment is determined the carrying value
is adjusted to fair value.
(Q) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(R) LOSS PER SHARE
During fiscal 1998, the Company adopted Financial Accounting
Standards Board (FASB) SFAS No. 128, "Earnings per Share" (SFAS No. 128).
Loss per share for all prior periods have been restated to conform to the
provisions of SFAS 128. Basic loss per share is computed by dividing loss
attributable to common stockholders, by the weighted average number of
common shares outstanding for 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 or
resulted in the issuance of common stock that then shared in the loss of
the Company. Weighted shares for purposes of the loss per share
calculation do not include one million shares of common stock issuable
upon the conversion of Series A 8% Convertible Preferred Stock at June
30, 1999, 1,066,667 shares placed in escrow at October 31, 1998 and 1997
due to the fact that they are contingently issuable and 749,146, 685,610
and 710,717 stock options outstanding at June 30, 1999, October 31, 1998
and 1997, respectively, because their inclusion would have been
anti-dilutive.
(S) STOCK-BASED COMPENSATION
In accordance with the provisions of Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
the Company measures stock-based compensation expense as the excess of
the market price at the grant date over the amount the employee must pay
for the stock. The Company's policy is to generally grant stock options
at fair market value at the date of grant; accordingly, no compensation
expense is recognized. As permitted, the Company has elected to adopt the
pro forma disclosure provisions only of SFAS No. 123, "Accounting for
Stock-Based Compensation". See Note 13.
(T) RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997
consolidated financial statements to conform to the 1999 presentation.
(U) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes standards for the accounting and reporting for derivative
instruments, including certain
F-10
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
derivative instruments embedded in other contracts, and hedging
activities. This statement generally requires recognition of gains and
losses on hedging instruments, based on changes in fair value or the
earnings effect of forecasted transactions. As issued, SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133 -- An Amendment of FASB
Statements No. 133", which deferred the effective date of SFAS No. 133
until June 15, 2000. The Company is currently evaluating the impact of
SFAS No. 133.
On November 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full set
of financial statements. Comprehensive income consists of net income and
unrealized gains and losses on investment securities net of taxes and is
presented in the consolidated statements of stockholders' equity and
comprehensive income; it does not affect the Company's financial position
or results of operations.
On November 1, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise" replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions
and assessing performance as the source of the Company's reportable
segments. SFAS No. 131 also requires disclosure about products and
services, geographical areas, and major customers. The adoption of SFAS
No. 131 does not affect results of operations or financial position but
does affect the disclosure of segment information.
On November 1, 1998, the Company adopted Statement of Position
(SOP) 98-5 "Reporting on the Costs of Start-Up Activities" issued by the
Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants. SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. The SOP requires
start-up activities and organization costs to be expensed as incurred.
The adoption of SOP 98-5 did not have a material impact on the Company's
results of operations.
(2) ACQUISITION
On May 11, 1999, the Company acquired from The Shaar Fund, Ltd. ("Shaar")
1,500 shares of Series B 8% Convertible Preferred Stock of TNCi, par value $.01
per share, stated value $1,000 per share (the "TNCi Series B Shares") and cash
in the amount of $980,000 (net of $50,000 of legal fees) in exchange for (a)
3,000 shares of the Company's Series A 8% Convertible Preferred Stock, par value
$.01 per share, stated value $1,000 per share with an estimated fair value of
$4,080,000 and (b) warrants to purchase 87,500 shares of the Company's Class A
Common Stock, par value $.01 per share, at an exercise price of $3.00 per share.
In connection with this acquisition, the Company also received an assignment of
(a) certain registration rights under a Registration Rights Agreement dated
October 23, 1998 between TNCi and Shaar (the "Registration Rights Agreement")
and (b) certain rights of first refusal held by Shaar with respect to future
TNCi financings.
Also on May 11, 1999, the Company acquired directly from TNCi 800 shares
of Series C 8% Convertible Preferred Stock of TNCi, par value $.01 per share,
stated value $1,000 per share (the "TNCi Series C Shares") in consideration for
the Company's waiver of all prior TNCi defaults and arrearages arising out of or
related to the TNCi Series B Shares.
In connection with the forgoing acquisitions of the TNCi Series B Shares
and TNCi Series C Shares, the Company also acquired the right to convert a
Secured Promissory Note (the "Secured Promissory Note") made by TNCi in January
1999, payable to the order of the Company, into additional TNCi Series C Shares
at the rate of $1,000 per TNCi Series C Share. The original principal amount of
the Secured Promissory Note was $500,000.
F-11
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 18, 1999, the Company received from TNCi 1,055,745 shares of its
common stock and 2,495,400 shares of its Series D Convertible Preferred Stock in
exchange for $4,250,000 in cash and substantially all the assets and certain
liabilities of the Interactive Entertainment Division, as defined in the Asset
Purchase and Sale agreement dated April 30, 1999, as amended (the
"Transaction").
The Company has consolidated the results of operations of TNCi from the
date of acquisition. TNCi is a majority-owned subsidiary of the Company whose
ownership, through a combination of the Transaction described above and the
Company's purchase of TNCi's Series B Shares and 110,000 shares of TNCi's common
stock from third party investors, approximates 78% of TNCi on an if-converted
common stock basis.
The Transaction has been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based upon estimated fair values at the
date of acquisition as follows:
Purchase Price:
Cash $ 4,250,000
Net liabilities of IED contributed (4,012,430)
-----------
Total 237,570
-----------
Assets acquired and liabilities assumed:
Historical book value of net liabilities (2,457,723)
Fair value adjustments:
Inventory (1,280,847)
Property (806,873)
Other Assets (368,255)
Liabilities (683,388)
-----------
Total fair value of liabilities assumed (5,597,086)
-----------
Excess of fair value of TNCi Series B
8% Preferred Stock and Series C
8% Preferred Stock over its recorded value (1,501,000)
Purchase of Common Stock of TNCi (254,658)
-----------
Excess of purchase price over fair value of net
liabilities assumed (goodwill) $ 7,115,174
===========
The excess of fair value of TNCi Series B 8% Preferred Stock and Series C
8% Preferred Stock is the result of the Company's acquisition of such shares
based on the fair value of the Company's Series A 8% Convertible Preferred Stock
amounting to $4,080,000, less $980,000 (net of $50,000 of legal fees) cash
received and the historical value of $1,549,000 of the Series B 8% Preferred
Stock.
Purchase of 110,000 shares of Common Stock of TNCi from a third party was
valued based on the cash consideration paid by the Company for the shares.
F-12
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma
Pro forma unaudited operations data assuming the TNCi acquisition had
taken place on November 1, 1997 is as follows:
TRANSITION PERIOD
ENDED YEAR ENDED
JUNE 30, 1999 OCTOBER 31, 1998
----------------- ----------------
Revenue $ 1,566,000 $24,146,000
Net loss $11,578,000 $17,590,000
Net loss per share $ 2.14 $ 2.96
(3) INVESTMENTS
Investments are classified according to the applicable accounting method
at June 30, 1999. Market value reflects the price of publicly traded securities
at the close of business at the respective date. Unrealized gain (loss) reflects
the excess (deficit) of market value over carrying value of publicly traded
securities classified as available for sale.
The following summarizes the Company's current portion of investments by
type at:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
JUNE 30, 1999
Available-for-sale:
Corporate debt securities $4,604,858 $ -- $ (10,107) $4,594,751
========== ========== ========== ==========
OCTOBER 31, 1998
Available-for-sale:
Corporate debt securities $3,683,850 $ 6,754 $ -- $3,690,604
========== ========== ========== ==========
</TABLE>
Corporate debt securities consist of corporate bonds with a maturity greater
than three months at the time of purchase.
F-13
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the Company's non-current investments at June 30, 1999:
CARRYING VALUE
---------------
Equity Affiliates
(Approx. voting %)
Inter Lotto (UK) Ltd. (27.5%) $ 1,050,775
Donativos S.A. de C.V.
(24.5%) 1,664,555
---------------
$ 2,715,330
Cost Affiliates
U.S. Wireless Corporation $ 3,037,269
--------------
Total Non-Current Investments $ 5,752,599
==============
(A) U.S. WIRELESS CORPORATION
U.S. Wireless Corporation, a Delaware Corporation ("US Wireless")
(NASDAQ: USWC), has developed a geographic location system designed to
pinpoint the location of wireless telephone subscribers within a wireless
network. The system uses proprietary technology developed by US Wireless.
In March 1999, the Company invested $3 million in US Wireless in
exchange for 30,000 shares of Series B Preferred Stock ("US Wireless
Series B"). As of June 30, 1999, the Company accounts for this investment
at cost. Each share of US Wireless Series B is convertible into
approximately 67 shares of common stock of US Wireless until March 2000,
after which each such share is convertible into 100 shares of common
stock of US Wireless. The US Wireless Series B is subject to mandatory
conversion into common stock at any time at a conversion rate of 100
shares of common stock of US Wireless in the event the closing price for
US Wireless' common stock as reported on NASDAQ is at least $5.00 per
share for 30 consecutive trading days.
As of April 30, 1999, the Company incorrectly accounted for the US
Wireless investment as available for sale. The excess of fair market
value over the carrying value (unrealized gain) was incorrectly reflected
as a separate component of stockholders' equity as of April 30, 1999.
This investment is carried at cost as of June 30, 1999. Subsequent to
June 1999, with the Company's concurrence, US Wireless has not registered
the common shares underlying the US Wireless Series B shares and
currently has no plans to register such shares.
The US Wireless Series B entitles the holder to receive $100 per
share liquidation preference before any distributions to the holders of
common stock in the event of a liquidation of US Wireless. In addition,
the Company and other holders of the US Wireless Series B have, as a
separate class, elected one member to US Wireless' Board of Directors and
one additional individual as an observer to the Board. As a condition to
making the investment, the Company also obtained certain registration
rights relating to the
F-14
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
registration under the Securities Act of 1933 of those shares of common
stock of US Wireless into which the US Wireless Series B held by the
Company is convertible.
(B) INTER LOTTO (UK) LTD.
In May 1999, the Company completed the acquisition of a 27.5%
equity interest in Inter Lotto (UK) Ltd. ("Inter Lotto") through its
wholly-owned subsidiary, IFT Holdings Limited, an United Kingdom ("UK")
company ("IFT Holdings"). The Company accounts for this investment under
the equity method. The balance of the shares of Inter Lotto is owned by
seven shareholders.
Inter Lotto has a license granted by the Gaming Board for Great
Britain to operate daily lotteries on behalf of charities throughout the
UK. By way of an Operating Agreement between Inter Lotto and IFT
Management Limited, an UK company and wholly-owned subsidiary of
IFT Holdings ("IFT Management"), IFT Management will manage the
operations of the lotteries and Inter Lotto will retain responsibility
for regulatory issues, charity recruiting and certain other functions as
required under the gaming laws. IFT Management will be responsible for
developing, installing, marketing and operating the lottery, selecting
the game and managing the network. In exchange, IFT Management will
retain a portion of the revenues generated.
As of June 30, 1999, the Company's investment in Inter Lotto was
$1,050,775 consisting of working capital advances, notes receivable and
capitalized acquisition costs. During the Transition Period ended June
30, 1999, the Company recorded its proportionate share of losses of Inter
Lotto and Equity Goodwill amortization of $167,493 which has been
recorded as equity in loss of non-consolidated affiliates in the
consolidated statement of operations. Inter Lotto has not commenced its
principal operations as of June 30, 1999.
(C) DONATIVOS
Donativos, S.A. de C.V. ("Donativos") is a Mexican corporation
formed for the purpose of operating a gaming and entertainment center in
Monterrey, Nuevo Leon, Mexico.
In May 1999, the Company, through its wholly-owned subsidiary,
Interactive Flight Technology (Gibraltar) Ltd., a Gibraltar company ("IFT
Gibraltar"), loaned $1,632,000 to Donativos in exchange for a 24.5%
interest in the venture. The Company accounts for this investment under
the equity method. In addition to IFT Gibraltar, other partners in the
venture include Regal Gaming and Entertainment, Inc., a Minnesota
corporation ("Regal Gaming"), which also has a 24.5% interest, and a
Mexican national, who has a 51% interest. The IFT Gibraltar loan bears
interest at an annual rate equal to the prime rate plus three percent
(3%) and matures on April 30, 2001. The Company has also provided a
letter of credit in the amount of $913,445 to secure repayment of the
purchase price of certain gaming equipment to be acquired by IFT
Gibraltar and leased to Donativos. In addition to its 24.5% equity
interest in Donativos, in consideration for making the loan and providing
the letter of credit, the Company will receive 25% of all of the profits
generated by Donativos and, for a term of 10 years, the Company will have
a 24.5% equity interest in any gaming venture in which Regal Gaming, or a
subsidiary or affiliate of Regal Gaming, is an investor and which relates
to gaming activities in Mexico.
F-15
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1999, the Company's investment in Donativos was
$1,664,555 consisting of the $1,632,000 loan receivable and capitalized
acquisition costs. During the Transition Period ended June 30, 1999, the
Company recorded its proportionate share of losses of Donativos and
Equity Goodwill amortization of $28,211 which has been recorded as equity
in loss of non-consolidated affiliates in the consolidated statement of
operations.
(4) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
JUNE 30, OCTOBER 31,
1999 1998
----------- -----------
Trade accounts receivable $ 75,792 $ 1,130,648
Other 59,241 4,694
----------- -----------
135,033 1,135,342
Less allowance for doubtful accounts (6,544) --
----------- -----------
$ 128,489 $ 1,135,342
=========== ===========
(5) INVENTORIES
Inventories consist of the following:
JUNE 30, OCTOBER 31,
1999 1998
----------- ------------
Raw materials $ 2,398,973 $ 2,192,442
Work in process 1,405,372 3,439,888
Finished goods 5,433,250 4,102,702
----------- -----------
9,237,595 9,735,032
Less inventory valuation allowance (7,837,595) (8,729,605)
----------- -----------
$ 1,400,000 $ 1,005,427
=========== ===========
(6) ASSETS HELD FOR USE
On July 24, 1998, the Company purchased the assets of Johnny Valet, Inc.
a retail dry cleaning plant in San Diego, California. The Company paid $688,736
in cash and signed a note payable for $125,000. The non-interest-bearing note
was due on January 10, 1999. The acquisition was accounted for utilizing the
purchase method of accounting with the purchase price being allocated to the
assets acquired and liabilities assumed based on their fair values. The excess
of the purchase price over the fair value of assets acquired of $543,150 was
recorded as goodwill and was being amortized over ten years.
In October 1998, the Company decided to not continue to pursue its
strategy of consolidating the dry cleaning industry and determined that it would
sell the assets of Johnny Valet, Inc. Goodwill was written down by $106,000 to
reflect a reduction in the estimated amortizable life of the goodwill. The net
assets held for use total $699,196 and have been classified as current assets on
the consolidated balance sheet as of October 31, 1998.
F-16
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 13, 1999 the Company sold the assets of Johnny Valet, Inc. for
$750,000 in cash less fees and expenses of approximately $50,000. The excess of
the sale price over the book value of the net assets sold was $133,396 and has
been recorded as gain on sale of assets.
(7) ASSETS HELD FOR SALE
In connection with the Transaction, the Company relocated the corporate
offices and production capabilities of TNCi to its Phoenix, Arizona offices.
Accordingly, as of June 30, 1999 the decision to sell the Georgia property was
made and the assets were recorded at their net realizable value and classified
as assets held for sale.
(8) NOTE RECEIVABLE
At June 30, 1999 the Company had a receivable of $98,932 due from related
parties. See Note 17.
On October 21, 1998, the Company loaned Ocean Castle Investments, LLC
("Ocean Castle") $447,939 to execute a block purchase of shares of the Company's
Class A common stock from an unrelated third party. The Company's Chief
Executive Officer is a principal of Ocean Castle. The note bears interest at the
prime rate plus 1% with all interest and principal due October 21, 2001. The
note is secured by 99,542 shares of the Company's Class A Common Stock.
In February 1999, the Company received payment on the $447,939 loan made
to Ocean Castle.
(9) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
JUNE 30, OCTOBER 31,
1999 1998
------------ -----------
Leasehold improvements $ 261,668 $ 237,551
Purchased software 149,703 149,703
Furniture 173,460 138,609
Equipment 1,700,462 903,873
------------ -----------
2,285,293 1,429,736
Less accumulated depreciation (915,901) (649,701)
------------ -----------
$ 1,369,392 $ 780,035
============ ===========
During the year ended October 31, 1998, the Company recorded equipment
write-offs of $1,006,532 which are included in special charges on the
consolidated statement of operations. The write-offs are principally related to
excess computers, furniture and other equipment that the Company is not
utilizing.
During the year ended October 31, 1997, the Company recorded equipment
write-offs of $1,518,952 which are included in special charges in the
consolidated statement of operations. The write-offs principally related to a
system integration lab utilized in software development and testing. The lab
equipment will not be utilized in the Company's future operations.
F-17
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) INTANGIBLES
Intangibles consist of the following:
JUNE 30,
1999
-------------
Goodwill $ 7,115,174
Other intangibles 79,613
-------------
7,194,787
Less accumulated amortization (74,981)
-------------
$ 7,119,806
=============
(11) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
JUNE 30, OCTOBER 31,
1999 1998
--------- -----------
Accrued development and support costs $ -- $1,845,915
Accrued maintenance costs -- 402,418
Due to related parties (see Note 17) 1,906,607 880,000
Other accrued expenses 386,002 811,300
---------- ----------
$2,292,609 $3,939,633
========== ==========
F-18
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1999
-----------
<S> <C>
Series A, D and E Notes (see below) $ 2,386,048
Note payable due September 5, 1999, interest at 7%, convertible to
TNCi preferred stock at the option of the Company 400,000
Note payable due in varying installments through 2009, interest at
prime (8.25% at June 30, 1999) plus 2%, collateralized by certain
commercial property and personally guaranteed by two shareholders 220,508
Note payable due in varying installments through 2000, interest at 6.9%,
collateralized by a vehicle 10,308
Note payable due and payable April 19, 2001, interest at 16% payable
monthly, collateralized by certain commercial property 470,000
Note payable due in varying installments through 2000, interest at 11%,
collateralized by a vehicle 4,572
-----------
Total 3,491,436
Less current portion 24,391
-----------
$ 3,467,045
===========
</TABLE>
Aggregate maturities of notes payable as of June 30, 1999 are as follows:
2000 $ 24,391
2001 890,491
2002 2,403,402
2003 19,126
2004 21,078
Thereafter 132,948
-----------
$ 3,491,436
===========
The Series A, D and E Notes ("Series Notes") were issued by TNCi in 1998
prior to the Transaction. The Series Notes all had original maturities of
approximately 135 days with interest at approximately 7% to 8% per annum. TNCi
could choose to repay such Notes in cash subject to a payment charge equal to
approximately 7% of the face amount of the Note or TNCi could elect to convert
the Series Notes into TNCi preferred stock which is convertible into common
stock at various discounts to market ranging from 15% to 25%. TNCi was in
default on the Series Notes at June 30, 1999. (See Note 23.)
The note payable due September 5, 1999 was in default at June 30, 1999.
Subsequent to year-end, the note was converted into 200,000 shares of TNCi's
Common Stock. Therefore, the note payable has been classified as long-term at
June 30, 1999.
Notes payable in the amount of $68,836 to related parties with interest
payable at approximately 5% per annum become due and payable upon achievement of
certain operational goals.
F-19
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) STOCK OPTION PLANS
In October 1994, the Company adopted a Stock Option Plan (the 1994 Plan)
which provides for the issuance of both incentive and nonqualified stock options
to acquire up to 200,000 shares of the Company's Class A common stock. In
November 1996, the Company amended and restated the 1994 Plan to increase the
maximum shares that may be issued and sold under the plan to 800,000. The
Company has granted options to purchase stock to various parties. All options
were issued at a price equal to or greater than the market price of the
Company's common stock at the date immediately prior to the grant and have a
term of ten years. Options generally become exercisable after one to three years
at the discretion of the Board of Directors. No further options will be granted
under this plan.
In June 1997, the Company established a 1997 Stock Option Plan (the 1997
Plan). Options exercisable for a total of 500,000 shares of the Company's Class
A common stock are issuable under the 1997 Plan. The 1997 Plan is administered
by the Board of Directors of the Company (or a committee of the Board) which
determines the terms of options granted under the 1997 Plan, including the
exercise price and the number of shares subject to the option. The 1997 Plan
provides the Board of Directors with the discretion to determine when options
granted thereunder shall become exercisable. During fiscal 1999, 210,698 stock
options with up to a four-year vesting period were granted at exercise prices
ranging from $1.688 to $2.875. As of June 30, 1999, 48,803 stock options under
the 1997 Plan remained available for grant. During fiscal 1998, 240,499 stock
options with up to a three-year vesting period were granted at exercise prices
ranging from $1.875 to $4.50.
On February 10, 1998, the Company adopted a plan to reduce the exercise
price on the stock options under the Company's 1994 and 1997 Plans on specified
dates to $2.625 provided the holder is a current employee on the applicable
future dates. The exercise price on one-half of each outstanding option was
reduced to $2.625 on October 10, 1998 pursuant to the plan. A similar reduction
in the exercise price for the remaining half of the options occurred on April
10, 1999, provided the option holder was still employed by the Company at that
time.
During the year ended October 31, 1998, the Company granted stock options
to purchase 33,333 shares of Class A common stock at an exercise price of $4.50
to each of three stockholders of the Company. The options were granted in
exchange for consulting services. See Note 17.
In accordance with the provisions of APB 25, the Company measures
stock-based compensation expense as the excess of the market price at the grant
date over the amount the employee must pay for the stock. The Company's policy
is to generally grant stock options at fair market value at the date of grant,
so no compensation expense is recognized. As permitted, the Company has elected
to adopt the disclosure provisions only of SFAS No. 123.
F-20
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net loss and net
loss per share on a pro forma basis would be as indicated below:
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED
JUNE 30, YEARS ENDED OCTOBER 31,
1999 1998 1997
------------- ----------- -------------
<S> <C> <C> <C>
Net loss:
As reported $ (2,375,835) $(7,259,959) $ (51,022,312)
============= =========== ==============
Pro forma (unaudited) $ (2,847,535) $(7,666,463) $ (53,486,930)
============= =========== ==============
Basic and diluted net loss per share:
As reported $ (0.44) $ (1.22) $ (8.89)
============= =========== ==============
Pro forma (unaudited) $ (0.53) $ (1.29) $ (9.32)
============= =========== ==============
</TABLE>
Pro forma net losses reflect only options granted during the Transition
Period, and in fiscal years ended 1998, 1997, and 1996. Therefore, the full
impact of calculating compensation cost for stock options under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above because
compensation cost is reflected over the options' vesting period and compensation
cost for options granted prior to November 1995 are not considered under SFAS
No. 123.
For purposes of the SFAS No. 123 pro forma net loss and net loss per
share calculations, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the Transition Period ended June
30, 1999 and the years ended October 31, 1998 and 1997:
TRANSITION
PERIOD ENDED
JUNE 30, YEARS ENDED OCTOBER 31,
1999 1998 1997
------------ ----- -----
Dividend yield 0% 0% 0%
Expected volatility 100% 71.62% 71.62%
Risk free interest rate 5.67% 5.65% 6.12%
Expected lives (years) 5.0 5.0 5.0
F-21
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity related to the stock option plans is summarized below:
<TABLE>
<CAPTION>
TRANSITION PERIOD ENDED
JUNE 30, YEARS ENDED OCTOBER 31,
1999 1998 1997
---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at the beginning of year 685,610 $ 17.42 710,717 $ 24.15 534,900 $ 29.43
Granted 210,698 1.93 240,499 3.01 282,233 22.32
Exercised (1,617) 2.63 -- -- (2,983) 21.72
Forfeited (145,545) 22.18 (265,606) 21.94 (103,433) 23.82
-------- -------- --------
Balance at the end of year 749,146 12.73 685,610 17.42 710,717 24.15
======== ======== ========
Exercisable at the end of year 358,800 23.02 426,311 24.70 428,928 24.48
======== ======== ========
Weighted-average fair value of
options granted during the year $ 1.39 $ 1.91 $ 14.04
======== ======== ========
</TABLE>
The following table summarizes the status of outstanding stock options as
of June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------------------ ----------- ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.688 - $4.50 446,481 9.33 $ 2.61 56,135 $ 2.49
$13.20 - $16.50 28,666 5.33 13.24 28,666 13.24
$24.00 141,667 7.00 24.00 141,667 24.00
$28.86 - $43.14 132,332 7.08 30.76 132,332 30.76
------- -------
749,146 358,800
======= =======
</TABLE>
At the discretion of the Board of Directors, the Company may allow
optionees to elect to receive shares equal to the market value of the option, in
lieu of delivery of the exercise price in cash. The market value of the shares
issued is charged to compensation expense. As a result of optionees selecting
this exercise option, 507 shares of stock were issued upon the exercise of 2,950
options during the fiscal year ended October 31, 1997. Compensation expense of
$13,874 is included in the accompanying consolidated statement of operations for
the year ended October 31, 1997.
(14) BENEFIT PLAN
The Company has adopted a defined contribution benefit plan (the "Plan")
that complies with section 401(k) of the Internal Revenue Code and provides for
discretionary Company contributions. Employees who complete three months of
service are eligible to participate in the Plan. The Company did not make any
contributions to the Plan for the Transition Period ended June 30, 1999 or the
fiscal year ended October 31, 1998.
F-22
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) STOCKHOLDERS' EQUITY
The Company's capital stock consists of Class A and Class B common stock.
Holders of Class A common stock have one vote per share and holders of Class B
common stock have six votes per share. Shares of Class B common stock are
automatically convertible into an equivalent number of shares of Class A common
stock upon the sale or transfer of such shares to a non-holder of Class B common
stock.
(A) STOCK REPURCHASE ACTIVITY
In connection with a stock repurchase program authorized by the
Board of Directors on December 17, 1997, the Company purchased a total of
844,667 shares of the Company's Class A common stock in open market
activities at a total cost of $2,315,983 through October 31, 1998. On
October 30, 1998, the Board of Directors authorized another repurchase
program whereby the Company may repurchase up to 666,667 shares of its
Class A common stock on the open market. On January 11, 1999, the Company
retired all 844,667 shares of Class A common stock described above. As of
June 30, 1999, the Company had repurchased an additional 78,600 shares at
prices ranging from $1.49 to $2.94 per share for a total cost of
$193,990.
(B) PREFERRED STOCK
Series A 8% Convertible Preferred Stock ("Series A Stock"); stated
value $1,000 per share and liquidation value of 120% of stated value. The
holder of Series A Stock is entitled to receive, when, as and if declared
by the Board of Directors, an annual cumulative dividend of $80 per share
payable quarterly in cash or Common stock. Cumulative undeclared and
unpaid dividends at June 30, 1999 total $33,333 or $11.11 per share. At
the option of the Holder, beginning 180 days after the issue date, each
share of Series A Stock is convertible into Common Stock at a price equal
to $3.00 per share. The Company may redeem the Series A Stock at prices
ranging from 105% to 120% of stated value, plus accrued and unpaid
dividends beginning from 180 days and ending 360 days from the Issue
Date, May 10, 1999. If the Series A Stock is not redeemed or converted
into shares of the Company's Common Stock by May 10, 2000, then the
Series A Stock automatically converts into shares of the Company's Series
B Preferred Stock.
Series B 8% Convertible Preferred Stock ("Series B Stock");
stated value $1,000 per share is entitled to one vote for each share of
common stock into which it may convert. The Series B Stock is entitled to
the same dividends as the Series A Stock. Each share of Series B Stock is
generally convertible into Common Stock at an amount equal to the lower
of; i) 82% of the Market Price, as defined in the Certificate of
Designation; ii) $3.00 per common share, or; iii) 118% of the closing bid
price on NASDAQ, as defined. There are no shares of Series B Stock issued
or outstanding.
(C) ESCROW SHARES
As a condition of the Company's initial public offering in March
1995, the underwriter required that an aggregate of 1,066,667 shares of
the Company's Class B common stock be designated as escrow shares. The
escrow shares are not assignable or transferable until certain earnings
or market price criteria have been met. As of January 31, 1999, such
criteria have not been met and the shares have been canceled and
contributed to the Company's capital.
F-23
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) WARRANTS
The following table summarizes warrant activity for the Transition
Period ended June 30, 1999 and the year ended October 31, 1998:
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS D CLASS E
------------ -------- ------- -----------
<S> <C> <C> <C> <C>
Outstanding as of October 31, 1997 and
October 31, 1998 -- 55,000 55,000 66,667
Issued in connection with consulting
services 50,000 -- -- --
Issued in connection with the Transaction 87,500 -- -- --
------------ -------- ------- -----------
Outstanding as of June 30, 1999 137,500 55,000 55,000 66,667
============ ======== ======= ===========
Exercise price $ 2.88-3.00 $ 33.00 $ 42.00 $4.50-24.00
============ ======== ======= ===========
</TABLE>
Class A, Class C, Class D and Class E warrant entitles the holder
to one share of Class A common stock. With the exception of the 50,000
Class A warrants issued in connection with consulting services that vest
over a 24-month period, all outstanding warrants are exercisable as of
June 30, 1999.
In April 1999, the Company retained the services of a financial
relations firm. In connection with the consulting services to be
provided, the Company issued stock purchase warrants to purchase 50,000
shares of the Company's Class A common stock at $2.90 per share. The
exercise period of the warrants expires in April 2002, and the warrants
vest ratably over a 24-month period from the date of issuance.
On May 11, 1999, the Company issued stock purchase warrants to
purchase 87,500 shares of Class A common stock at $3.00 per share to the
Shaar Fund, Ltd. in connection with the issuance of its Series A
Preferred Stock (see Note 15(b)). The exercise period of the warrants
expire in May 2004.
On November 22, 1996, the Company offered to the holders of its
Class B warrants to reduce the exercise price of the Class B warrants to
$22.50 per share from $29.25 per share upon the exercise of each Class B
warrant exercised by December 24, 1996. As a result of this offer,
3,266,587 shares of Class A common stock were issued upon the exercise of
3,266,587 Class B warrants, yielding net proceeds of approximately
$69,100,000, net of commissions and expenses approximating $4,480,000.
Previously on October 23, 1996, the Company had notified the remaining
Class B warrant holders of its intent to call all outstanding Class B
warrants for redemption on January 17, 1997. The Company redeemed 269,895
Class B warrants at $.15 per warrant.
In November 1996, the Company issued stock purchase warrants to
purchase 50,000 shares of Class A common stock at $29.63 per share to
Houlihan Lokey Howard & Zukin in exchange for advisory services. The
exercise period of the warrants expires in November 2001. On January 6,
1997, the Company lowered the exercise price of the stock purchase
warrants to $24 per share, such price being the trading price of the
Class A common stock at the close of the previous business day.
In November 1996, the Company issued stock purchase warrants to
purchase 16,667 shares of Class A common stock at $32.25 per share in
connection with the amendment and restatement of a License Agreement with
FortuNet. The exercise period of the warrants expires in November 2001.
On January 6, 1997, the Company lowered the exercise price of the stock
purchase warrants to $24 per share, such price being the trading price of
the Class A common stock at the close of the previous business day. On
F-24
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 7, 1999, the Company lowered the exercise price on the stock
purchase warrants to $4.50 per share, such price representing a premium
to the then trading price of the Class A common stock which was $3.69.
(See Note 17.)
(16) INCOME TAXES
Income tax benefit differed from the amounts computed by applying the
U.S. Federal corporate income tax rate of 34% to net loss as a result of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Computed expected tax benefit $ 807,784 $ 2,468,386 $ 17,347,586
Change in valuation allowance (687,890) (2,127,293) (17,328,254)
Non-deductible payments (119,894) (416,498) --
Other -- 75,405 (19,332)
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset are presented below:
1999 1998
------------ ------------
Deferred tax assets:
Net operating loss carryforward $ 29,108,815 $ 18,836,132
Property and equipment 843,204 1,135,837
Deferred start-up costs 568,973 825,091
Accrued product warranty costs -- 1,825,463
Issuance of stock options and warrants 819,219 864,577
Allowance for bad debts 1,517,086 3,355
Provision for inventory valuation 3,092,828 2,968,066
Accrued liabilities 829,398 1,198,426
Deferred revenue 146,398 154,027
Other 906,293 129,850
------------ ------------
37,832,214 27,940,824
Less:
Valuation allowance (28,628,714) (27,940,824)
Valuation allowance related to the
TNCi acquisition (9,203,500) --
------------ ------------
$ -- $ --
============ ============
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management has
provided a valuation allowance for 100% of the deferred tax assets as the
likelihood of realization cannot be determined. As of June 30, 1999, the Company
has a net operating loss (NOL) carryforward for federal income tax purposes of
approximately $77,600,000, which begins
F-25
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to expire in 2009, and a research and experimentation tax credit of
approximately $247,000. The Company likely underwent a change in ownership in
accordance with Internal Revenue Code Section 382, the effect of which has not
yet been determined by the Company. This change would effect the timing of the
utilization of the NOL, as well as the amount of the NOL which may ultimately be
utilized, though it is not expected to materially effect the amount of the NOL
carryforward.
(17) RELATED PARTY TRANSACTIONS
Prior to the Transaction, TNCi entered into a Secured Promissory Note
with GTL in the principal amount of $750,000, bearing interest at a rate of 9.5%
per annum, and a related security agreement granting GTL a security interest in
its assets (the "Promissory Note"). The Promissory Note is convertible into
shares of TNCi's Series C 8% Preferred Stock at the discretion of GTL.
GTL has also advanced approximately $898,000 to TNCi in the form of
intercompany advances. Both the Promissory Note and the advances have been
eliminated in consolidation at June 30, 1999.
The Company's Chief Executive Officer is a principal of Ocean Castle
Investments, LLC (Ocean Castle) which maintains administrative offices for the
Company's Chief Executive Officer, Corporate Secretary and certain other
employees of the Company for which the Company pays rent and other
administrative expenses pursuant to an agreement. During the year ended October
31, 1998, Ocean Castle executed consulting agreements with two principal
stockholders of the Company. The rights and obligations of Ocean Castle under
the agreements were assumed by TNCi in connection with the Transaction. The
consulting agreements require payments aggregating $1,000,000 to each of the
consultants through December 2003 in exchange for advisory services. Each of the
consultants also received stock options to purchase 33,333 shares of Class A
Common Stock of the Company at an exercise price of $4.50. As of June 30, 1999,
TNCi determined that the consulting agreements had no future value due to TNCi's
shift away from in-flight entertainment into alternative markets such as leisure
cruise and passenger rail transport. Only limited services were provided in 1999
and no future services will by utilized. Accordingly, TNCi recorded a charge to
general and administrative expenses in the Transition Period of $1.6 million
representing the balance due under such contracts.
In August 1999, the Company executed a separation and release agreement
with a shareholder and former officer of TNCi, pursuant to which the Company
paid approximately $85,000 in the form of unregistered shares of the Company's
Common Stock.
In June 1999, the Company loaned to a vice president of TNCi $75,000 for
the purpose of assisting in a corporate relocation to the Company's headquarters
in Phoenix, Arizona. Such loan is secured by assets of the employee. The note
matures in August 2009 and bears an interest rate of approximately 5%.
The Company has an Intellectual Property License and Support Services
Agreement (the "License Agreement") for certain technology with FortuNet, Inc.
("FortuNet"). FortuNet is owned by a principal stockholder and previous director
of the Company. The License Agreement provides for an annual license fee of
$100,000 commencing in October 1994 and continuing through November 2002. The
Company paid FortuNet $100,000 during each of the years ended October 31, 1998
and 1997. As of October 31, 1998, the remaining commitment of $400,000 was
included in accrued liabilities in the consolidated balance sheet. TNCi assumed
this liability in connection with the Transaction. Subsequent to June 30, 1999,
TNCi agreed to a termination of this agreement and paid Fortunet $100,000 plus
legal fees. GTL agreed to reprice certain warrants and options held by FortuNet
and a principal shareholder of FortuNet (See Note 15(d)). The Company recorded a
special charge of
F-26
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$120,320 during the Transition Period for such repricing. The Company had
revised its estimated accrual to $200,000 which is included in accrued
liabilities in the consolidated balance sheet at June 30, 1999.
During the year ended October 31, 1998, the Company extended by one year
a consulting agreement with a former officer of the Company pursuant to which
the Company will pay $55,000 for services received during the period November
1999 through October 2000. TNCi has assumed the liability for the consulting
agreement in connection with the Transaction in the amount of $73,000 which is
included in accrued liabilities in the consolidated balance sheet at June 30,
1999.
In October 1998, the Company entered into a consulting agreement with
First Lawrence Capital Corp. (First Lawrence) to perform various financial
advisory services related to ongoing business development and management. The
former managing director of First Lawrence is also a director of the Company.
The Company retained, on a full time basis as President and Chief Operating
Officer, the services of the former managing director of First Lawrence
effective December 12, 1998. Accordingly, the Company entered into an employment
contract with such individual. During the year ended October 31, 1998, the
Company paid $11,846 under the First Lawrence consulting agreement (See Notes 18
and 23). The Company also pays for office expenses and rent of First Lawrence
under the terms of the agreement. The Company paid approximately $35,803 during
the Transition Period for such expenses. The Company executed a consulting
agreement with the Whitestone Group, LLC, a shareholder of First Lawrence.
Pursuant to the agreement, the Company paid $250,000 for consulting services
received during fiscal 1998.
The Company had a letter agreement dated May 28, 1996 with a specialty
investment-banking firm (the Firm) to act as the Company's financial advisor.
The senior managing director of this Firm is also a former director of the
Company. The Company paid the Firm $811,687 during the year ended October 31,
1997.
The Company had a consulting agreement with Worldwide Associates
(Worldwide) to perform various consulting services. The chairman and president
of Worldwide is also a former director of the Company. The Company paid
Worldwide $56,063 during the year ended October 31, 1997.
In November 1996, the Company executed a Strategic Alliance Agreement
(Alliance Agreement) with Hyatt Ventures, Inc. (Hyatt), an affiliate of Hyatt
Corporation. The president of Hyatt is also a former director of the Company.
Under the terms of the Alliance Agreement, Hyatt, directly and through certain
of its affiliates, agreed to use its best commercial efforts to assist the
Company in advancing the Company's business with respect to the entertainment
network. The Alliance Agreement was terminated in November 1997 as a result of
changing market conditions. In January 1997, the Company issued 20,000
unregistered shares of Class A common stock to Hyatt in connection with Hyatt
acting as a guarantor on behalf of the Company in certain contract negotiations.
As a result of the stock issuance, a charge of $466,875 is included in the
consolidated statement of operations for the year ended October 31, 1997.
During the year ended October 31, 1998, the Company executed severance
and consulting agreements with three former officers pursuant to which the
Company paid the former officers and set aside restricted funds in the amounts
of $3,053,642 and $735,000, respectively. The consulting agreements all expire
by September 1999. Payments totaling $735,000 have been and continue to be made
from restricted cash of the Company through September 1999. Expenses associated
with these agreements were charged to general and administrative expenses in the
Transition Period ended June 30, 1999 and the year ended October 31, 1998.
Additionally, the Company's stockholders' agreement with principle stockholders
covering certain corporate governance matters was cancelled.
F-27
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended October 31, 1996, GTL executed severance agreements
with three former officers pursuant to which the Company will pay severance of
$752,500 over a three-year period. As of June 30, 1999 and October 31, 1998,
$18,000 and $55,000 remained to be paid under these agreements. Such liabilities
were assumed by TNCi in connection with the Transaction.
(18) COMMITMENTS AND CONTINGENCIES
(A) LAWSUIT
First Lawrence Capital Corp. v. James Fox, Irwin Gross and
Interactive Flight Technologies, Inc., Supreme Court of the State of New
York, No. 7196/99. This is a claim made against the Company arising from
the hiring by the Company of James Fox, a former First Lawrence employee.
First Lawrence asserts that business opportunities of First Lawrence were
diverted to the Company by James Fox and the Company. This case has been
settled for 250,000 shares of the Company's common stock. Additionally,
in connection with the settlement, the Company entered into a two year
consulting agreement with First Lawrence beginning February 1, 2000
whereby the Company will pay $41,667 per month and in exchange, First
Lawrence will be available to perform management consulting services to
IFT Holdings, Ltd. (UK). The Company accrued $1.8 million as a special
charge for this settlement during the Transition Period.
Fidelity and Guaranty Insurance Company v. Interactive Flight
Technologies, Inc., United States District Court for the District of
Minnesota, CV No. 99-410. This is a declaratory judgment action where the
Company and its insurers are seeking a declaration of the applicability
of an excess liability policy to claims made by the estates of victims of
the crash of Swissair Flight No. 111 on September 2, 1998.
Barington Capital Group, L.P. et al. v. Yuri Itkis et al. (No.
98103878). On March 6, 1998, the Company was named as a nominal defendant
in a derivative action filed in the Supreme Court of the State of New
York, County of New York. The lawsuit named ten former officers and
directors of the Company and alleged various breaches of fiduciary duty.
On October 21, 1998, the Company settled the lawsuit with Barington
Capital Group, L.P. ("Barington"). As part of the settlement, the Company
engaged Barington to provide investment banking services for a period of
twelve months and has paid Barington a retainer of $250,000 and a
twelve-month consulting fee of $360,000. The Company also paid Barington
$150,000 for reimbursement of litigation and proxy solicitation expenses.
The agreement requires the payment of additional fees should the Company
utilize the services of Barington through October of 1999.
Hollingsead International, Inc. v. The Network Connection, Inc.,
State Court of Forsyth County, State of Georgia, Civil Action File No.
99S0053. Hollingsead International, Inc. ("Hollingsead") filed suit
against the Company on January 28, 1999, alleging that the Company failed
to pay invoices submitted for installation and service of audio-visual
systems in its aircraft. Hollingsead sought damages in the amount of
$356,850, in addition to interest at the rate of 18% per annum from March
2, 1998, attorneys' fees and punitive damages. The parties entered into a
settlement agreement on or about August 5, 1999 that provided for the
payment of $427,870 by the Company, to be paid in installments, including
interest accruing at 8.0% per annum from July 28, 1999 until the balance
is paid. The last installment is due on or before December 20, 1999.
Under the settlement agreement, the Company will dismiss its
counterclaims with prejudice and Hollingsead will dismiss its Complaint
with prejudice upon completion of all payments by the Company. The
Company recognized a liability for this settlement at June 30, 1999 in
the form of purchase price consideration which is included in accounts
payable.
Sigma Designs, Inc. ("Sigma") v. The Network Connection, Inc.,
United States District Court, Northern District of California, San Jose
Division, Civil Action File No. 98-21149J(EAI). Sigma filed a Complaint
against the Company on December 1, 1998, alleging breach of contract and
action on account. Sigma claims that the Company failed to pay for goods
that it shipped to the Company. The matter was settled by written
agreement dated January 22, 1999, contingent upon registration of the
TNCi Common
F-28
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock and warrants issued to Sigma as a part of such settlement and
payment by the Company of $50,000. The Company did not complete its
obligations under the terms of the original settlement agreement. On or
about May 1999, the shares of TNCi issued to Sigma as a part of the
settlement of the above-referenced lawsuit were sold by Sigma to the
Company. The lawsuit was dismissed with prejudice on July 12, 1999 as a
condition of GTL's purchase. The purchase of these shares from Sigma was
deemed to be part of GTL's purchase price of TNCi. (See Note 2.)
Swissair/Mdl-1269, In regards to an air crash near Peggy's Cove,
Nova Scotia. This multi-district litigation relates to the crash of
Swissair Flight No. 111 on September 2, 1998 in waters near Peggy's Cove,
Nova Scotia resulting in the death of all 229 people on board. The
Swissair MD-11 aircraft involved in the crash was equipped with an
Entertainment Network System that had been sold to Swissair by the
Company. Following the crash, investigations were conducted and continue
to be conducted by Canadian and United States agencies concerning the
cause of the crash. No investigative agency has linked the Entertainment
Network System to the crash. Estates of the victims of the crash have
filed lawsuits throughout the United States against Swissair, Boeing,
Dupont and various other parties, including the Company. TNCi was not a
party to the contract for the Entertainment Network System, but has been
named in some of the lawsuits filed by families of victims on a claim of
successor liability. The Company and TNCi deny all liability for the
crash. TNCi is being defended by the aviation insurer for the Company.
Federal Express Corporation v. The Network Connection, Inc., State
Court of Forsyth County, State of Georgia, Civil Action File No.
99-SC-0053. This lawsuit was served on the Company on or about July 22,
1999 by Federal Express Corporation. The suit alleges the Company owes
Federal Express approximately $110,000 for past services rendered.
The Company is subject to other lawsuits and claims arising in
the ordinary course of its business. In the Company's opinion, as of June
30, 1999, the effect of such matters will not have a material adverse
effect on the Company's results of operations and financial position.
(B) LEASE OBLIGATIONS
The Company leases office space and furniture under operating
leases that expire at various dates through June 2003. The future
minimum lease commitments under these leases are as follows:
YEAR ENDING OPERATING
JUNE 30, LEASES
----------- ---------
2000 $196,088
2001 199,085
2002 145,452
2003 34,551
--------
$575,176
========
Rental expense under operating leases totaled $338,082, $960,745
and $920,412 for the Transition Period ended June 30, 1999, and the years
ended October 31, 1998 and October 31, 1997, respectively.
F-29
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) CARNIVAL AGREEMENT
In September 1998, the Company entered into a Turnkey Agreement
(the "Carnival Agreement") with Carnival Corporation ("Carnival"), for
the purchase, installation and maintenance of its advanced cabin
entertainment and management system for the cruise industry
("CruiseView") on a minimum of one Carnival Cruise Lines ship. During the
four-year period commencing on the date of the Carnival agreement,
Carnival has the right to designate an unspecified number of additional
ships for the installation of CruiseView by the Company. The cost per
cabin for CruiseView purchase and installation on each ship is provided
for in the Carnival Agreement. In December 1998, Carnival ordered the
installation of CruiseView on one Fantasy Class ship of Carnival Cruise
Lines, which has been in operational use, on a test basis, since August
1999. In August 1999, Carnival ordered the installation of CruiseView on
one Destiny Class ship of Carnival Cruise Lines.
The terms of the Carnival Agreement provide that Carnival may
return the CruiseView system within the Acceptance Period, as defined in
the Carnival Agreement. For the Fantasy Class ship, the acceptance period
is 12 months. As of June 30, 1999, the Company recorded deferred revenue
of $365,851, reflecting amounts paid by Carnival. As of June 30, 1999,
the Company has not recognized any revenue in association with the
Carnival Agreement. The Company is required to provide a performance bond
or standby letter of credit in favor of Carnival ensuring Carnival's
ability to be repaid amounts previously paid to the Company in the event
Carnival determines not to accept the system as permitted under the
Carnival Agreement.
The Company has not provided a bond or letter of credit as of June
30, 1999. Should Carnival require the Company to obtain a bond or letter
of credit the Company may be required to provide cash collateral to a
financial institution securing such obligation.
(D) SPECIAL CHARGES AND REVERSAL OF WARRANTY, MAINTENANCE AND
COMMISSION ACCRUALS
GTL has entered into sales contracts with three airlines,
Swissair, Debonair Airways, Ltd. (Debonair) and Alitalia Airlines, S.p.A.
(Alitalia) for the manufacture and installation of its in-flight
entertainment network, and to provide hardware and software upgrades, as
defined in the agreements. In connection with the Transaction, TNCi
assumed all rights and obligations of the above contracts.
Pursuant to the October 1997 agreement with Swissair, Swissair
purchased shipsets for the first and business class sections of sixteen
aircraft for an average of $1.7 million per aircraft. Included in the
purchase price was material, installation, maintenance through September
1998, one-year warranty and upgrade costs for the sixteen aircraft. As of
October 31, 1998, the Company had completed installations of the
entertainment network on all of these aircraft. The agreement also
required the Company to install the entertainment network in the first,
business and economy class sections of three additional aircraft, at no
charge to Swissair. The Company was responsible for all costs including
entertainment network components, installation and maintenance through
September 1998 for the three aircraft. As of October 31, 1998, the
Company had completed installations of the entertainment network on all
of these aircraft and title to each of these three shipsets had been
transferred to Swissair. The estimated material, installation,
maintenance and one-year warranty and upgrade costs for these three
shipsets of $14,292,404 is included in the accompanying statement of
operations as a special charge for the year ended October 31, 1997.
During the fiscal year ended October 31, 1998, the Company recognized a
recovery of special charges of $606,508. The recovery of special charges
resulted from a reduction in the number of entertainment networks
F-30
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
requiring maintenance in the economy class sections of the Swissair
aircraft and a reduction in development expenses.
In April 1998 and October 1998, the Company entered into
additional contracts with Swissair. The first letter of intent relates to
a $4.7 million order for first and business class installations on four
Swissair MD-11 aircraft that are being added to the Swissair fleet.
Swissair had made payments of $1,450,000 on the $4.7 million order
through February 1999. No payments have been received since February. The
second contract was to extend the warranty on all installed systems for a
second and third year at a price of $3,975,000. Through February 1999,
the Company had been paid $707,500 under this contract. No subsequent
payments have been received from Swissair.
On October 29, 1998, GTL was notified by Swissair of its
decision to deactivate the entertainment networks on all Swissair
aircraft. However, by April 1999, discussions between the Company and
Swissair regarding outstanding financial matters related to current
accounts receivable, inventory, purchase commitments and extended
warranty obligations, as well as planning discussions for an October 1999
reactivation ceased to be productive. On May 6, 1999, GTL filed a lawsuit
against Swissair in the United States District Court for the District of
Arizona seeking damages for Swissair's failure to honor its obligations
for payment and reactivation of the Company's Entertainment Network.
The Swissair agreements are not assignable to third parties under
the terms of such agreements. However, in connection with the
Transaction, GTL has agreed to pay to TNCi any net proceeds, if
any, received from Swissair as a result of the above litigation or
otherwise. Further, TNCi, as a subcontractor to GTL, will assume
any operational responsibilities of the Swissair agreement in the event
that such requirement arises.
As a result of the above events, management concluded that its
only source of future payment, if any, will be through the litigation
process. In addition, with the deactivation of the entertainment system
and Swissair's breach of its agreements, the Company believes it
will not be called upon by Swissair to perform any ongoing warranty,
maintenance or development services. Swissair's actions have rendered the
Company's accounts receivable, inventory and deposits worthless as of
June 30, 1999. Accordingly, the Company has recognized revenue
on equipment sales to the extent of cash received of $876,000; charged
off inventory to cost of equipment sales in the amount of $1,517,000;
wrote off deposits of $655,000 to special charges; and reversed all
warranty and maintenance accruals totaling $5,164,000.
Pursuant to an agreement with Debonair, the Company was to
manufacture, install, operate, and maintain the entertainment network on
six Debonair aircraft for a period of eight years from installation. In
February 1998, the Company and Debonair signed a Termination Agreement.
Pursuant to the Termination Agreement, Debonair removed the entertainment
network from its aircraft and the Company paid Debonair $134,235 as full
and final settlement of all of its obligations with Debonair. Included in
the accompanying statement of operations for the year ended October 31,
1997 are special charges of $956,447 for the cost of the first completed
shipset and $2,881,962 to write-down all inventory related to the
Debonair program.
In connection with these agreements with Swissair and Debonair and
the absence of any new entertainment network orders for the Company,
property and equipment write-downs of $1,006,532 and $1,518,952 were
recorded as special charges during fiscal 1998 and 1997, respectively.
F-31
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to an agreement with Alitalia, the Company delivered five
first generation shipsets for installation on Alitalia aircraft during
fiscal 1996. Alitalia has notified the Company that it does not intend to
continue operation of the shipsets, and the Company has indicated that it
will not support the shipsets.
For the Transition Period ended June 30, 1999, the Company
recorded warranty, maintenance and commission accrual adjustments of
$5,117,704, $1,730,368 and $303,321, respectively, related to the
Swissair and Alitalia matters. Such adjustments to prior period
estimates, which totaled $7,151,393 resulted from an evaluation of
specific contractual obligations and discussions between the new
management of the Company and other parties related to such contracts.
Based on the results of the Company's findings during this period, such
accruals were no longer considered necessary.
(E) LETTER OF CREDIT
In June 1999, the Company granted a letter of credit in the amount
of $913,445 as security for the payment of certain equipment purchases
made by an affiliate of the Company. To secure this letter of credit, the
Company was required to provide cash collateral with a commercial bank.
(F) PURCHASE COMMITMENT
On September 9, 1999, IFT Leasing entered into an agreement with
International Lottery & Totalizer Systems, Inc., a California
corporation ("ILTS"), to purchase an on-line lottery system for the
operation of the Inter Lotto Lotteries. The base value of the lottery
system purchased from ILTS is $12.3 million. In addition, IFT Management
entered into an eight-year facilities management agreement with ILTS to
provide operational and technology support for the system. Under this
agreement, IFT Management is required to make weekly payments of $72,000
plus additional amounts based on the number of installed terminals and
sales volumes upon the commencement of ticket sales through the system.
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosure about
Fair Value of Financial Instruments" requires that the Company disclose
estimated fair values for its financial instruments. The following summary
presents a description of the methodologies and assumptions used to determine
such amounts.
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial instrument;
they are subjective in nature and involve uncertainties, matters of judgment
and, therefore, cannot be determined with precision. These estimates do not
reflect any premium or discount that could result from offering for sale, at one
time, the Company's entire holdings of a particular instrument. Changes in
assumptions could significantly affect these estimates.
Since the fair value is estimated as of June 30, 1999, the amounts that
will actually be realized or paid at settlement or maturity of the instruments
could be significantly different.
The carrying amount of cash and cash equivalents approximates fair value
because their maturity is generally less than three months. The fair value of
current investments are approximately $4,594,751. The fair market value of the
Company's investment in US Wireless Series B, assuming conversion into 67 shares
or 100 shares, of common stock for each share of US Wireless Series B and a
discount of 25% for potential lack of marketability of the unregistered shares,
are estimated to be $5,715,000 and $8,572,000, respectively. The carrying amount
of accounts receivable, accounts payable and accrued liabilities approximate
fair value as they are expected to be collected or paid within ninety days of
year-end. The fair value of notes receivable and notes payable approximate the
terms in the
F-32
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
marketplace at which they could be replaced. Therefore, the fair value
approximates the carrying value of these financial instruments.
(20) RISK RELATED TO CONCENTRATION IN THE VOLUME OF BUSINESS
Sales of entertainment networks by the Company are typically made to a
relatively few number of customers. This concentration of business among a few
customers exposes the Company to significant risk. For the Transition Period
ended June 30, 1999 and the fiscal years ended October 31, 1998 and 1997, one
customer accounted for 91%, 98% and 95% of the Company's sales, respectively.
Outstanding receivables from this customer were zero and $1.1 million,
respectively at June 30, 1999 and October 31, 1998.
(21) SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED
JUNE 30, YEARS ENDED OCTOBER 31,
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
Cash paid for interest $ 35,624 $ 11,954 $ 13,423
=========== ======== ========
Non-cash investing and financing activities:
Acquisition:
Fair value of assets (liabilities) acquired $ (314,658) $813,736 $ --
Fair value of preferred stock issued 4,080,000 -- --
Note payable 3,467,045 125,000 --
=========== ======== ========
Capital lease obligations incurred $ -- $ -- $210,678
Issuance of stock under stock option plan pursuant to
cashless exercise option $ -- $ -- $ 13,874
Issuance of stock for services received $ -- $187,729 $466,875
=========== ======== ========
</TABLE>
(22) OPERATING SEGMENTS
In 1998, the Company adopted SFAS 131, which requires the reporting of
operating segments using the "management approach" versus the "industry
approach" previously required. The Company's reportable segments consist of TNCi
and general corporate operations. TNCi's operations include development,
manufacturing and marketing of computer-based entertainment and data networks,
which provides users access to information, entertainment and a wide array of
service options such as movies, shopping for goods and services, computer games,
access to the World Wide Web and gambling, where permitted by applicable law.
General corporate operations consists of developing and operating affiliate
companies, most of which are engaged in telecommunications, e-commerce,
networking solutions and gaming.
F-33
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes information related to the Company's segments.
All significant intersegment activity has been eliminated. Assets are the owned
or allocated assets used by each operating segment.
<TABLE>
<CAPTION>
TRANSITION
PERIOD ENDED
JUNE 30, YEARS ENDED OCTOBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
TNCi $ 958,607 $ 18,816,962 $ 11,100,709
Other 623,854 325,999 --
------------ ------------ ------------
1,582,461 19,142,961 11,100,709
Gross profit (loss)(a)
TNCi (559,196) 3,279,891 (13,777,751)
Other 178,748 100,951 --
------------ ------------ ------------
(380,448) 3,380,842 (13,777,751)
Operating income (loss)
TNCi 2,338,326 (7,232,321) (52,975,915)
Other (5,321,945) (2,276,918) --
------------ ------------ ------------
(2,983,619) (9,509,239) (52,975,915)
General corporate operations
Gain on sale of assets 133,396 -- --
Equity in loss of non-
consolidated affiliate (195,704) -- --
Net interest 985,545 2,239,101 2,157,252
General and administrative -- -- --
Other income (expenses) 61,252 10,179 (203,649)
Minority interest (376,705) -- --
------------ ------------ ------------
607,784 2,249,280 1,953,603
Net loss $ (2,375,835) $ (7,259,959) $(51,022,312)
Total assets
TNCi 14,752,462 4,238,030
General corporate 24,660,159 34,026,172
------------ ------------
Total Assets $ 39,412,621 $ 38,264,202
============ ============
</TABLE>
(a) Gross profit (loss) is the difference between Revenue and Cost of
Revenue in the consolidated statement of operations.
(23) SUBSEQUENT EVENTS
In July and August 1999, the Company purchased all of the Series A and E
notes and the Series D notes respectively, from the holders of such notes.
Concurrent with such purchase by the Company and TNCi executed the fifth and
sixth allonges to the Promissory Note which cancelled such Series Notes and
rolled the principal balance, plus accrued but unpaid interest, penalties and
redemption premiums on the Series Notes into the principal balance of the
Promissory Note.
F-34
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 13, 1999, the Company and two of its officers entered into a
Release and Settlement Agreement ("Agreement") with First Lawrence Capital Corp.
See Note 18(a).
On August 24, 1999, the Board of Directors of the Company approved the
conversion of the Promissory Note and outstanding advances to TNCi into Series C
Stock of TNCi and, the simultaneous conversion of the Series C Stock into TNCi's
Common Stock in accordance with the designation of the Series C Stock. Such
conversion, to the extent it exceeded approximately one million shares of TNCi's
Common Stock on August 24, 1999, was contingent upon receiving shareholder
approval to increase the authorized share capital which was subsequently
approved on September 17, 1999. Accordingly, TNCi will issue to the Company
approximately 4.7 million shares of its common stock.
On August 24, 1999, the Board of Directors of the Company approved a $5
million secured revolving credit facility by and among the Company and TNCi
("the Facility"). The Facility provides that TNCi may borrow up to $5 million
for working capital and general corporate purposes at the prime rate of interest
plus 3%. The Facility matures in September 2001. TNCi paid an origination fee of
$50,000 to the Company and will pay an unused line fee of 0.5% per annum. The
Facility is secured by all of the assets of TNCi and is convertible, at the
Company's option, into shares of the Series C Stock. The Company executed the
Facility on October 12, 1999.
In September 1999, the Company sold one of its two buildings in
Alpharetta, Georgia. The net proceeds from the sale, plus cash of approximately
$80,000 was used by the Company to repay the note payable due April 19, 2001.
The sale of the second building is expected to occur in November 1999 and net
proceeds are expected to be used to retire the note payable due 2009.
In September 1999, the Company terminated the License Agreement with
Fortunet. See Note 17.
In September of 1999, IFT filed a lawsuit against Barrington Capital Group,
L.P. in Maricopa County Superior Court, Arizona, seeking a declaratory judgment
that no sums were owed to Barrington Capital pursuant to a Financial Advisory
Service Agreement dated in October of 1998. In October of 1999, Barrington
Capital Group filed a lawsuit on the same contract in the Supreme Court of the
State of New York, County of New York, Index No. 99-604606, captioned Barrington
Capital Group, L.P. v. Interactive Flight Technologies, Inc., alleging that
Barrington is owed $1,750,471 in connection with services alleged to have been
performed pursuant to the Financial Advisory Service Agreement. IFT denies all
liability and denies that any sums are owed to Barrington.
F-35
ANNEX III
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE
PROVISIONS OF THIS WARRANT.
No. of Shares of Common Stock: 87,500
Warrant No. 1
WARRANT
To Purchase Class A Common Stock of
Interactive Flight Technologies, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered assigns, is
entitled, at any time from the Closing Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from Interactive Flight
Technologies, Inc., a Delaware corporation (the "Company"), 87,500 shares of
Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
equal to $3.00 per share, all on the terms and conditions and pursuant to the
provisions hereinafter set forth.
Article 1
DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a
<PAGE>
Saturday or Sunday or a day on which banks are required or permitted to be
closed in the State of New York.
"Closing Date" shall have the meaning set forth in the Securities Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Class A Common Stock, $.01 par value, of the Company as constituted on the
Closing Date, and any capital stock into which such Common Stock may thereafter
be changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Common Stock
of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute,
2
<PAGE>
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean a date five (5) years from the date hereof.
"Holder" shall mean the Person in whose name the Warrant or Warrant Stock
set forth herein is registered on the books of the Company maintained for such
purpose.
"Market Price" per Common Share means the average of the closing bid prices
of the Common Shares as reported on the Nasdaq National Market ("Nasdaq") for
the ten (10) trading days immediately before the relevant measurement date, or,
if such security is not listed or admitted to trading on the Nasdaq, on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
average of the closing bid prices of such security on the over-the-counter
market for the ten (10) trading days immediately before the day in question as
reported by the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such manner as furnished
by any Nasdaq member firm of the National Association of Securities Dealers,
Inc. selected from time to time by the Board of Directors of the Company for
that purpose, or a price determined in good faith by the Board of Directors of
the Company as being equal to the fair market value thereof, as the case may be,
on the date in question.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of
3
<PAGE>
shares thereof is to be determined, all issued shares of Common Stock, except
shares then owned or held by or for the account of the Company or any subsidiary
thereof, and shall include all shares issuable in respect of outstanding scrip
or any certificates representing fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this Warrant would be, evidenced by
a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and The
Shaar Fund, Ltd. as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
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"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
Article 2
EXERCISE OF WARRANT
Section 2.1 Manner of Exercise. From and after the Closing Date and until
5:00 P.M., New York time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, for all or any part of the number of shares of
Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 4041 North Central Avenue,
Suite B 200, Phoenix, Arizona 85012 or at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price by wire transfer or
cashier's check drawn on a United States bank or by the Holder's surrender of
Warrant Stock (or the right to
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receive such number of shares) having an aggregate Market Price equal to the
Warrant Price for all shares then being purchased and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with the cash or check or
checks and this Warrant, is received by the Company as described above and all
taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to
the issuance of such shares have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate
or certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of Holder, appropriate
notation may be made on this Warrant and the same returned to Holder.
Notwithstanding any provision herein to the contrary, the Company shall not be
required to register shares in the name of any Person who acquired this Warrant
(or part hereof) or any Warrant Stock otherwise than
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in accordance with this Warrant.
Section 2.2 Payment of Taxes and Charges. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall be
validly issued, fully paid and nonassessable, and without any preemptive rights.
The Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof, unless such tax or charge is imposed by law upon Holder, in which case
such taxes or charges shall be paid by Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of Holder,
and in such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
Section 2.3 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock as of the Closing Date.
Section 2.4 Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as Holder under Sections 9, 10 and
14 of this Warrant. The Company will, at the time
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of exercise of this Warrant, in whole or in part, upon the request of Holder,
acknowledge in writing, in form reasonably satisfactory to Holder, its
continuing obligation to afford Holder all such rights; provided, however, that
if Holder shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to Holder all such rights.
Section 2.5 Redemption. Notwithstanding anything to the contrary in this
Warrant, at the option of the Company, this Warrant may be redeemed to the
extent not already exercised at or any time after the giving of a Notice of
Corporate Action of the type referred to in Section 5.2.2, if the corporate
action referred to in such Notice of Corporate Action is consummated and, upon
the closing of such corporate action, the Company pays to the Holder the cash,
securities and Other Property which such Holder would have otherwise received if
it had exercised the Warrant immediately prior to the redemption thereof, less
the Aggregate Exercise Price. The Aggregate Exercise Price shall mean the
product of the Current Warrant Price multiplied by the remaining number of
shares of Common Stock which the Holder was entitled to obtain upon exercise of
this Warrant. In the event the amounts to be paid to the Holder do not include
cash in an amount equal to or greater than the Aggregate Exercise Price, the
Holder shall have the option of paying the Company the amount by which such cash
is less than the Aggregate Exercise Price or of having sufficient securities or
Other Property which would otherwise have been received by the Holder sold to
pay such shortfall.
Article 3
TRANSFER, DIVISION AND COMBINATION
Section 3.1 Transfer. Subject to compliance with Article 9, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the
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Company referred to in Section 2.1 or the office or agency designated by the
Company pursuant to Section 12, together with a written assignment of this
Warrant substantially in the form of Exhibit B hereto duly executed by Holder or
its agent or attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall, subject to Section 9, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
Section 3.2 Division and Combination. Subject to Section 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
Section 3.3 Expenses. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
Section 3.4 Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
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Article 4
ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
Section 4.1 Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
1. take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock,
2. subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
3. combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
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Section 4.2 Certain Other Distributions. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
1. cash,
2. any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock), or
3. any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
Section 4.3 Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
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1. When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business
on the date of its occurrence.
2. Fractional Interests. In computing adjustments under this Section
4, fractional interests in Common Stock shall be taken into account to the
nearest 1/10th of a share.
3. When Adjustment Not Required. If the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
4. Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of recognized
national standing selected by the Company and acceptable to the Holder.
Section 4.4 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the
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Common Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation and,
pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.4, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for
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any such stock, either immediately or upon the arrival of a specified date or
the happening of a specified event and any warrants or other rights to subscribe
for or purchase any such stock. The foregoing provisions of this Section 4.4
shall similarly apply to successive reorganizations, reclassification, mergers,
consolidations or dispositions of assets.
Section 4.5 Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Article 4, which would have a
materially adverse effect upon the rights of the Holder (as compared to the
rights of holders of Common Stock generally), the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by the Board of
Directors of the Company.
Section 4.6 Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
Article 5
NOTICES TO HOLDER
Section 5.1 Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of the Warrants, shall
be adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and
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the method by which such adjustment was calculated (including a description of
the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4.2), specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to Section 4.4
or 4.5) describing the number and kind of any other shares of stock or Other
Property for which this Warrant is exercisable, and any change in the purchase
price or prices thereof, after giving effect to such adjustment or change. The
Company shall promptly cause a signed copy of such certificate to be delivered
to the Holder in accordance with Section 15.2. The Company shall keep at its
office or agency designated pursuant to Section 12 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by the Holder or any prospective purchaser of a
Warrant designated by the Holder.
Section 5.2 Notice of Corporate Action. If at any time
1. the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
2. there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation, or
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3. there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder prompt
notice of the date on which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, and (ii) in the case of any
such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, prompt notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, the date on which the
holders of Common Stock shall be entitled to any such dividend, distribution or
right, and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place (or an
estimate thereof if not precisely known) and the time, if any such time is to be
fixed, as of which the holders of Common Stock shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up. Each such written notice
shall be sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 15.2.
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Article 6
NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its reasonable commercial efforts
to obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the period
this Warrant is outstanding acknowledge in writing, in form satisfactory to
Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
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Article 7
RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
Article 8
TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of
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the close of business on a Business Day. The Company will not at any time,
except upon dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
Section 9
RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder, by acceptance of this Warrant, agrees to be bound by the provisions of
this Section 9.
Section 9.1 Restrictive Legend. (a) The Holder by accepting this Warrant
and any Warrant Stock agrees that this Warrant and the Warrant Stock issuable
upon exercise hereof may not be assigned or otherwise transferred unless and
until (i) the Company has received an opinion of counsel for the Holder that
such securities may be sold pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act") or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a legend
as follows unless such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"). The
securities may not be offered for sale, sold or otherwise transferred
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except (i) pursuant to an effective registration statement under the Act or
(ii) pursuant to an exemption from registration under the Act in respect of
which the Company has received an opinion of counsel satisfactory to the
Company to such effect. Copies of the agreement covering both the purchase
of the securities and restricting their transfer may be obtained at no cost
by written request made by the holder of record of this certificate to the
Secretary of the Company at the principal executive offices of the
Company."
(b) Except as otherwise provided in this Section 9, the Warrant shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, and may not be
transferred in violation of such Act, the rules and regulations thereunder
or the provisions of this Warrant."
Section 9.2 Notice of Proposed Transfers. Prior to any Transfer or
attempted Transfer of any Warrants or any shares of Restricted Common Stock, the
Holder shall give ten (10) days' prior written notice (a "Transfer Notice") to
the Company of Holder's intention to effect such Transfer, describing the manner
and circumstances of the proposed Transfer, and obtain from counsel to Holder
who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five (5) days thereof,
notify the Holder as to whether such opinion is reasonably satisfactory and, if
so, such Holder shall thereupon be entitled to Transfer such Warrants or such
Restricted Common Stock, in accordance with the terms of the Transfer Notice.
Each certificate, if any, evidencing such shares of
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Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. The Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2(a) that such opinion is reasonably satisfactory.
Section 9.3 Intentionally Omitted
Section 9.4 Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto or (ii) when the Company shall have received an opinion of
counsel reasonably satisfactory to it that such shares may be transferred
without registration thereof under the Securities Act. Whenever the restrictions
imposed by Section 9 shall terminate as to this Warrant, as hereinabove
provided, the Holder hereof shall be entitled to receive from the Company upon
written request of the Holder, at the expense of the Company, a new Warrant
bearing the following legend in place of the restrictive legend set forth
hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON ________, ____,
AND ARE OF NO FURTHER FORCE AND EFFECT."
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All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
Section 9.5 Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during any such Exercise Period.
Article 10
SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
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Article 11
LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder; provided, in
the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
Article 12
OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
Article 13
LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
23
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Article 14
MISCELLANEOUS
Section 14.1 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies.
If the Company fails to make, when due, any payments provided for hereunder, or
fails to comply with any other provision of this Warrant, the Company shall pay
to Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys' fees, including those of
appellate proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
Section 14.2 Notice Generally. Except as may be otherwise provided herein,
any notice or other communication or delivery required or permitted hereunder
shall be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(1) if to the Company, to:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
Suite B 200
Phoenix, Arizona 86012
Attention: Irwin L. Gross
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with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson LLP
1735 Market Street
38th Floor
Philadelphia, Pennsylvania 19103-7598
Attn: Richard P. Jaffe
(2) if to the Holder, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Samuel Levinson
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Gerald S. Backman, Esq.
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
Section 14.3 Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements
25
<PAGE>
are found in a final non-appealable judgment by a court to have resulted from
Holder's gross negligence, bad faith or willful misconduct in its capacity as a
stockholder or warrantholder of the Company.
Section 14.4 Remedies. Holder in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under Section 9 of this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of Section 9 of this
Warrant and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
Section 14.5 Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
Section 14.6 Amendment. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
Section 14.7 Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
Section 14.8 Headings. The headings used in this Warrant
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are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
Section 14.9 Governing Law. This Warrant shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating to
conflict of laws.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: May 10, 1999
Interactive Flight Technologies, Inc.
By:
---------------------------------
Name:
Title:
Attest:
By:
-------------------------
Name:
Title:
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EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of Common Stock of Interactive Flight
Technologies, Inc. and herewith makes payment therefor, all at the price and on
the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________ whose address is _________________ and, if such
shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
-----------------------------------
(Name of Registered Owner)
-----------------------------------
(Signature of Registered Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of ___________________
maintained for the purpose, with full power of substitution in the premises.
Dated: Print Name:
----------------- ----------------------------
Signature:
-----------------------------
Witness:
-------------------------------
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated this 6th day of May 1999 (this
"Agreement"), between Interactive Flight Technologies, Inc., a Delaware
Corporation, with principal offices located at 4041 North Central Avenue, Suite
B 200, Phoenix, Arizona 85012 (the "Company"), and the undersigned (the "Initial
Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement dated as of a date even herewith, between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor 3,000 shares of its Series A 8%
Convertible Preferred Stock which, upon the terms and subject to the conditions
thereof, are convertible into the Company's Class A Common Stock, $.01 par value
(the "Common Stock") or the Company's Series B 8% Convertible Preferred Stock
(the "Preferred Stock"), which, upon the terms and subject to the conditions
thereof, are convertible into Common Stock, and Warrants (the "Warrants") to
purchase 87,500 shares of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable upon conversion of the Preferred Stock and
exercise of the Warrants certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the meanings:
(i) "Affiliate" of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, is in control
of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have
the respective meanings correlative to the foregoing.
(ii) "Closing Date" means the date of this Agreement.
(iii) "Commission" means the Securities and Exchange Commission.
(iv) "Current Market Price" on any date of determination means the
closing bid price of a Common Share on such day as reported
<PAGE>
on the Nasdaq National Market, or, if such security is not listed or
admitted to trading on the Nasdaq National Market, on the principal
national security exchange or quotation system on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation
system, the closing price of such security on the over-the-counter market
on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not
so available, in such manner as furnished by any Nasdaq member firm of the
National Association of Securities Dealers, Inc. selected from time to time
by the Board of Directors of the Company for that purpose, or a price
determined in good faith by the Board of Directors of the Company as being
equal to the fair market value thereof, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(vi) "Investors" means the Initial Investor and any transferee or
assignee of Registrable Securities who agrees to become bound by all of the
terms and provisions of this Agreement in accordance with Section 8 hereof.
(vii) "Person" means any individual, partnership, corporation, limited
liability company, joint stock company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
(viii) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus
that discloses information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on Rule 430A under
the Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference therein.
(ix) "Registrable Securities" means the Common Stock issued or
issuable upon conversion of Preferred Stock; provided, however, a share of
Common Stock shall cease to be a Registrable Security for purposes of this
Agreement when it no longer is a Restricted Security.
(x) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for
the registration of, and the sale on a continuous or delayed basis by the
holders of, all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained therein
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<PAGE>
and forming a part thereof, any amendments to such registration statement
and supplements to such Prospectus, and all exhibits and other material
incorporated by reference in such registration statement and Prospectus.
(xi) "Restricted Security" means any share of Common Stock issued or
issuable upon conversion of the Preferred Stock except any such share that
(i) has been registered pursuant to an effective registration statement
under the Securities Act and sold in a manner contemplated by the
Prospectus included in the Registration Statement, (ii) has been
transferred in compliance with the resale provisions of Rule 144 under the
Securities Act (or any successor provision thereto) or is transferable
pursuant to paragraph (k) of Rule 144 under the Securities Act (or any
successor provision thereto), or (iii) otherwise has been transferred and a
new share of Common Stock not subject to transfer restrictions under the
Securities Act has been delivered by or on behalf of the Company.
(xii) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the respective
meaning assigned to them in the Securities Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company shall
prepare and file with the Commission not later than forty-five (45) days after
the date of issuance of the Preferred Stock, a Registration Statement relating
to the offer and sale of the Registrable Securities, assuming for purposes
hereof a conversion price of the Preferred Stock of $1.25 per share and shall
use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but not
later than one hundred and twenty days after the Closing Date. The Company shall
not include any other securities in the Registration Statement relating to the
offer and sale of the Registrable Securities. The Company shall notify the
Initial Investor by written notice that such Registration Statement has been
declared effective by the Commission within 24 hours of such declaration by the
Commission.
(b) Registration Default. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not (i) filed with the Commission within forty-five (45) days
after the date of issuance of the Preferred Stock or (ii) declared effective by
the Commission prior to one hundred and twenty days after the date of issuance
of the Preferred Stock (either of which, without duplication, an "Initial
Date"), then the Company shall make the payments to the Initial Investor as
provided in the next sentence as liquidated damages and not as a penalty. The
amount to be paid by the Company to the Initial Investor shall be determined as
of each Computation Date, and such amount shall be equal to 3% (the "Liquidated
Damage Rate") of the Purchase Price (as defined in the Securities Purchase
Agreement) from the Initial Date to the first Computation Date and for each
Computation Date thereafter, calculated on a pro rata basis to the date on which
the Registration Statement is filed with (in the event of an Initial Date
pursuant to (c)(i) above) or
3
<PAGE>
declared effective by (in the event of an Initial Date pursuant to (c)(ii)
above) the Commission (the "Periodic Amount"); provided, however, that in no
event shall the liquidated damages be less than $30,000 and; further provided,
however, that the Liquidated Damage Rate shall increase by 1% for each thirty
(30) day period after the date one hundred and twenty days after the Closing
Date that the Registration Statement covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the Commission. The full Periodic Amount shall be paid by
the Company to the Initial Investor by wire transfer of immediately available
funds within three (3) days after each Computation Date.
As used in this Section 2(b), "Computation Date" means the date which is
thirty (30) days after the Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is thirty (30) days
after the previous Computation Date until such Registration Statement is so
declared effective.
Notwithstanding the above, if the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not filed with the Commission within forty-five (45) days after
the Closing Date or if the Registration Statement covering the Additional
Registrable Securities (as defined in Section 2(d) hereof) required to be filed
by the Company pursuant to Section 2(d) hereof is not filed with the Commission
within thirty (30) days after the Current Market Price declines to $1.50 or less
to the extent required by the Securities Act (because the additional shares were
not covered by the Registration Statements filed pursuant to Sections 2(a)), the
Company shall be in default of this Registration Rights Agreement.
(c) Eligibility for Use of Form S-3. The Company agrees that at such time
as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(d) Additional Registration Statement. In the event the Current Market
Price declines to $1.50 or less (the "Decline Date") at any time after the
Initial Date, the Company shall, to the extent required by the Securities Act
(because the additional shares were not covered by the Registration Statement
filed pursuant to Section 2(a)), as reasonably determined by the Initial
Investor, file an additional Registration Statement with the Commission for such
additional number of Registrable Securities as would be issuable upon conversion
of the Preferred Stock (the "Additional Registrable Securities"), in addition to
those previously registered, assuming a Conversion Price of $.75 per share. The
Company shall, to the extent required by the Securities Act (because the
additional shares were not covered by the Registration Statement filed pursuant
to Section 2(a)), as reasonably determined by the Initial Investor, prepare and
file with the Commission not later than thirty (30) days after the Decline Date,
a registration statement relating to the offer and sale of such Additional
Registrable Securities (the "Additional Registration Statement") and shall use
its best efforts to cause the Commission to declare such Additional Registration
Statement
4
<PAGE>
effective under the Securities Act as promptly as practicable but not later than
sixty (60) days thereafter. The Company shall not include any other securities
in the Registration Statement relating to the offer and sale of such Additional
Registrable Securities.
If the Additional Registration Statement is not (i) filed with the
Commission within thirty (30) days after the Decline Date or (ii) declared
effective by the Commission within ninety (90) days after the Decline Date
(either of which, without duplication, an "Additional Registration Date"), then
the Company shall make payments to the Initial Investor at the Liquidated Damage
Rate from the Additional Registration Date to the first Additional Computation
Date and for each Computation Date thereafter, calculated on a pro rata basis to
the date on which the Additional Registration Statement is filed with or
declared effective by the Commission (the "Additional Periodic Amount");
provided, however, that in no event shall the liquidated damages be less than
$30,000 and; further provided, that if the Additional Registration Statement is
not declared effective by the Commission within one hundred and twenty (120)
days after the Additional Registration Date set forth in clause (ii) above, then
the Liquidated Damage Rate shall be increased to 4% and; further provided,
however, that the Liquidated Damage Rate shall increase by 1% for each thirty
(30) day period after the one hundred and fiftieth (150th) day after the
Additional Registration Date set forth in clause (ii) above that the Additional
Registration Statement is not declared effective by the Commission. The full
Additional Periodic Amount shall be paid by the Company to the Initial Investor
by wire transfer of immediately available funds within three (3) days after each
Additional Computation Date.
As used in this Section 2(d), "Additional Computation Date" means the date
which is thirty (30) days after the Additional Registration Date and, if the
Additional Registration Statement required to be filed by the Company pursuant
to this Section 2(d) has not theretofore been declared effective by the
Commission, each date which is thirty (30) days after the previous Additional
Computation Date until such Additional Registration Statement is so declared
effective.
(e) Piggyback Obligations. (i) If the Company proposes to register any of
its warrants, Common Stock or any other shares of common stock of the Company
under the Securities Act (other than a registration (A) on Form S-8 or S-4 or
any successor or similar forms, (B) relating to Common Shares or any other
shares of common stock of the Company issuable upon exercise of employee share
options or in connection with any employee benefit or similar plan of the
Company or (C) in connection with a direct or indirect acquisition by the
Company of another Person or any transaction with respect to which Rule 145 (or
any successor provision) under the Securities Act applies), whether or not for
sale for its own account, it will each such time, give prompt written notice at
least twenty (20) days prior to the anticipated filing date of the registration
statement relating to such registration to the Initial Investor, which notice
shall set forth such Initial Investor' rights under this Section 2(e) and shall
offer the Initial Investor the opportunity to include in such registration
statement (a) such number of Registrable Securities as the Initial Investor may
request and (b) any shares of Common Stock issued or issuable upon exercise of
the Warrants (the "Warrant Stock"). Upon the written request of an Initial
Investor made within ten (10) days after the receipt
5
<PAGE>
of notice from the Company (which request shall specify the number of
Registrable Securities intended to be disposed of by such Initial Investor), the
Company will use its best efforts to effect the registration under the
Securities Laws of all Registrable Securities that the Company has been so
requested to register by the Initial Investor, to the extent requisite to permit
the disposition of the Registrable Securities so to be registered; provided,
however, that (A) if such registration involves a Public Offering, the Initial
Investor must sell its Registrable Securities to the underwriters on the same
terms and conditions as apply to the Company and (B) if, at any time after
giving written notice of its intention to register any Registrable Securities
pursuant to this Section 2 and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such Registrable Securities, the
Company shall give written notice to the Initial Investor and, thereupon, shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration. The Company's obligations under this Section
2(e) shall terminate on the date that the registration statement to be filed in
accordance with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(e) involves a Public
Offering and the managing underwriter thereof advises the Company that, in its
view, the number of shares of Common Stock, Warrants or other shares of Common
Stock that the Company and the Initial Investor and all other prospective
sellers holding registration rights intend to include in such registration
exceeds the largest number of shares of Common Stock or Warrants (including any
other shares of Common Stock or Warrants of the Company) that can be sold
without having an adverse effect on such Public Offering (the "Maximum Offering
Size"), the Company will include in such registration, only that number of
shares of Common Stock or Warrants, as applicable, such that the number of
securities registered does not exceed the Maximum Offering Size, with the
difference between the number of shares in the Maximum Offering Size and the
number of shares to be issued by the Company to be allocated (after including
all shares to be issued and sold by the Company) among the Initial Investor and
such other prospective holders pro rata on the basis of the relative number of
securities offered for sale under such registration by each of the Initial
Investor and such other prospective holders.
If as a result of the proration provisions of this Section 2(e)(ii), any
Initial Investor is not entitled to include all such Registrable Securities in
such registration, such Initial Investor may elect to withdraw its request to
include any Registrable Securities in such registration. With respect to
registrations pursuant to this Section 2(e), the number of securities required
to satisfy any underwriters' over-allotment option shall be allocated pro rata
among the Company and the Initial Investor on the basis of the relative number
of securities otherwise to be included by each of them in the registration with
respect to which such over-allotment option relates.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities or the Warrant Stock, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
6
<PAGE>
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two (2) years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, redeemed by
the Company, transferred pursuant to Rule 144 under the Securities Act or
otherwise transferred in a manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act (the "Registration
Period") and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and (B) the Prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the Registration
Period include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing provisions of this Section 3(a), the
Company may, during the Registration Period, suspend the use of the Prospectus
for a period not to exceed 120 days (whether or not consecutive) in any 12-month
period if the Board of Directors of the Company determines in good faith that
because of valid business reasons, including pending mergers or other business
combination transactions, the planned acquisition or divestiture of assets,
pending material corporate developments and similar events, it is in the best
interests of the Company to suspend such use, and prior to or contemporaneously
with suspending such use the Company provides the Investors with written notice
of such suspension, which notice need not specify the nature of the event giving
rise to such suspension. At the end of any such suspension period, the Company
shall provide the Investors with written notice of the termination of such
suspension.
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to Registrable Securities or Warrant Stock covered
by the Registration Statement until such time as all of such Registrable
Securities or Warrant Stock have been disposed of in accordance with the
intended methods of disposition by the Investors as set forth in the Prospectus
forming part of the Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and
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<PAGE>
(B) such number of copies of the Prospectus and all amendments and supplements
thereto and such other documents, as such Investor may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Investor;
(d) (i) Register or qualify the Registrable Securities or Warrant Stock
covered by the Registration Statement under such securities or "blue sky" laws
of such jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities or Warrant Stock being sold (or,
in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) Cause all the Registrable Securities and Warrant Stock covered by the
Registration Statement to be listed on the principal national securities
exchange, and included in an inter-dealer quotation system of a registered
national securities association, on or in which securities of the same class or
series issued by the Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
8
<PAGE>
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three (3) business days after a Registration Statement which includes
Registrable Securities is declared effective by the Commission, deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Investors of their Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than eighteen (18) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and (ii) cause the Company's
officers, directors and employees to supply all information reasonably requested
by such underwriter, attorney, accountant or agent in connection with the
Registration Statement, in each case, as is customary for similar due diligence
examinations; provided, however, that all records, information and documents
that are designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by such underwriter, attorney, accountant or agent (pursuant to an
appropriate confidentiality agreement in the case of any such holder or agent),
unless such disclosure is made pursuant to judicial process in a court
proceeding (after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the
9
<PAGE>
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided further that, if the foregoing inspection and information gathering
would otherwise disrupt the Company's conduct of its business, such inspection
and information gathering shall, to the maximum extent possible, be coordinated
by parties entitled thereto by one firm of counsel designed by and on behalf of
the majority in interest of Investors and other parties;
(n) In connection with any underwritten offering, make such representations
and warranties to the Investors participating in such underwritten offering and
to the managers, in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(r) In the event that any broker-dealer registered under the Exchange Act
shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or
10
<PAGE>
selling group or assist in the distribution of any Registrable Securities
covered by the Registration Statement, whether as a holder of such Registrable
Securities or as an underwriter, a placement or sales agent or a broker or
dealer in respect thereof, or otherwise, the Company shall assist such
broker-dealer in complying with the requirements of the NASD Rules, including,
without limitation, by (A) engaging a "qualified independent underwriter" (as
defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision
thereto)) to participate in the preparation of the Registration Statement
relating to such Registrable Securities, to exercise usual standards of due
diligence in respect thereof and to recommend the public offering price of such
Registrable Securities, (B) indemnifying such qualified independent underwriter
to the extent of the indemnification of underwriters provided in Section 5
hereof, and (C) providing such information to such broker-dealer as may be
required in order for such broker-dealer to comply with the requirements of the
NASD Rules.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities or Warrant Stock, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities or Warrant Stock of a particular Investor that such
Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. As
least seven (7) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of its Registrable Securities
or Warrant Stock included in the Registration Statement. If at least two (2)
business days prior to the anticipated filing date the Company has not received
the Requested Information from an Investor (a "Non-Responsive Investor"), then
the Company may file the Registration Statement without including Registrable
Securities or Warrant Stock of such Non-Responsive Investor and have no further
obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities agrees to
cooperate with the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of its election to exclude all of its Registrable Securities from the
Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 3(e) or 3(f) or
of a notice pursuant to Section 3(a), it shall immediately discontinue its
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(e) or of
receipt of notice from the Company
11
<PAGE>
pursuant to Section 3(a), as applicable, and, if so directed by the Company,
such Investor shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of destruction) all copies in
such Investor's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company shall
be borne by the Company. The Investors shall be responsible for payment of their
share of any underwriting discounts or commissions.
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Investor and each
underwriter, if any, which facilitates the disposition of Registrable Securities
or Warrant Stock, and each of their respective officers and directors and each
person who controls such Investor or underwriter within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act (each such person
being sometimes hereinafter referred to as an "Indemnified Person") from and
against any losses, claims, damages or liabilities, joint or several, to which
such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in
12
<PAGE>
any Registration Statement or an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, not misleading, or arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Prospectus or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company hereby
agrees to reimburse such Indemnified Person for all reasonable legal and other
expenses incurred by them in connection with investigating or defending any such
action or claim as and when such expenses are incurred; provided, however, that
the Company shall not be liable to any such Indemnified Person in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e) or of the
delivery of a notice pursuant to Section 3(a) or 3(f), the use by the
Indemnified Person of an outdated or defective Prospectus after the Company has
provided to such Indemnified Person an updated Prospectus correcting the untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
or Warrant Stock in a Registration Statement, and each underwriter, if any,
which facilitates the disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors (including any person who, with his or her consent, is named in the
Registration Statement as a director nominee of the Company), its officers who
sign any Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or such other persons may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in such Registration
Statement or Prospectus or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they were made, in the case of the Prospectus), not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
holder or underwriter expressly for use therein, and (ii) reimburse the Company
for any legal or other expenses incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of
13
<PAGE>
any investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim the Indemnifying Party shall be entitled to assume the
defense thereof. Notwithstanding the assumption of the defense of any Claim by
the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel and to participate in the defense of such Claim at the
reasonable cost and expense of the Indemnifying Party unless the Indemnified
Party and the Indemnifying Party shall reasonably have concluded that
representation of the Indemnified Party by the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or the
Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnifying Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnifying Party from all liabilities
with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid
14
<PAGE>
or payable by an Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. 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. The
obligations of the Investors and any underwriters in this Section 6(d) to
contribute shall be several in proportion to the percentage of Registrable
Securities registered or underwritten, as the case may be, by them and not
joint.
(e) Notwithstanding any other provision of this Section 6, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
be received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144. With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("Rule 144"), the Company agrees
to use its best efforts to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
8. Assignment. The rights to have the Company register Registrable
Securities or Warrant Stock pursuant to this Agreement shall be automatically
assigned by the Investors to any permitted transferee of all or any portion of
such securities (or all
15
<PAGE>
or any portion of any Preferred Stock or Warrant of the Company which is
convertible into such securities) of Registrable Securities or Warrant Stock
only if: (a) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are being transferred
or assigned, (c) immediately following such transfer or assignment, the
securities so transferred or assigned to the transferee or assignee constitute
Restricted Securities, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein.
9. Amendment and Waiver. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
(1) if to the Company, to:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
16
<PAGE>
Suite B 200
Phoenix, Arizona 86012
Attention: Irwin L. Gross
with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
38th Floor
Philadelphia, Pennsylvania 19103-7598
Attn: Richard P. Jaffe
(2) if to the Initial Investor, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Samuel Levinson
With a copy to:
Weil Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Gerald S. Backman, P.C.
(3) if to any other Investor, at such address as such
Investor shall have provided in writing to the
Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
17
<PAGE>
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities or Warrant Stock in this Agreement or otherwise conflicts
with the provisions hereof. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority in interest of the
Registrable Securities, the Company shall not grant to any person the right to
request it to register any of its securities under the Securities Act unless the
rights so granted are subject in all respect to the prior rights of the holders
of Registrable Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement. The restrictions on the
Company's rights to grant registration rights under this paragraph shall
terminate on the date the Registration Statement to be filed pursuant to Section
2(a) is declared effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement, the Warrant, and the
Certificate of Designations, Preferences and Rights of Series B Preferred Stock,
dated as of the date hereof (the "Certificate of Designations"), between the
Company and the Initial Holder constitute the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement, the Securities Purchase Agreement, the Warrant and the
Certificate of Designations supersede all prior agreements and undertakings
among the parties hereto with respect to the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3, or any delay in such performance could result in
direct damages to the Investors and the Company agrees that, in addition to any
other
18
<PAGE>
liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
THE SHAAR FUND LTD.
By:
---------------------------------
Name:
Title:
19
-----------------------------
135 EAST 57th STREET LLC,
Landlord,
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Tenant.
-----
LEASE
-----
Premises: 135 East 57th Street
Part of the 26th Floor
New York, New York 10022
-----------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1. Premises; Term...........................................................................1
2. Commencement of Term.....................................................................1
3. Rent.....................................................................................2
4. Use......................................................................................4
5. Alterations, Fixtures....................................................................5
6. Repairs..................................................................................8
7. Floor Load; Noise........................................................................9
8. Laws, Ordinances, Requirements of Public
Authorities............................................................................9
9. Insurance...............................................................................11
10. Damage by Fire or Other Cause...........................................................13
11. Assignment, Subletting, Mortgaging......................................................14
12. Liability of Landlord and
Indemnity by Tenant...................................................................22
13. Moving of Heavy Equipment...............................................................23
14. Condemnation............................................................................24
15. Entry, Right to Change Public Portions
of the Building.......................................................................25
16. Conditional Limitations, Etc............................................................26
17. Mechanic's Liens........................................................................31
18. Landlord's Right to Perform
Tenant's Obligations..................................................................32
19. Covenant of Quiet Enjoyment.............................................................32
20. Excavation..............................................................................32
21. Services and Equipment..................................................................33
22. Escalation..............................................................................36
23. Electric Inclusion......................................................................42
24. Broker..................................................................................45
25. Subordination and Ground Lease..........................................................45
26. Estoppel Certificate....................................................................48
27. Waiver of Jury Trial....................................................................48
28. Surrender of Premises...................................................................49
29. Rules and Regulations...................................................................49
30. Successors and Assigns and Definitions..................................................50
31. Notices.................................................................................51
32. No Waiver; Entire Agreement.............................................................51
33. Captions................................................................................53
34. Inability to Perform....................................................................53
35. No Representations by Landlord..........................................................53
36. Security Deposit........................................................................54
</TABLE>
i
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<TABLE>
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TABLE OF CONTENTS (continued)
ARTICLE PAGE
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37. Rent Control............................................................................56
38. Landlord's Contribution ................................................................57
39. Supplemental Air Conditioning ..........................................................58
Testimonium and Signatures..............................................................59
Acknowledgments.........................................................................60
Schedule A Floor Plan....................................................61
Schedule B Description of Land...........................................62
Schedule C Rules and Regulations.........................................63
Schedule D Cleaning Specifications.......................................67
Schedule E Definitions...................................................69
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INDENTURE OF LEASE made this 10th day of September, 1999, between 135 EAST
57th STREET LLC, a New York limited liability company, having an office at 750
Lexington Avenue, New York, New York 10022 ("Landlord") and INTERACTIVE FLIGHT
TECHNOLOGIES, INC., a Delaware corporation having an office at 1811 Chestnut
Street, Philadelphia, Pennsylvania 19103 ("Tenant").
W I T N E S S E T H :
ARTICLE 1
Premises; Term
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the
following space ("Demised Premises"): part of the 26th floor as shown
crosshatched on the floor plan (Schedule A) attached hereto, in the office
building known as and by the street number 135 East 57th Street, in the Borough
of Manhattan, City and State of New York ("Building"), upon and subject to the
terms, covenants and conditions hereafter set forth.
TO HAVE AND TO HOLD the Demised Premises unto Tenant for a term commencing
on the "Commencement Date", as defined in Article 2 hereof, and ending on a date
(the "Expiration Date") which shall be ten (10) years after the Commencement
Date, plus the number of days required, if any, to have such term expire on the
last day of a calendar month, or on such earlier date upon which said term may
expire or terminate pursuant to the conditions of this Lease or pursuant to law.
IT IS MUTUALLY COVENANTED AND AGREED between Landlord and Tenant as
follows:
ARTICLE 2
Commencement of Term
Section 2.01. The Demised Premises are presently occupied by a tenant under
a lease expiring on October 31, 1999. The term of this Lease and the payment of
minimum rent hereunder shall commence on the date (the
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"Commencement Date") that possession of the Demised Premises has been delivered
to Tenant vacant, free of all occupants, whether such date is prior to, on or
after November 1, 1999. Landlord shall give Tenant at least ten (10) days prior
written notice of the anticipated date it will deliver possession of the Demised
Premises to Tenant, provided Landlord shall have no liability or responsibility
to Tenant if Landlord is unable to deliver possession of the Demised Premises to
Tenant on the date set forth in such notice.
Section 2.02. Tenant has fully inspected the Demised Premises, is familiar
with the condition thereof and agrees to accept possession of the same on the
Commencement Date in broom clean condition. Landlord shall not be required to do
any work therein to make the same suitable for the conduct of Tenant's business,
except that Landlord shall deliver the same to Tenant in broom clean condition.
Section 2.03. If, prior to the Commencement Date, Tenant shall enter the
Demised Premises or any part thereof to make any installations, Landlord shall
have no liability or obligation for the care or preservation of Tenant's
property. However, Tenant shall, commencing as of the date of such entry, pay
Landlord's charges for (i) electricity, at the rate of $3.00 per rentable square
foot per annum (with respect to the portion of the Demised Premises so entered),
and (ii) such items for which Tenant is separately billed hereunder, including
without limitation, overtime use of freight elevator and HVAC service and
extraordinary services.
Section 2.04. Promptly after the Commencement Date, Landlord and Tenant
shall execute a statement in recordable form confirming the agreed upon
Commencement and Expiration Dates of this Lease, in accordance with the
foregoing provisions.
ARTICLE 3
Rent
Section 3.01. Tenant shall pay as rent for the Demised Premises, the
following:
(a) a fixed minimum rent (the "minimum rent") at the following annual
rates:
(i) $282,150.00 per annum (or $23,512.50 per month) for the first
five (5) years of the
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term following the Commencement Date, including a partial month if the
Commencement Date is not the first day of a month, and in such event
the minimum rent for such month shall be prorated; and
(ii) $292,050.00 per annum (or $24,337.50 per month) for the last
five (5) years of the term; and
(b) all other sums and charges required to be paid by Tenant under the
terms of this Lease (including without limitation, the payments required to
be made under Article 22), which shall be deemed to be and are sometimes
referred to hereafter as additional rent.
Section 3.02. Notwithstanding the provisions of Section 3.01 hereof and
provided Tenant is not then in default under any of the provisions of this Lease
on its part to be performed, Tenant shall be entitled to an abatement of part of
the minimum rent only as follows: the amount of $22,275.00 for each of the 1st,
2nd, 3rd, 4th, 17th and 18th months of the term succeeding the Commencement Date
and the balance of minimum rent for each such month of $1,237.50 shall be
payable by Tenant. Tenant acknowledges that the consideration for the aforesaid
abatement of minimum rent is Tenant's agreement to perform all of the terms,
covenants and conditions of this Lease on its part to be performed. Therefore,
if this Lease shall terminate by reason of Tenant's default under any of such
terms, covenants and conditions of this Lease, the aggregate amount of all
minimum rent that was abated shall immediately thereafter become due and payable
by Tenant to Landlord. In the event of Tenant's failure to pay such aggregate
amount to Landlord, Landlord shall be entitled to the same rights and remedies
as in the event of Tenant's default in the payment of minimum rent. Tenant shall
be required to pay additional rent and all other sums from and after the
Commencement Date.
Section 3.03. The minimum rent shall be payable in equal monthly
installments in advance on the first day of each and every month during the term
of this Lease, except that the amount of $23,512.50 shall be paid upon the
execution of this Lease and shall be applied to payment of the minimum rent for
the fifth (5th) month of the term succeeding the Commencement Date.
Section 3.04. Tenant shall pay the minimum rent and additional rent in
lawful money of the United States which shall be legal tender for the payment of
all debts, public and private, at the time of payment.
Landlord and Tenant agree that Tenant shall pay all minimum rent,
additional rent and other amounts now due or hereafter to become due to the
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Landlord or its agents as provided for in this Lease, (collectively, the
"Rents") (as and when due) directly to the following lock-box account:
135 East 57th Street LLC
P.O. Box 41004
Newark, New Jersey 07101-8007
All rent checks shall be made payable to 135 East 57th Street LLC.
Section 3.05. The minimum rent and additional rent shall be payable by
Tenant without any set-off, abatement or deduction whatsoever and without notice
or demand, except as otherwise expressly provided herein.
ARTICLE 4
Use
Section 4.01. Tenant shall use and occupy the Demised Premises for
administrative, executive and general office purposes only.
Section 4.02. Notwithstanding the provisions of Section 4.01, Tenant shall
not use or allow the use of the Demised Premises or any part thereof (1) for the
cooking and/or sale of food, except that Tenant may warm foods; (2) for storage
for sale of any alcoholic beverage in the Demised Premises; (3) for storage for
and/or sale of any product or material from the Demised Premises; (4) for
manufacturing or printing purposes; (5) for the conduct of a school or training
facility or conduct of any business which results in the presence of the general
public in the Demised Premises; (6) for the conduct of the business of an
employment agency or personnel agency; (7) for the conduct of any public
auction, gathering, meeting or exhibition; (8) for occupancy by a foreign,
United States, state, municipal or other governmental or quasi-governmental
body, agency or department or any authority or other entity which is affiliated
therewith or controlled thereby and which has diplomatic or sovereign immunity
or the like with respect to a commercial lease; (9) for messenger or delivery
service (excluding Tenant's or any subtenant's own employees); (10) as a public
stenographer or typist; (11) as a telephone or telegraph agency; (12) as medical
offices; (13) as a travel agency; (14) as a dating service; (15) as a
restaurant; (16) as studios for radio, television or other media;(17) as a night
club, discotheque, arcade or like kind establishments; (18) as a public or
quasi-public health facility, radiation treatment facility, methadone clinic or
other drug related clinic, abortion clinic, or for any practice conducted in or
through the format of a clinic; (19) as a pawn shop; (20) as an off-track
betting parlor; (21) as a homeless shelter, soup
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kitchen or similar use; (22) for the sale or display of pornographic products or
services; (23) for the use or storage of flammable liquids or chemicals; (24) as
a funeral parlor; (25) for the sale or grooming of pets; or (26) for any form of
spiritualist services, such a fortune telling or reading. Furthermore, the
Demised Premises shall not be used for any purpose that would, in Landlord's
reasonable judgment, tend to lower the first-class character of the Building,
create unreasonable or excessive elevator or floor loads, impair or interfere
with any of the Building operations or the proper and economic heating,
air-conditioning, cleaning or any other services of the Building, interfere with
the use of the other areas of the Building by any other tenants, or impair the
appearance of the Building. Neither Tenant nor any person within Tenant's
control shall use, generate, store, treat and/or dispose of any Hazardous
Materials (as hereinafter defined) in, on, under or about the Demised Premises.
Section 4.03. If any governmental license or permit, other than a
Certificate of Occupancy or any license or permit required for the proper and
lawful conduct of Tenant's business in the Demised Premises, or any part
thereof, and if failure to secure such license or permit would in any way affect
Landlord, Tenant, at its expense, shall duly procure and thereafter maintain
such license or permit and submit the same for inspection by Landlord. Tenant
shall at all times comply with the terms and conditions of each such license or
permit.
Section 4.04. Tenant shall not at any time use or occupy, or permit anyone
to use or occupy, the Demised Premises, or do or permit anything to be done in
the Demised Premises, in violation of the Certificate of Occupancy, for the
Demised Premises or for the Building, and will not permit or cause any act to be
done or any condition to exist on the Demised Premises which may be dangerous
unless safeguarded as required by law, or which in law constitutes a nuisance,
public or private, or which may make void or voidable any insurance then in
force covering the Building and building equipment.
ARTICLE 5
Alterations, Fixtures
Section 5.01. Tenant, without Landlord's prior consent, shall make no
alterations, installations, additions, or improvements in or to the Demised
Premises ("work") including, but not limited to, an air-conditioning or cooling
system, or any unit or part thereof or other apparatus of like or other nature,
railings, mezzanine floors, galleries and the like. If any contractor, other
than Landlord, shall perform work, such contractor shall first be approved by
Landlord, and as a condition of such approval, Tenant shall pay to Landlord ten
(10%) percent of the cost of such
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work for supervision, coordination and other expenses incurred by Landlord in
connection therewith. However, such ten (10%) percent charge shall not apply to
Tenant's initial work in the Demised Premises nor to painting, wall covering,
carpeting and furnishings. Workers' compensation and public liability insurance
and property damage insurance, all in amounts and with companies and/or forms
reasonably satisfactory to Landlord, shall be provided and at all times
maintained by Tenant's contractors engaged in the performance of the work, and
before proceeding with the work, certificates of such insurance shall be
furnished to Landlord. If consented to by Landlord, all such work shall be done
at Tenant's sole expense and in full compliance with all governmental
authorities having jurisdiction thereover. Upon completion of such work, Tenant
shall deliver to Landlord full scale "as built" plans for the same. All work
affixed to the realty or if not so affixed but for which Tenant shall have
received a credit, shall become the property of Landlord, subject to Tenant's
right to replace same during the term hereof with items of equal quality class
and value, and shall remain upon, and be surrendered with, the Demised Premises
as a part thereof at the end of the term or any renewal or extension term, as
the case may be, without allowance to Tenant or charge to Landlord, unless
Landlord elects otherwise on notice to Tenant given at the time Landlord has
consented to the work. However, if Landlord shall elect, otherwise, Tenant at
Tenant's expense, at or prior to any termination of this Lease, shall remove all
such work or such portion thereof as Landlord shall elect and Tenant shall
restore the Demised Premises to its original condition, reasonable wear and tear
excepted, at Tenant's expense. Notwithstanding the foregoing, Tenant shall not
be obligated to remove any of its initial work in the Demised Premises. If any
Building facilities or services, including but not limited to air-conditioning
and ventilating equipment installed by Landlord, are adversely affected or
damaged by reason of the work by Tenant, Tenant, at its expense, shall repair
such damage to the extent such damage has been caused by Tenant's work and shall
correct the work so as to prevent any further damage or adverse effect on such
facilities or services.
Section 5.02. Prior to commencing any work pursuant to the provisions of
Section 5.01, Tenant shall furnish to Landlord:
(a) Plans and specifications for the work to be done.
(b) Copies of all governmental permits and authorizations which may be
required in connection with such work.
(c) A certificate evidencing that Tenant (or Tenant's contractor) has
procured workers' compensation insurance covering all persons employed in
connection with the work who might assert claims for death or bodily injury
against Overlandlord, as defined in Article 25, Landlord, Tenant, any
mortgagee or the Building.
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(d) Such additional personal injury and property damage insurance
(over and above the insurance required to be carried by Tenant pursuant to
the provisions of Section 9.03) as Landlord may reasonably require because
of the nature of the work to be done by Tenant.
(e) Except with respect to Tenant's initial work in the Demised
Premises, if the cost of any subsequent work exceeds $25,000, a bond or
other security satisfactory to Landlord, in the amount of one hundred ten
(110%) percent of the aggregate cost of the work, to insure completion of
such work.
Section 5.03. Where furnished by or at the expense of Tenant (except the
replacement of an item theretofore furnished and paid for by Landlord or for
which Tenant has received a credit), all movable property, furniture,
furnishings, roller files, equipment and trade fixtures ("personalty") other
than those affixed to the realty shall remain the property of and shall be
removed by Tenant on or prior to any termination or expiration of this Lease,
and, in the case of damage by reason of such removal, Tenant, at Tenant's
expense, promptly shall repair the damage. If Tenant does not remove any such
personalty, Landlord, at its election, (a) may cause the personalty to be
removed and placed in storage at Tenant's expense or (b) may treat the
personalty as abandoned and may dispose of the personalty as it sees fit without
accounting to Tenant for any proceeds realized upon such disposal.
Section 5.04. Tenant agrees that the exercise of its rights pursuant to the
provisions of this Article 5 shall not be done in a manner which would create
any work stoppage, picketing, labor disruption or dispute or violate Landlord's
union contracts affecting the Building or interfere with the business of
Landlord or any Tenant or occupant of the Building. In the event of the
occurrence of any condition described above arising from the exercise by Tenant
of its right pursuant to the provisions of this Article 5, Tenant shall,
immediately upon notice from Landlord, cease the manner of exercise of such
right giving rise to such condition. In the event Tenant fails to cease such
manner of exercise of its rights as aforesaid, Landlord, in addition to any
rights available to it under this Lease and pursuant to law, shall have the
right to injunction without notice. With respect to Tenant's work, Tenant shall
make all arrangements for, and pay all expenses incurred in connection with, use
of the freight elevators servicing the Demised Premises during those hours other
than as provided in Section 21.01(a) in accordance with Landlord's customary
charges therefor.
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ARTICLE 6
Repairs
Section 6.01. Tenant shall take good care of the Demised Premises and the
fixtures therein and at its sole cost and expense make all repairs thereto as
and when needed to preserve them in good working order and condition. Tenant, at
its expense, shall make all repairs to the HVAC, mechanical, plumbing and
electrical systems within the Demised Premises resulting from the negligence or
willful misconduct of Tenant, its agents, contractors and employees. All damage
or injury to the Demised Premises or the Building or to any building equipment
or systems caused by Tenant moving property in or out of the Building or by
installation or removal of personalty or resulting from negligence or conduct of
Tenant, its employees, agents, contractors, customers, invitees and visitors,
shall be repaired, promptly by Tenant at Tenant's expense, and whether or not
involving structural changes or alterations, to the satisfaction of Landlord.
All repairs shall include replacements or substitutions where necessary and
shall be at least equal to the quality, class and value of the property
repaired, replaced or substituted and shall be done in a good and workmanlike
manner.
Section 6.02. Landlord, at its expense, shall maintain and make all repairs
and replacements, structural and otherwise, to the exterior and public portions
of the Building and to the Demised Premises, unless Tenant is required to make
them under the provisions of Section 6.01 or unless required as a result of the
performance or existence of alterations performed by Tenant or on Tenant's
behalf, in which event Tenant, at its expense, shall perform such maintenance,
repairs or replacements. Tenant shall notify Landlord of the necessity for any
repairs for which Landlord may be responsible in the Demised Premises under the
provisions of this Section. Landlord shall have no liability to Tenant by reason
of any inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease, or required by law, to make in or to any portion of the Building
or the Demised Premises, or in or to the fixtures, equipment or appurtenances of
the Building or the Demised Premises.
Section 6.03. Tenant shall not store or place any materials or other
obstructions in the lobby or other public portions of the Building, or on the
sidewalk abutting the Building.
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ARTICLE 7
Floor Load; Noise
Section 7.01. Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the load per square foot which such floor was designed to
carry (50 lbs. live per square foot) and which is allowed by law.
Section 7.02. Business machines and mechanical equipment belonging to
Tenant which cause noise, vibration or any other nuisance that may be
transmitted to the structure or other portions of the Building or to the Demised
Premises, to such a degree as to be reasonably objectionable to Landlord or
which interfere with the use or enjoyment by other tenants of their premises or
the public portions of the Building, shall be placed and maintained by Tenant,
at Tenant's expense, in settings of cork, rubber or spring type vibration
eliminators sufficient to eliminate such objectionable or interfering noise or
vibration.
ARTICLE 8
Laws, Ordinances, Requirements of Public Authorities
Section 8.01. (a) Tenant, at its expense, shall comply with all laws,
orders, ordinances, rules and regulations and directions of Federal, State,
County and Municipal authorities and departments thereof having
jurisdiction over the Demised Premises and the Building, including but not
limited to the Americans With Disabilities Act ("Governmental
Requirements"), referable to Tenant or the Demised Premises, unless arising
by reason of Tenant's occupancy, use or manner of use of the Demised
Premises or any installations made therein by or at Tenant's request, or
any default by Tenant under this Lease.
(b) Tenant covenants and agrees that Tenant shall, at Tenant's sole
cost and expense, comply at all times with all Governmental Requirements
governing the use, generation, storage, treatment and/or disposal of any
"Hazardous Materials" (which term shall mean any biologically or chemically
active or other toxic or hazardous wastes, pollutants or substances,
including, without limitation, asbestos, PCBs, petroleum products and
by-products, substances defined or listed as "hazardous substances" or
"toxic
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substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.9601
et seq., and as hazardous wastes under the Resource Conservation and
Recovery Act, 42 U.S.C. ss.6010 et seq., any chemical substance or mixture
regulated under the Toxic Substance Control Act of 1976, as amended, 15
U.S.C. ss.2601 et seq., any "toxic pollutant" under the Clean Water Act,
33 U.S.C. ss.466 et seq., as amended, any hazardous air pollutant under
the Clean Air Act, 42 U.S.C. ss.7401 et seq., hazardous materials
identified in or pursuant to the Hazardous Materials Transportation Act, 49
U.S.C. ss.1802 et seq., and any hazardous or toxic substances or pollutant
regulated under any other Governmental Requirements). Tenant shall agree to
execute, from time to time, at Landlord's request, affidavits,
representations and the like concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Materials in, on, under or about the
Demised Premises, the Building or the Land. Tenant shall indemnify and hold
harmless Landlord, its partners, officers, shareholders, members, directors
and employees, Overlandlord and any mortgagee (collectively, the
"Indemnitees"), from and against any loss, cost, damage, liability or
expense (including attorneys' fees and disbursements) arising by reason of
any cleanup, removal, remediation, detoxification action or any other
activity required or recommended of any Indemnitees by any government
authority by reason of the presence in or about the Land, the Building or
the Demised Premises of any Hazardous Materials, as a result of or in
connection with the act or omission of Tenant or any person or entity
within Tenant's control or the breach of this Lease by Tenant or any person
or entity within Tenant's control. The foregoing covenants and indemnity
shall survive the expiration of any termination of this Lease.
(c) Landlord, at its expense, shall comply with and cure Governmental
Requirements relating to the public portions of the Building and to the
Demised Premises, provided non-compliance will materially curtail Tenant's
use or access to the Demised Premises and provided that Tenant is not
obligated to comply with them under the provisions of subdivision (a) of
this Section. Landlord, at its expense, may contest the validity of any
Governmental Requirements and postpone compliance therewith pending such
contest.
Section 8.02. If Tenant receives written notice of any violation of any
Governmental Requirements applicable to the Demised Premises, it shall give
prompt notice thereof to Landlord.
Section 8.03. Tenant will not clean, nor allow any window in the Demised
Premises to be cleaned, from the outside in violation of Section 202 of the
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Labor Law or the rules of the Board of Standards and Appeals or of any other
board or body having or asserting jurisdiction.
ARTICLE 9
Insurance
Section 9.01. Tenant shall not do or permit to be done any act or thing in
or upon the Demised Premises which will invalidate or be in conflict with the
Certificate of Occupancy for the Building or the terms of the insurance policies
covering the Building and the property and equipment therein; and Tenant, at its
expense, shall comply with all rules, orders, regulations and requirements of
the New York Board of Fire Underwriters or any other similar body having
jurisdiction, and of the insurance carriers, and shall not knowingly do or
permit anything to be done in or upon the Demised Premises in a manner which
increases the rate of insurance for the Building or any property or equipment
therein over the rate in effect on the Commencement Date.
Section 9.02. If, by reason of Tenant's failure to comply with the
provisions of Section 9.01 or any of the other provisions of this Lease, the
rate of insurance for the Building or the property and equipment of Landlord
shall be higher than on the Commencement Date, Tenant shall pay to Landlord any
additional or increased insurance premiums to the extent resulting therefrom
thereafter paid by Landlord, and Tenant shall make such payment forthwith on
demand of Landlord. In any action or proceeding wherein Landlord and Tenant are
parties, a schedule or "make up" of any insurance rate for the Building or
Demised Premises issued by the New York Fire Insurance Exchange, or other body
establishing fire insurance rates for the Building, shall be conclusive evidence
of the facts therein stated and of the several items and charges in the
insurance rates then applicable to the Building or Demised Premises.
Section 9.03. (a) Tenant covenants to provide on or before the
Commencement Date and to keep in force during the term hereof, the
following insurance coverage:
(i) For the benefit of Landlord, Tenant, any mortgagee and
Overlandlord (as defined in Article 25), a commercial policy of
liability insurance protecting and indemnifying Landlord, Tenant, any
mortgagee and the Overlandlord against any and all claims for personal
injury, death or property damage occurring upon, in or
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about the Demised Premises, and the public portions of the Building in
connection with any act of Tenant, its employees, agents, contractors,
customers, invitees and visitors including, without limitation,
personal injury, death or property damage resulting from any work
performed by or on behalf of Tenant, with coverage of not less than
$3,000,000.00 combined single limit for personal injury, death and
property damage arising out of one occurrence or accident.
(ii) Fire and extended coverage in an amount adequate to cover
the cost of replacement of all personal property, fixtures,
furnishings and equipment, including Tenant's work (as referred to in
Section 5.01), located in the Demised Premises.
(b) All such insurance shall (i) be effected under valid and
enforceable policies, (ii) be issued by insurers of recognized
responsibility authorized to do business in the State of New York, (iii)
contain a provision whereby the insurer agrees not to cancel the insurance
without ten (10) days' prior written notice to Landlord, and (iv) contain a
provision that no act or omission of Tenant shall result in forfeiture of
the insurance as against Landlord.
On or before the Commencement Date, Tenant shall deliver to Landlord
duplicate originals of the aforesaid policies or certificates evidencing the
aforesaid insurance coverage, and renewal policies or certificates shall be
delivered to Landlord at least thirty (30) days prior to the expiration date of
each policy with proof of payment of the premiums thereof.
Section 9.04. Landlord and Tenant shall each secure an appropriate clause
in, or an endorsement upon, each fire or extended coverage policy obtained by it
and covering the Building, the Demised Premises or the personal property,
fixtures and equipment located therein or thereon, pursuant to which the
respective insurance companies waive subrogation or permit the insured, prior to
any loss, to agree with a third party to waive any claim it might have against
said third party. The waiver of subrogation or permission for waiver of any
claim herein before referred to shall extend to the agents of each party and its
employees and, in the case of Tenant, shall also extend to all other persons and
entities occupying or using the Demised Premises in accordance with the terms of
this lease. If and to the extent that such waiver or permission can be obtained
only upon payment of an additional charge, then, the party benefitting from the
waiver or permission shall pay such charge upon demand, or shall be deemed to
have agreed that the party obtaining the insurance coverage in question shall be
free of any further obligations under the provisions hereof relating to such
waiver or permission.
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Subject to the foregoing provisions of this Section 9.05, and insofar as
may be permitted by the terms of the insurance policies carried by it, (i) each
party hereby releases the other with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party for loss,
damages or destruction with respect to its property by fire or other casualty
(including rental value or business interruption, as the case may be) occurring
during the term of this Lease covered by insurance and (ii) Tenant releases
other tenants but only to the extent that the policies of such other tenants
permit a similar waiver for the benefit of Tenant and such other tenant gives
such a waiver.
ARTICLE 10
Damage by Fire or Other Cause
Section 10.01. If the Demised Premises shall be damaged by fire or other
casualty, the damage shall be repaired by and at the expense of Landlord and the
minimum rent and additional rent provided in Article 22 until such repairs shall
be made, shall be apportioned according to the part of the Demised Premises
which is usable by Tenant. Landlord shall have no responsibility to repair any
damage to Tenant's work (as referred to in Section 5.01), the same being the
responsibility of Tenant. No penalty shall accrue for delays which may arise by
reason of adjustment of insurance by Landlord, unavoidable delays (as
hereinafter defined), or any other cause beyond Landlord's reasonable control.
Tenant shall give notice to Landlord promptly upon learning thereof in case of
fire or other damage to the Demised Premises. If the Demised Premises are
totally or substantially damaged or are rendered wholly or substantially
unusable by fire or any such other casualty, or if the Building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it (whether or
not the Demised Premises shall have been damaged), Landlord at its election may
terminate this Lease by written notice to Tenant, within ninety (90) days after
such fire or other casualty, and thereupon the term of this Lease shall expire
by lapse of time upon the third (3rd) day after such notice is given, and Tenant
shall vacate and surrender the Demised Premises to Landlord. Tenant shall not be
liable under this Lease for anything accruing after the date of such expiration.
Tenant hereby waives the provisions of Section 227 of the Real Property Law, and
the provisions of this Article shall govern and control in lieu thereof.
Section 10.02. No damages of compensation shall be payable by Landlord nor
shall Tenant make any claim for inconvenience, loss of business or annoyance
arising from any repair or restoration of any portion of the Demised Premises or
of the Building. Landlord shall use its best efforts to commence and
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effect such repairs promptly and in such manner as not to unreasonably interfere
with Tenant's occupancy.
ARTICLE 11
Assignment, Subletting, Mortgaging
Section 11.01. Tenant will not, by operation of law or otherwise, assign,
mortgage or encumber this Lease, or sublet or permit the Demised Premises or any
part thereof to be occupied or used by others for desk space, mailing privileges
or otherwise, without Landlord's prior written consent in each instance. If this
Lease be assigned, or if the Demised Premises or any part thereof be underlet or
occupied by anybody other than Tenant, Landlord, may, after default by Tenant,
collect rent from the assignee, undertenant or occupant, and apply the net
amount collected to the rent herein reserved, but no assignment, underletting,
occupancy or collection shall be deemed a waiver of the provisions hereof, the
acceptance of the assignee, undertenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained. The consent by Landlord to any assignment, subletting,
mortgage or encumbrance shall not in any manner be construed to relieve Tenant
from obtaining Landlord's express consent to any other or further assignment,
subletting, mortgage or encumbrance. In no event shall any permitted sublessee
assign or encumber its sublease or further sublet all or any portion of its
sublet space, or otherwise suffer or permit the sublet space or any part thereof
to be used or occupied by others, without Landlord's prior written consent in
each instance.
Section 11.02. If Tenant shall at any time or times during the term of this
Lease desire to assign this Lease or sublet all or part of the Demised Premises,
Tenant shall give notice thereof to Landlord, which notice shall be accompanied
by (a) a conformed or photostatic copy of the proposed assignment or sublease,
the effective or commencement date of which shall be not less than thirty (30)
nor more than 180 days after the giving of such notice, (b) a statement setting
forth in reasonable detail the identity of the proposed assignee or subtenant,
the nature of its business and its proposed use of the Demised Premises, and (c)
current financial information with respect to the proposed assignee or
subtenant, including, without limitation, its most recent financial report. Such
notice shall be deemed an offer from Tenant to Landlord whereby Landlord (or
Landlord's designee) may, at its option, (i) sublease such space (hereinafter
called the "Leaseback Space") from Tenant upon the terms and conditions
hereinafter set forth (if the proposed transaction is a sublease of all or part
of the Demised Premises), (ii) terminate this Lease if the proposed transaction
is an assignment or a sublease (whether by one
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sublease or a series of related or unrelated sublease) of all of substantially
all of the Demised Premises, or (iii) terminate this Lease with respect to the
Leaseback Space (if the proposed transaction is a sublease of part of the
Demised Premises). Said options may be exercised by Landlord by notice to Tenant
at any time within thirty (30) days after such notice has been given by Tenant
to Landlord; and during such thirty (30) day period Tenant shall not assign this
Lease nor sublet such space to any person.
Section 11.03. If Landlord exercises its option to terminate this Lease in
the case where Tenant desires either to assign this Lease or sublet (whether by
one sublease or a series of related or unrelated subleases) all or substantially
all of the Demised Premises, then, this Lease shall end and expire on the date
that such assignment or sublet was to be effective or commence, as the case may
be, and the minimum rent and additional rent shall be paid and apportioned to
such date.
Section 11.04. If Landlord exercises its option to terminate this Lease in
part in any case where Tenant desires to sublet part of the Demised Premises,
then, (a) this Lease shall end and expire with respect to such part of the
Demised Premises on the date that the proposed sublease was to commence; and (b)
from and after such date the minimum rent and additional rent shall be adjusted,
based upon the proportion that the rentable area of the Demised Premises
remaining bears to the total rentable area of the Demised Premises; and (c)
Tenant shall pay to Landlord, upon demand, the costs incurred by Landlord in
physically separating such part of the Demised Premises from the balance of the
Demised Premises and in complying with any laws and requirements of any public
authorities relating to such separation.
Section 11.05. If Landlord exercises its option to sublet the Leaseback
Space, such sublease to Landlord or its designee (as subtenant) shall be at the
lower of (i) the rental rate per rentable square foot of minimum rent and
additional rent then payable pursuant to this Lease or (ii) the rentals set
forth in the proposed sublease, and shall be for the same term as that of the
proposed subletting, and such sublease:
(a) shall be expressly subject to all of the covenants, agreements,
terms, provisions and conditions of this Lease except such as are
irrelevant or inapplicable, and except as otherwise expressly set forth to
the contrary in this Section;
(b) Such sublease shall be upon the same terms and conditions as those
contained in the proposed sublease, except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in
this Section;
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(c) Such sublease shall give the sublessee the unqualified and
unrestricted right, without Tenant's permission, to assign such sublease or
any interest therein and/or to sublet the Leaseback Space or any part or
parts of the Leaseback Space and to make any and all changes, alterations,
and improvements in the space covered by such sublease at no cost or
liability to Tenant and if the proposed sublease will result in all or
substantially all of the Demised Premises being sublet, grant Landlord or
its designee the option to extend the term of such sublease for the balance
of the term of this Lease less one (1) day;
(d) Such sublease shall provide that any assignee or further
subtenant, of Landlord or its designee, may, at the election of Landlord,
be permitted to make alterations, decorations and installations in the
Leaseback Space or any part thereof and shall also provide in substance
that any such alterations, decorations and installations in the Leaseback
Space therein made by any assignee or subtenant of Landlord or its designee
may be removed, in whole or in part, by such assignee or subtenant, at its
option, prior to or upon the expiration or other termination of such
sublease provided that such assignee or subtenant, at its expense, shall
repair any damage and injury to that portion of the Leaseback Space so
sublet caused by such removal; and
(e) Such sublease shall also provide that (i) the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties,
(ii) any assignment or subletting by Landlord or its designee (as the
subtenant) may be for any purpose or purposes that Landlord, in Landlord's
uncontrolled discretion, shall deem suitable or appropriate, (iii) Tenant,
at Tenant's expense, shall and will at all times provide and permit
reasonably appropriate means of ingress to and egress from the Leaseback
Space so sublet by Tenant to Landlord or its designee, (iv) Landlord, at
Tenant's expense, may make such alterations as may be required or deemed
necessary by Landlord to physically separate the Leaseback Space from the
balance of the Demised Premises and to comply with any laws and
requirements of public authorities relating to such separation, and (v)
that at the expiration of the term of such sublease, Tenant will accept the
space covered by such sublease in its then existing condition, subject to
the obligations of the sublessee to make such repairs thereto as may be
necessary to preserve the premises demised by such sublease in good order
and condition.
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Section 11.06. (a) If Landlord exercises its option to sublet the Leaseback
Space, Landlord shall indemnify and save Tenant harmless from all obligations
under this Lease as to the Leaseback Space during the period of time it is so
sublet to Landlord.
(b) Performance by Landlord, or its designee, under a sublease of the
Leaseback Space shall be deemed performance by Tenant of any similar
obligation under this Lease and any default under any such sublease shall
not give rise to a default under a similar obligation contained in this
Lease, nor shall Tenant be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or
arises from any act or omission of the tenant under such sublease or is
occasioned by or arises from any act or omission of any occupant holding
under or pursuant to any such sublease.
(c) Tenant shall have no obligation, at the expiration or earlier
termination of the term of this Lease, to remove any alteration,
installation or improvement made in the Leaseback Space by Landlord.
Section 11.07. In the event Landlord does not exercise an option provided
to it pursuant to Section 11.02 and provided that Tenant is not in default in
any of Tenant's obligations under this Lease, Landlord's consent (which must be
in writing and in form reasonably satisfactory to Landlord) to the proposed
assignment or sublease shall not be unreasonably withheld or delayed, provided
and upon condition that:
(a) Tenant shall have complied with the provisions of Section 11.02
and Landlord shall not have exercised its option under said Section 11.02
within the time permitted therefor;
(b) In Landlord's judgment, the proposed assignee or subtenant is
engaged in a business and the Demised Premises, or the relevant part
thereof, will be used in a manner which (i) is limited to the use expressly
permitted under Sections 4.01 and 4.02 of this Lease, and (ii) is in
keeping with the then standards of the Building;
(c) The proposed assignee or subtenant is a reputable person of good
character and with sufficient financial worth considering the
responsibility involved, and Landlord has been furnished with reasonable
proof thereof;
(d) Neither (i) the proposed assignee or sublessee nor (ii) any person
which, directly or indirectly, controls, is controlled by or
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is under common control with, the proposed assignee or sublessee, is then
an occupant of any part of the Building, provided there is other comparable
space in the Building available for leasing by Landlord;
(e) The proposed assignee or sublessee is not a person with whom
Landlord is currently negotiating to lease space in the Building;
(f) The proposed sublease shall be in form reasonably satisfactory to
Landlord and shall comply with the provisions of this Article;
(g) Subject to the provisions of Section 11.02, at any one time there
shall not be more than two (2) subtenants (including Landlord or its
designee) in the Demised Premises;
(h) Tenant shall reimburse Landlord on demand for any reasonable costs
that may be incurred by Landlord in connection with said assignment or
sublease, including, without limitation, the reasonable costs incurred in
making investigations as to the acceptability of the proposed assignee or
subtenant, and reasonable legal costs incurred in connection with the
granting of any requested consent;
(i) Tenant shall not have (i) advertised in any way the availability
of the Demised Premises without prior notice to Landlord, (ii) listed the
Demised Premises for subletting or assignment with a broker, agent or
representative other than the then managing agent of the Building or other
agent designed by Landlord, or (iii) listed the Demised Premises in any
public media at a rental rate less than the minimum rent or additional rent
at which Landlord is then offering to lease other space in the Building;
and
(j) The proposed subtenant or assignee shall not be entitled, directly
or indirectly, to diplomatic or sovereign immunity and shall be subject to
the service of process in and the jurisdiction of the courts of New York
State.
Except for any subletting by Tenant to Landlord or its designee pursuant to
the provisions of this Article, each subletting pursuant to this Article shall
be subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease. Notwithstanding any such subletting other than to
Landlord or other than any such subletting to any other subtenant and/or
acceptance of rent or additional rent by Landlord from any subtenant, Tenant
shall and will remain fully liable for the payment for the minimum rent and
additional rent due and to become due hereunder
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and for the performance of all the covenants, agreements, terms, provisions and
conditions contained in this Lease on the part of Tenant to be performed and all
acts and omissions of any licensee or subtenant or anyone claiming under or
through any subtenant which shall be in violation of any of the obligations of
this Lease, and any such violation shall be deemed to be a violation by Tenant.
Tenant further agrees that notwithstanding any such subletting, no other person
claiming through or under Tenant (except as provided in Section 11.05) shall or
will be made except upon compliance with and subject to the provisions of this
Article. If Landlord shall decline to give its consent to any proposed
assignment or sublease, or if Landlord shall exercise its option under Section
11.02, Tenant shall indemnify, defend and hold harmless Landlord against and
from any and all loss, liability, damages, costs and expenses (including
reasonable counsel fees) resulting from any claims that may be made against
Landlord by the proposed assignee or sublessee or by any brokers or other
persons claiming a commission or similar compensation in connection with the
proposed assignment or sublease.
Section 11.08. In the event that (a) Landlord fails to exercise its options
under Section 11.02 and consents to a proposed assignment or sublease, and (b)
Tenant fails to execute and deliver the assignment or sublease to which Landlord
consented within ninety (90) days after the giving of such consent, then, Tenant
shall again comply with all of the provisions and conditions of Section 11.02
before assigning this Lease or subletting all or part of the Demised Premises.
Section 11.09. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease, it is further agreed:
(a) No subletting shall be for a term ending later than one day prior
to the expiration date of this Lease;
(b) No sublease shall be valid, and no subtenant shall take possession
of the Premises or any part thereof, until an executed counterpart of such
sublease has been delivered to Landlord;
(c) Each sublease shall provide that it is subject and subordinate to
this Lease and to the matters to which this Lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess
by Landlord under this Lease Landlord may, at its option, take over all of
the right, title and interest of Tenant, as sublessor, under such sublease,
and such subtenant shall, at Landlord's option, attorn to Landlord pursuant
to the then executory provisions of such sublease, except that Landlord
shall not (i) be liable for any previous act or omission of Tenant under
such sublease, (ii) be subject to any offset, not expressly provided in
such sublease, which thereto accrued to such subtenant against Tenant, or
(iii) be bound by any previous
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modification of such sublease or by any previous prepayment of more than
one month's rent.
Section 11.10. If Landlord gives its consent to any assignment of this
Lease or to any sublease, Tenant shall, in consideration therefor, pay to
Landlord, as additional rent:
(a) in the case of an assignment of this Lease or an assignment by any
sublease, an amount equal to one-half of all sums and other considerations
paid to Tenant from the assignee for such assignment or paid to Tenant by
any sublessee or other person claiming through or under Tenant for such
assignment (including, but not limited to sums paid for the sale of
Tenant's or sublessee's fixtures, leasehold improvements, less, in case of
a sale thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's or sublessee's federal income tax
returns). The sums payable to Landlord under this Section 11.10(a) shall be
paid to Landlord as and when paid by such assignee to Tenant; and
(b) in the case of a sublease, an amount equal to one-half of the
rents and charges and other consideration payable under the sublease to
Tenant by the subtenant or paid to Tenant by any such sublessee or other
person claiming through or under Tenant in connection with such subletting
which is in excess of the minimum rent accruing during the term of the
sublease in respect of the subleased space (at the rate per square foot
payable by Tenant hereunder or such sublessee) pursuant to the terms of
this Lease (including, but not limited to, sums paid for the sale or rental
of Tenant's fixtures, leasehold improvements, less, in the case of the sale
thereof, the then net unamortized or undepreciated cost thereof determined
on the basis of Tenant's or sublessee's federal income tax returns). The
sums payable to Landlord under this Section 11.10(b) shall be paid to
Landlord as and when paid by such subtenant to Tenant.
(c) For the purposes of computing the sums payable by Tenant to
Landlord under subparagraphs (a) and (b) hereof, there shall be excluded
from the consideration payable to Tenant by any assignee or sublessee any
transfer taxes, rent concession, reasonable attorney's fees, reasonable
brokerage commissions, advertising costs and fix-up costs paid by Tenant
with respect to such assignment or subletting, but only to the extent any
such sums are allocable to the period of this Lease (in the case of any
assignment), or the term of any sublease.
Section 11.11. If Tenant is a corporation, partnership, limited liability
company or other entity, the provisions of Section 11.01 shall apply to a
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transfer (by one or more transfers) of a majority of the stock, partnership,
membership or other ownership interests of Tenant as if such transfer of a
majority of the stock, partnership, membership or other ownership interests of
Tenant were an assignment of this Lease; but said provisions and the provisions
of this Article 11 other than Sections 11.11 and 11.14, shall not apply to
transactions with a corporation, partnership, limited liability company or other
entity into or with which Tenant is merged or consolidated or to which
substantially all of Tenant's assets are transferred (provided such merger,
consolidation or transfer of assets is for a good business purpose and not
principally for the purpose of transferring the leasehold estate created by this
Lease) or to any corporation, partnership, limited liability company or other
entity which controls or is controlled by Tenant or is under common control with
Tenant, provided that in any of such events (i) the successor to Tenant has a
net worth computed in accordance with generally accepted accounting principles
at least equal to the net worth of Tenant immediately prior to such merger,
consolidation or transfer, and (ii) proof satisfactory to Landlord of such net
worth shall have been delivered to Landlord at least ten (10) days prior to the
effective date of any such transaction.
Section 11.12. Any assignment or transfer of this Lease, whether made with
Landlord's consent pursuant to Section 11.07 or without Landlord's consent
pursuant to Section 11.11, shall be made only if, and shall not be effective
until, the assignee shall execute, acknowledge and deliver to Landlord an
agreement in form and substance reasonably satisfactory to Landlord whereby the
assignee shall assume the obligations of this Lease on the part of Tenant to be
performed or observed and whereby the assignee shall agree that the provisions
in this Article 11 shall, notwithstanding such assignment or transfer, continue
to be binding upon it in respect of all future assignments and transfers. The
original named Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of minimum rent and/or additional rent by
Landlord from an assignee, transferee, or any other party, the original named
Tenant shall remain fully liable for the payment of the minimum rent and
additional rent and for the other obligations of this Lease on the part of
Tenant to be performed or observed.
Section 11.13. The joint and several liability of Tenant and any immediate
or remote successor in interest of Tenant and the due performance of the
obligations of this Lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this Lease.
Section 11.14. The listing of any name other than that of Tenant, whether
on the doors of the Demised Premises, or the Building directory, if any, or
otherwise, shall not operate to vest any right or interest in this Lease or in
the
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Demised Premises, nor shall it be deemed to be the consent of Landlord to any
assignment or transfer of this Lease, to any sublease of the Demised Premises,
or to the use or occupancy thereof by others.
ARTICLE 12
Liability of Landlord and Indemnity by Tenant
Section 12.01. Tenant shall indemnify Landlord, its members, stockholders,
directors, officers, agents, contractors and employees against and save
Landlord, its members, stockholders, directors, officers, agents, contractors
and employees harmless from any liability to and claim by or on behalf of any
person, firm, governmental authority, corporation or entity for personal injury,
death or property damage, arising:
(a) from the use by Tenant of the Demised Premises, or from any work
whatsoever done or omitted to be done by Tenant, its employees, agents,
contractors, customers, invitees; and
(b) from any breach or default by Tenant of and under any of the
terms, covenants and conditions of this Lease on Tenant's part to be
performed.
Tenant also shall indemnify Landlord, its members, stockholders, directors,
officers, agents, contractors and employees against and save Landlord, its
members, stockholders, directors, officers, agents, contractors and employees
harmless from all costs, reasonable counsel fees, expenses and penalties
incurred by Landlord in connection with any such liability or claim other than
such liability or claim incurred as a result of Landlord's negligence or willful
misconduct.
If any action or proceeding shall be brought against Landlord, its members,
stockholders, directors, officers, agents, contractors and employees in
connection with any such liability or claim, Tenant, on notice from Landlord,
shall defend such action or proceeding, at Tenant's expense, by counsel
reasonably satisfactory to Landlord, or by the attorney for Tenant's insurance
carrier whose insurance policy covers the liability or claim.
Section 12.02. Landlord shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the Building, nor for the loss of
or damage to any property of Tenant by theft or otherwise. Landlord and its
agents shall not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow or leaks
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from any part of the Building or from the pipes, appliances or plumbing works or
from the roof, street or sub-surface or from any other place or by dampness; nor
shall Landlord be liable for any such damage caused by other tenants or persons
in the Building or caused by operations in construction of any public or
quasi-public work; nor shall Landlord be liable for any latent defect in the
Demised Premises or in the Building. If, at any time any windows of the Demised
Premises are permanently closed, darkened or bricked up by reason of the
requirements of law or temporarily closed or darkened by reason of repairs,
alterations or maintenance by Landlord, Landlord shall not be liable for any
damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. (Reference
hereinabove to Landlord shall for all purposes be deemed to include the
Overlandlord as defined in Article 25.)
Tenant shall reimburse and compensate Landlord, as additional rent, within
ten (10) days after rendition of a statement for all expenditures made and for
all losses, liabilities, claims, damages, fines, penalties and expenses incurred
by Landlord arising from any default by Tenant under this Lease.
Tenant shall give immediate notice to Landlord upon its discovery of
accidents in the Demised Premises.
Section 12.03. If in this Lease it is provided that Landlord's consent or
approval as to any matter will not be unreasonably withheld, and it is
established by a court or body having final jurisdiction thereover that Landlord
has been unreasonable, the only effect of such finding shall be that Landlord
shall be deemed to have given its consent or approval; but Landlord shall not be
liable to Tenant in any respect for money damages by reason of withholding its
consent.
ARTICLE 13
Moving of Heavy Equipment
Tenant shall not move any safe, heavy equipment or bulky matter in or out
of the Building without Landlord's written consent, which shall not be
unreasonably withheld. If the movement of such items requires special handling,
Tenant agrees to employ only persons holding a Master Rigger's License to do
said work and all such work shall be done in full compliance with the
Administrative Code of the City of New York and other municipal requirements.
All such movements shall be made during hours which will least interfere with
the normal operations of the
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Building, and all damage caused by such movement shall be promptly repaired by
Tenant at Tenant's expense.
ARTICLE 14
Condemnation
Section 14.01. In the event that the whole of the Demised Premises shall be
condemned or taken in any manner for any public or quasi-public use, this Lease
and the term and estate hereby granted shall forthwith cease and terminate as of
the date of vesting of title. In the event that only a part of the Demised
Premises shall be so condemned or taken, then, effective as of the date of
vesting of title, the minimum rent and additional rent hereunder for such part
shall be equitably abated and this Lease shall continue as to such part not so
taken. In the event that only a part of the Building shall be so condemned or
taken, then (a) if substantial structural alteration or reconstruction of the
Building shall, in the reasonable opinion of Landlord, be necessary or
appropriate as a result of such condemnation or taking (whether or not the
Demised Premises be affected), Landlord may, at its option, terminate this Lease
and the term and estate hereby granted as of the date of such vesting of title
by notifying Tenant in writing of such termination within sixty (60) days
following the date on which Landlord shall have received notice of the vesting
of title, or (b) if Landlord does not elect to terminate this Lease, as
aforesaid, this Lease shall be and remain unaffected by such condemnation or
taking, except that the minimum rent and additional rent shall be abated to the
extent, if any, hereinbefore provided. In the event that only a part of the
Demised Premises shall be so condemned or taken and this Lease and the term and
estate hereby granted are not terminated as hereinbefore provided, Landlord, out
of the portion of the award allocated for such purpose and to the extent such
award is sufficient, will restore with reasonable diligence the remaining
structural portions of the Demised Premises as nearly as practicable to the same
condition as it was in prior to such condemnation or taking.
Section 14.02. In the event of termination in any of the cases hereinabove
provided, this Lease and the term and estate hereby granted shall expire as of
the date of such termination with the same effect as if that were the Expiration
Date and the rent hereunder shall be apportioned as of such date.
Section 14.03. In the event of any condemnation or taking hereinabove
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the condemnation proceeding, including any award
made for the value of the estate vested by this Lease in Tenant, and Tenant
hereby
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expressly assigns to Landlord any and all right, title and interest of Tenant
now or hereafter arising in or to any such award or any part thereof, and Tenant
shall be entitled to receive no part of such award. Notwithstanding the
foregoing, Tenant may make a separate claim for Tenant's moveable trade fixtures
and moving expenses, provided the same shall not affect or reduce Landlord's
award.
ARTICLE 15
Entry, Right to Change Public Portions of the Building
Section 15.01. Tenant shall permit Landlord to erect, use and maintain
pipes and conduits in and through the walls, within the ceiling or below the
floors of the Demised Premises. Landlord, or its agents or designee shall have
the right, on prior written notice (except no notice in an emergency), to enter
the Demised Premises for the purpose of making such repairs or alterations as
Landlord shall desire, shall be required or shall have the right to make under
the provisions of this Lease, provided such work is made in a manner not to
unreasonably interfere with Tenant's regular business operations in the Demised
Premises; and shall also have the right to enter the Demised Premises for the
purpose of inspecting them or exhibiting them to prospective purchasers or
lessees of the Building or to prospective mortgagees or to prospective assignees
of any such mortgagees. Landlord shall, during the progress of any work in the
Demised Premises, be allowed to take all material into and upon the Demised
Premises that may be required for the repairs or alterations above mentioned
without the same constituting an eviction of Tenant in whole or in part and the
rent reserved shall in no wise abate, except as otherwise provided in this
Lease, while said repairs or alterations are being made.
Section 15.02. During the nine (9) months prior to the expiration of the
term of this Lease, Landlord may exhibit the Demised Premises to prospective
tenants.
Section 15.03. Landlord shall have the right at any time without thereby
creating an actual or constructive eviction or incurring any liability to Tenant
therefor, to change the arrangement or location of such of the following as are
not contained within the Demised Premises: entrances, passageways, doors and
doorways, corridors, elevators, stairs, toilets, and other like public service
portions of the Building, provided such changes do not interfere with Tenant's
access to the Demised Premises; and to put so-called "solar film" or other
energy-saving installations on the inside and outside of the windows. All parts
(except surfaces facing the interior of the Demised Premises) of all walls,
windows and doors bounding the Demised Premises (including exterior Building
walls, exterior core corridor walls,
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exterior doors and entrances), all space in or adjacent to the Demised Premises
used for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms,
heating, air cooling, plumbing and other mechanical facilities, service closets
and other Building facilities are not part of the Demised Premises and Landlord
shall have the use thereof, as well as access thereto through the Demised
Premises for the purposes of operation, maintenance, alteration and repair.
Section 15.04. Landlord shall have the right at any time to name the
Building as it desires and to change any and all such names at any time
thereafter.
ARTICLE 16
Conditional Limitations, Etc.
Section 16.01. If at any time during the term of this Lease:
(a) Tenant or any guarantor of this Lease shall file a petition in
bankruptcy or insolvency or for reorganization or arrangement or for the
appointment of a receiver of all or a portion of Tenant's or such
guarantor's property, or
(b) Any petition of the kind referred to in subdivision (a) of this
Section shall be filed against Tenant or such guarantor and such petition
shall not be vacated, discharged or withdrawn within ninety (90) days, or
(c) Tenant or such guarantor shall be adjudicated a bankrupt by any
court, or
(d) Tenant or such guarantor shall make an assignment for the benefit
of creditors, or
(e) a permanent receiver shall be appointed for the property of Tenant
or such guarantor by order of a court of competent jurisdiction by reason
of the insolvency of Tenant or such guarantor (except where such receiver
shall be appointed in an involuntary proceeding, if he shall not be
withdrawn within ninety (90) days after the date of his appointment),
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then Landlord, at Landlord's option, may terminate this Lease on five (5) days'
notice to Tenant, and upon such termination, Tenant shall quit and surrender the
Demised Premises to Landlord.
Section 16.02 (a) If Tenant assumes this Lease and proposes to assign
the same pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. ss.
101 et seq. (the "Bankruptcy Code") to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment, setting
forth (i) the name and address of such person, (ii) all of the terms and
conditions of such offer, and (iii) the adequate assurance to be provided
Landlord to assure such person's future performance under the Lease,
including, without limitation, the assurance referred to in section
365(b)(1) of the Bankruptcy Code, shall be given to Landlord by Tenant not
later than twenty (20) days after receipt by Tenant but in no event later
than ten (10) days prior to the date that Tenant shall make application to
a court of competent jurisdiction for authority and approval to enter into
such assignment and assumption, and Landlord shall thereupon have the prior
right and option, to be exercised by notice to Tenant given at any time
prior to the effective date of such proposed assignment, to accept an
assignment of this Lease upon the same terms and conditions and for the
same consideration, if any, as the bona fide offer made by such person,
less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.
(b) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant
or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
and all monies or other considerations constituting Landlord's Property
under the preceding sentence not paid or delivered to Landlord shall be
held in trust for the benefit of Landlord and shall be promptly paid to
Landlord.
(c) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code, shall be deemed without further act
or deed to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.
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(d) Nothing contained in this Section shall, in any way, constitute a
waiver of the provisions of this Lease relating to assignment. Tenant shall
not, by virtue of this Section, have any further rights relating to
assignment other than those granted in the Bankruptcy Code.
(e) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of Landlord under this Lease,
whether or not expressly denominated as rent, shall constitute rent for the
purposes of Section 502(b)(6) of the Bankruptcy Code.
(f) The term "Tenant" as used in this Section includes any trustee,
debtor in possession, receiver, custodian or other similar officer.
Section 16.03. If this Lease shall terminate pursuant to the
provisions of Section 16.01:
(a) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated
damages, an amount equal to the difference between the minimum rent and
additional rent for the unexpired portion of the term of this Lease which
had been in force immediately prior to the termination effected under
Section 16.01 of this Article and the fair and the reasonable rental value
of the Demised Premises, on the date of termination, for the same period,
both discounted at the rate of eight (8%) percent per annum to the date of
termination; or
(b) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated
damages, an amount equal to the maximum allowed by statute or rule of law
in effect at the time when and governing the proceedings in which such
damages are to be proved, whether or not such amount be greater or less
than the amount referred to in subdivision (a) of this Section.
Section 16.04. (a) If Tenant shall fail to make any payment of any
minimum rent or additional rent when the same becomes due and payable, or
if Tenant shall fail to cancel or discharge any lien referred to in Section
17.02, or if the Demised Premises become deserted, and if any such default
shall continue for a period of five (5) days after notice thereof by
Landlord, or
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(b) If Tenant shall be in default in the performance of any of the
other terms, covenants and conditions of this Lease and such default shall
not have been remedied within thirty (30) days after notice by Landlord to
Tenant specifying such default and requiring it to be remedied; or where
such default reasonably cannot be remedied within such period of thirty
(30) days, if Tenant shall not have commenced the remedying thereof within
such period of time and shall not be proceeding with due diligence to
remedy it,
then Landlord, at Landlord's election, may terminate this Lease on five (5)
days' notice to Tenant, and upon such termination Tenant shall quit and
surrender the Demised Premises to Landlord.
Section 16.05. If this Lease shall terminate as provided in this Article or
if Tenant shall be in default in the payment of minimum rent or additional rent
when the same become due and payable, and such default shall continue for a
period of five (5) days after notice by Landlord to Tenant,
(a) Landlord may re-enter and resume possession of the Demised
Premises and remove all persons and property therefrom either by summary
dispossess proceedings or by a suitable action or proceeding, at law or in
equity, without being liable for any damages therefor, and
(b) Landlord may re-let the whole or any part of the Demised Premises
for a period equal to, greater or less than the remainder of the then term
of this Lease, at such rental and upon such terms and conditions as
Landlord shall deem reasonable to any tenant it may deem suitable and for
any use and purpose it may deem appropriate. Landlord shall not be liable
in any respect for failure to re-let the Demised Premises or, in the event
of such re-letting, for failure to collect the rent thereunder and any sums
received by Landlord on a re-letting in excess of the rent reserved in this
Lease shall belong to Landlord.
Section 16.06. If this Lease shall terminate as provided in this Article or
by summary proceedings (except as to any termination under Section 16.01),
Landlord shall be entitled to recover from Tenant as damages, in addition to
arrears in minimum rent and additional rent,
(a) an amount equal to (i) all expenses incurred by Landlord in
recovering possession of the Demised Premises and in connection with the
re-letting of the Demised Premises, including, without limitation, the cost
of repairing, renovating or remodeling the Demised Premises, (ii) the cost
of performing any work required to be
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done by Tenant under this Lease, (iii) the cost of placing the Demised
Premises in the same condition as that in which Tenant is required to
surrender them to Landlord under this Lease, and (iv) all brokers'
commissions and legal fees incurred by Landlord in re-letting the Demised
Premises, which amounts set forth in this subdivision (a) shall be due and
payable by Tenant to Landlord at such time or times as they shall have been
incurred; and
(b) an amount equal to the deficiency between the minimum rent and
additional rent which would have become due and payable had this Lease not
terminated and the net amount, if any, of rent collected by Landlord on
re-letting the Demised Premises. The amounts specified in this subdivision
shall be due and payable by Tenant on the several days on which such
minimum rent and additional rent would have become due and payable had this
Lease not terminated. Tenant consents that Landlord shall be entitled to
institute separate suits or actions or proceedings for the recovery of such
amount or amounts, and Tenant hereby waives the right to enforce or assert
the rule against splitting a cause of action as a defense thereto.
Landlord, at its election, which shall be exercised by the service of
a notice on Tenant, at any time after such termination of this Lease, may
collect from Tenant and Tenant shall pay, in lieu of the sums becoming due,
under the provisions of subdivision (b) of this Section, an amount equal to
the difference between the minimum rent and additional rent which would
have become due and payable had this Lease not terminated (from the date of
the service of such notice to the end of the term of this Lease which had
been in force immediately prior to any termination effected under this
Article) and the then fair and reasonable rental value of the Demised
Premises for the same period, both discounted to the date of the service of
such notice at the rate of eight (8%) percent per annum.
Section 16.07. Tenant, for itself and for all persons claiming through or
under it, hereby waives any and all rights which are or may be conferred upon
Tenant by any present or future law to redeem the Demised Premises after a
warrant to dispossess shall have been issued or after judgment in an action of
ejectment shall have been made and entered.
Section 16.08. The words "re-enter" and "re-entry", as used in this
Article, are not restricted to their technical legal meanings.
Section 16.09. Landlord shall not be required to give any notice of its
intention to re-enter, except as otherwise provided in this Lease.
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Section 16.10. In any action or proceeding brought by Landlord against
Tenant, predicated on a default in the payment of minimum rent or additional
rent, Tenant shall not have the right to and shall not interpose any set-off or
counterclaim of any kind whatsoever, other than a claim which would be legally
barred for failure to raise as a counterclaim in such action or proceeding. If
Tenant has any claim, Tenant shall be entitled only to bring an independent
action therefor; and if such independent action is brought by Tenant, Tenant
shall not be entitled to and shall not consolidate it with any pending action or
proceeding brought by Landlord against Tenant for a default in the payment of
minimum rent or additional rent.
ARTICLE 17
Mechanic's Liens
Section 17.01. If, subject to and notwithstanding Landlord's consent as
required under this Lease, Tenant shall cause any changes, alterations,
additions, improvements, installations or repairs to be made to or at the
Demised Premises or shall cause any labor to be performed or material to be
furnished in connection therewith, neither Landlord nor the Demised Premises,
under any circumstances, shall be liable for the payment of any expense incurred
or for the value of any work done or material furnished, and all such changes,
alterations, additions, improvements, installations and repairs and labor and
material shall be made, furnished and performed upon Tenant's credit alone and
at Tenant's expense, and Tenant shall be solely and wholly responsible to
contractors, laborers, and materialmen furnishing and performing such labor and
material. Nothing contained in this Lease shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied, to
any contractor, laborer or materialman to furnish to perform any such labor or
material.
Section 17.02. If, because of any act or omission (or alleged act or
omission) of Tenant any mechanic's or other lien, charge or order for the
payment of money shall be filed against the Demised Premises or the Building or
Landlord's estate as tenant under any ground or underlying lease (whether or not
such lien, charge or order is valid or enforceable as such), for work claimed to
have been for, or materials furnished to, Tenant, Tenant, at Tenant's expense,
shall cause it to be cancelled or discharged of record by bonding or otherwise
within twenty (20) days after such filing, and Tenant shall indemnify Landlord
against and save Landlord harmless from and shall pay all reasonable costs,
expenses, losses, fines and penalties, including, without limitation, reasonable
attorneys' fees resulting therefrom.
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ARTICLE 18
Landlord's Right to Perform Tenant's Obligations
If Tenant shall default in the performance of any of the terms or covenants
and conditions of this Lease, Landlord, without being under any obligation to do
so and without hereby waiving such default, may remedy such default for the
account and at the expense of Tenant. Any payment made or expense incurred by
Landlord for such purpose (including, but not limited to, reasonable attorneys'
fees) with interest at the maximum legal rate, shall be deemed to be additional
rent hereunder and shall be paid by Tenant to Landlord on demand, or at
Landlord's election, added to any subsequent installment or installments of
minimum rent.
ARTICLE 19
Covenant of Quiet Enjoyment
Landlord covenants that upon Tenant paying the minimum rent and additional
rent and observing and performing all the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Demised Premises, subject nevertheless to the terms and
conditions of this Lease, and provided, however, that no eviction of Tenant by
reason of the foreclosure of any mortgage nor or hereafter affecting the Demised
Premises or by reason of any termination of any ground or underlying lease to
which this Lease is subject and subordinate, whether such determination is by
operation of law, by agreement or otherwise, shall be construed as a breach of
this covenant nor shall any action be brought against Landlord by reason
thereof.
ARTICLE 20
Excavation
In the event that construction is to be commenced or an excavation is made
or authorized for building or other purposes upon land adjacent to the Building,
Tenant shall, if necessary, afford to the person or persons causing or
authorized to commence construction or cause such excavation or to engage in
such other
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purpose, license to enter upon the Demised Premises for the purpose of doing
such work as shall reasonably be necessary to protect or preserve the Building,
from injury or damage and to support the Building and any new structure to be
built by proper foundations, pinning and/or underpinning, or otherwise.
ARTICLE 21
Services and Equipment
Section 21.01. Landlord shall, at its cost and expense:
(a) Provide operatorless passenger elevator service Mondays through
Fridays from 8:00 A.M. to 6:00 P.M., holidays excepted. A passenger
elevator will be available at all other times. A freight elevator shall be
available Mondays through Fridays, holidays excepted, only from 8:00 to
6:00 P.M. The freight elevator shall be available on a "first come, first
served" basis during the said days and hours and on a reservation "first
come, first served" basis other than on said days and hours at Landlord's
customary charges therefor.
(b) Maintain and repair the Building standard heating, ventilating and
air conditioning system servicing the Demised Premises (the "HVAC System")
installed by Landlord, except for those repairs which are the obligation of
Tenant pursuant to Article 6 of this Lease. The HVAC System will be
operated by Landlord as and when required by law, or for the comfortable
occupancy of the Demised Premises (as determined by Landlord) during the
applicable seasons on Mondays through Fridays, holidays excepted, from 8:00
A.M. to 6:00 P.M.; provided that Tenant shall draw and close the draperies
or blinds for the windows of the Demised Premises whenever the HVAC system
is in operation and the position of the sun so requires and shall, at all
times, cooperate fully with Landlord and abide by all of the Rules and
Regulations which Landlord may prescribe for the proper functioning of the
HVAC System. The on-floor portion of the HVAC System will be controlled by
Landlord, except for the thermostatic controls within the Demised Premises.
Landlord agrees to operate the HVAC System servicing the Demised Premises
in accordance with their design criteria unless energy and/or water
conservation programs, guidelines or laws and/or requirements of public
authorities, shall provide for any reduction in operations below said
design criteria in which case such equipment shall be operated so as to
provide reduced service in accordance
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therewith. Tenant shall not be permitted to make any adjustments to the
HVAC System except by use of thermostatic controls within the Demised
Premises. Tenant agrees to maintain the thermostatic controls within the
Demised Premises set within the range of settings mandated by any laws
and/or requirements of public authorities or governmental standards for
temperature or energy related matters. Tenant expressly acknowledges that
some or all windows are or may be hermetically sealed and will not open and
Landlord makes no representation as to the habitability of the Demised
Premises at any time the HVAC System is not in operation. Tenant hereby
expressly waives any claims against Landlord arising out of the cessation
of operation of the HVAC System, or the suitability of the Demised Premises
when the same is not in operation, whether due to normal scheduling or the
reasons set forth in Section 21.03. Landlord will not be responsible for
the failure of the HVAC System if such failure results from the occupancy
of the Demised Premises by more than an average of one (1) person for each
one hundred (100) square feet in any separate room or area or if Tenant
shall install and operate machines, incandescent lighting and appliances
the total connected electrical load in excess of the Building's electrical
specifications, as determined by Landlord's consulting engineers. If Tenant
shall occupy the Demised Premises at an occupancy rate of greater than that
for which the HVAC System was designed, or if the total connected
electrical load is in excess of the Building's electrical specifications,
as determined by Landlord's consulting engineers, or if Tenant's partitions
shall be arranged in such a way as to interfere with the normal operation
of the HVAC System, Landlord may elect to make changes to the HVAC System
or the ducts through which it operates required by reason thereof, and the
cost thereof shall be reimbursed by Tenant to Landlord, as additional rent,
within twenty (20) days after presentation of a bill therefor. Landlord,
throughout the term, shall have free access to all mechanical installations
of Landlord, including but not limited to air-cooling, fan, ventilating and
machine rooms and electrical closets, and Tenant shall not construct
partitions or other obstructions that may interfere with Landlord's free
access thereto, or interfere with the moving of Landlord's equipment to and
from the enclosures containing said installations. Neither Tenant nor any
person or entity within Tenant's control shall at any time enter the said
enclosures or tamper with, adjust, touch or otherwise in any manner affect
said mechanical installations, except as set forth herein with respect to
the thermostatic controls within the Demised Premises.
(c) Provide Building standard cleaning services in Tenant's office
space and public portions of the Building, except no services shall be
performed Saturdays, Sundays and holidays, in
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accordance with Schedule "D" annexed hereto and made part hereof. If,
however, any additional cleaning of the Demised Premises is to be done by
Tenant, it shall be done at Tenant's sole expense, in a manner reasonably
satisfactory to Landlord and no one other than persons approved by Landlord
shall be permitted to enter the Demised Premises or the Building for such
purpose. Tenant shall pay to Landlord the cost of removal of any of
Tenant's refuse and rubbish from the Demised Premises and the Building (i)
to the extent that the same, in any one day, exceeds the average daily
amount of refuse and rubbish usually attendant upon the use of such Demised
Premises as offices, as described and included in Landlord's cleaning
contract for the Building or recommended by Landlord's cleaning contractor,
and (ii) related to or deriving from the preparation of consumption of food
or drink. Bills for the same shall be rendered by Landlord to Tenant at
such time as Landlord may elect and shall be due and payable as additional
rent within ten (10) days after the time rendered. Tenant, at Tenant's
expense, shall cause the Demised Premises to be treated against infestation
by vermin, rodents or roaches, whenever there is evidence of any
infestation caused by Tenant. Tenant shall not permit any person or enter
the Demised Premises or the Building for the purpose of providing such
extermination services, unless such persons have been approved by Landlord.
(d) Furnish hot and cold water for lavatory and drinking purposes. If
Tenant requires, uses or consumes water for any other purposes, Landlord
may install a meter or meters or other means to measure Tenant's water
consumption, and Tenant shall reimburse Landlord for the cost of the meter
or meters and the installation thereof, and shall pay for the maintenance
of said meter equipment and/or pay Landlord's cost of other means of
measuring such water consumption by Tenant. Tenant shall pay to Landlord on
demand the cost of all water consumed as measured by said meter or meters
or as otherwise measured, including sewer rents.
(e) If Tenant shall require and request any of the foregoing services
at times other than above provided, and if such request is made at least
twenty-four (24) hours prior to the time when such additional services are
required, Landlord will provide them and Tenant shall pay to Landlord
promptly thereafter the charges therefor at the then Building standard rate
charged to other tenants in the Building.
Section 21.02. Holidays shall be deemed to mean all federal holidays, state
holidays and Building Service Employees Union Contract holidays.
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Section 21.03. Landlord reserves the right to interrupt, curtail or suspend
the services required to be furnished by Landlord under this Lease when
necessary by reason of accident, emergency, mechanical breakdown or when
required by any law, order or regulation of any Federal, State, County or
Municipal authority, or for any other cause beyond the control of Landlord.
Landlord shall use due diligence to complete all required repairs or other
necessary work as quickly as possible so that Tenant's inconvenience resulting
therefrom may be for as short a period of time as circumstances will reasonably
permit. Tenant shall not be entitled to nor shall Tenant make claim for any
diminution or abatement of minimum rent or additional rent or other
compensation, nor shall this Lease or any of the obligations of Tenant be
affected or reduced by reason of such interruption, curtailment, suspension,
work or inconvenience.
Section 21.04. Tenant shall reimburse Landlord promptly for the actual
out-of-pocket cost to Landlord of removal from the Demised Premises and the
Building of any refuse and rubbish of Tenant not covered by the Cleaning
Specifications (Schedule D) and Tenant shall pay all bills therefor when
rendered.
Section 21.05. If Tenant shall request Landlord to furnish any services in
addition to those hereinabove provided or perform any work not required under
this Lease, and Landlord agrees to furnish and/or perform the same, Tenant shall
pay to Landlord promptly thereafter the charges therefor, which charges are
deemed to be additional rent and payable as such.
ARTICLE 22
Escalation
Section 22.01. Taxes. Tenant shall pay to Landlord, as additional rent, tax
escalation in accordance with this Section:
(a) Definitions: For the purpose of this Section, the following
definitions shall apply:
(i) The term "Tax Base Factor" shall mean the real estate taxes
for the Building Project for the period from July 1, 1999 to June 30,
2000, as finally determined.
(ii) The term "The Building Project" shall mean the parcel of
land described in Schedule B of this
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Lease with all the present improvements existing and erected thereon.
(iii) The term "comparative tax year" shall mean the New York
City real estate tax year commencing on July 1, 2000 and each
subsequent New York City real estate tax year. If the present use of
July 1-June 30 New York City real estate tax year shall hereafter be
changed, then such changed tax year shall be used with appropriate
adjustment for the transition.
(iv) The term "Real Estate Taxes" shall mean the total of all
taxes, special or other assessments and charges of any Special
Business Improvement District levied, assessed or imposed at any time
by any governmental authority: (a) upon or against the Building
Project, and (b) in connection with the receipt of income or rents
from the Building Project to the extent that same shall be in lieu of
all or a portion of any of the aforesaid taxes or assessments, or
additions or increases thereof. Income, franchise, transfer,
inheritance, corporate, mortgage recording or capital stock taxes of
Landlord, or penalties or interest thereon, shall be excluded from
"Real Estate Taxes" for the purposes hereof. If, due to a future
change in the method of taxation or in the taxing authority, or for
any other reason, a franchise, income, transit, profit or other tax or
governmental imposition, however designated, shall be levied against
Landlord in substitution in whole or in part for the Real Estate
Taxes, or in lieu of or addition to or increase of Real Estate Taxes,
then such franchise, income, transit, profit or other tax or
governmental imposition shall be included within "Real Estate Taxes."
Tenant acknowledges that the Tax Escalation Payment (as hereinafter
defined) constitutes a method by which Landlord is seeking to
compensate for increases in expenses and that the Tax Escalation
Payment shall be calculated and paid by Tenant to Landlord whether or
not Real Estate Taxes have then been paid by Landlord.
(v) The term "the Percentage" for purposes of computing tax
escalation, shall mean 1.237%.
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(b) (i) In the event that the Real Estate Taxes payable for any
comparative tax year shall exceed the Tax Base Factor, Tenant shall pay to
Landlord, as additional rent for such comparative tax year, an amount for
tax escalation ("Tax Escalation Payment")equal to the Percentage of the
excess. Before or after the start of each Comparative Tax Year, Landlord
shall furnish to Tenant a statement of the Tax Escalation Payment payable
for such Comparative Tax Year. Tenant shall make its aforesaid Tax
Escalation Payment to Landlord, in installments in the same manner and not
later than thirty (30) days prior to the last date that Real Estate Taxes
are payable by Landlord to the governmental authority. If a statement is
furnished to Tenant after the commencement of the Comparative Tax Year in
respect of which such statement is rendered, Tenant shall, within ten (10)
days thereafter, pay to Landlord an amount equal to those installments of
the total Tax Escalation Payment then due. If, during the term of this
Lease, Real Estate Taxes are required to be paid, in full or in monthly or
other installments, on any other date or dates than as presently required,
or if Landlord shall be required to make monthly deposits of Real Estate
Taxes to the holder of any mortgage, then Tenant's Tax Escalation
Payment(s) shall be correspondingly adjusted so that the same are due to
Landlord in corresponding installments not later than thirty (30) days
prior to the last date on which the applicable installment of such Real
Estate Taxes shall be due and payable to the governmental authority or such
mortgagee.
(ii) If in any tax certiorari proceeding regarding Real Estate Taxes
payable for any Comparative Tax Year or in otherwise establishing such
taxes, Landlord has incurred expenses for legal and/or consulting services
rendered in applying for, negotiating or obtaining a reduction of the
assessment upon which the Real Estate Taxes are predicated, Tenant shall
pay an amount equal to the Percentage of such expenses.
(iii) The statements of the Tax Escalation Payment to be furnished by
Landlord as provided above shall constitute a final determination as
between Landlord and Tenant of the Tax Escalation Payment for the
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periods represented thereby, except for mathematical error in
computation.
(iv) In no event shall the fixed minimum rent under this Lease be
reduced by virtue of this Section 22.01.
(v) Upon the date of any expiration or termination of this Lease,
whether the same be the date hereinabove set forth for the expiration
of the term or any prior or subsequent date, a proportionate share of
the Tax Escalation Payment for the Comparative Tax Year during which
such expiration or termination occurs shall immediately become due and
payable by Tenant to Landlord, if it was not theretofore already
billed and paid, or due and payable by Landlord to Tenant if the
amount paid by Tenant exceeded such proportionate share. The said
proportionate share shall be based upon the length of time that this
Lease shall have been in existence during such Comparative Tax Year.
Prior to or promptly after said expiration or termination, Landlord
shall compute the Tax Escalation Payment due from or owed to Tenant,
as aforesaid and Tenant shall promptly pay Landlord any amount unpaid.
If Landlord shall receive a refund or a tax credit of any amount of
Real Estate Taxes for any Comparative Tax Year for which Tenant has
made a payment, Landlord shall pay to Tenant within fifteen (15) days
of its receipt of such refund the Percentage of any such refund, less
the Percentage of any legal fees and other expenses provided for in
Section 22.01(b)(ii) to the extent the same have not theretofore been
paid by Tenant.
(vi) Landlord's and Tenant's obligations to make the adjustments
referred to in subdivision (v) above shall survive any expiration or
termination of this Lease.
(vii) Any delay or failure of Landlord in billing any Tax
Escalation Payment hereinabove provided shall not constitute a waiver
of or in any way impair the continuing obligation of Tenant to pay
such Tax Escalation Payment hereunder.
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Section 22.02. Porter's Wage Rate. Tenant shall pay to the Landlord, as
additional rent, a porter's wage rate escalation in accordance with this
Section:
(a) For the purpose of this Section, the following definitions shall
apply:
(i) "Wage Rate" shall mean the minimum regular hourly rate of
wages in effect as of January 1st of each year (whether paid by
Landlord or any contractor employed by Landlord) computed as paid over
a forty hour week to Porters in Class A office buildings pursuant to
an Agreement between Realty Advisory Board on Labor Relations,
Incorporated, or any successor thereto, and Local 32B-32J of the
Building Service Employees International Union, AFL-CIO, or any
successor thereto; and provided, however, that if there is no such
agreement in effect prescribing a wage rate for Porters, computations
and payments shall thereupon be made upon the basis of the regular
hourly wage rate actually payable in effect as of January 1st of each
year, and provided, however, that if in any year during the term, the
regular employment of Porters shall occur on days or during the hours
when overtime or other premium pay rates are in effect pursuant to
such Agreement, then the term "hourly rate of wages" as used herein
shall be deemed to mean the average hourly rate for the hours in a
calendar week during which Porters are regularly employed (e.g., if
pursuant to an agreement between Realty Advisory Board and the Local
the regular employment of Porters for forty hours during a calendar
week is at a regular hourly wage rate of $3.00 for the first thirty
hours, and premium or overtime hourly wage rate of $4.50 for the
remaining ten hours, then the hourly rate of wages under this Article
during such period shall be the total weekly rate of $135.00 divided
by the total number of regular hours of employment, forty or $3.375).
Notwithstanding the foregoing, if at any time such hourly wage rate is
different for new hire and old hire Porters, then thereafter such
hourly wage rate shall be based on the weighted average of the wage
rates for the different classifications of Porters.
(ii) "Base Wage Rate" shall mean the Wage Rate in effect on
January 1, 2000.
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(iii) The term "Porters" shall mean that classification of
non-supervisory employees employed in and about the Building who
devote a major portion of their time to general cleaning, maintenance
and miscellaneous services essentially of a non-technical and
non-mechanical nature and are the type of employees who are presently
included in the classification of "Class A-Others" in the Commercial
Building Agreement between the Realty Advisory Board and the aforesaid
Union.
(iv) The term "minimum regular hourly rate of wages" shall not
include any payments for fringe benefits or adjustments of any kind.
(v) The term "Multiplication Factor" shall mean 4,950.
(b) If the Wage Rate for any calendar year during the term shall be
increased above the Base Wage Rate, then Tenant shall pay, as additional
rent, an amount equal to the product obtained by multiplying the
Multiplication Factor by 100% of the number of cents (including any
fraction of a cent) by which the Wage Rate is greater than the Base Wage
Rate, such payment to be made in equal one-twelfth (1/12th) monthly
installments commencing with the first monthly installment of minimum rent
falling due on or after the effective date of such increase in Wage Rate
(payable retroactive from said effective date) and continuing thereafter
until a new adjustment shall have become effective in accordance with the
provisions of this Article. Landlord shall give Tenant notice of each
change in Wage Rate which will be effective to create or change Tenant's
obligation to pay additional rent pursuant to the provisions of this
Section 22.02 and such notice shall contain Landlord's calculation in
reasonable detail and certified as true by an authorized partner of
Landlord or of its managing agent, of the annual rate of additional rent
payable resulting from such increase in Wage Rate. Such amounts shall be
prorated for any partial calendar years during the term.
(c) Every notice given by Landlord pursuant to Section 22(b) hereof
shall be conclusive and binding upon Tenant, except for manifest error.
(d) The "Wage Rate" is intended to be a substitute comparative index
of economic costs and does not necessarily reflect the actual costs of
wages or other expenses of operating the Building.
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The Wage Rate shall be used whether or not the Building is a Class A office
building and whether or not Porters are employed in the Building and
without regard to whether such employees are members of the Union referred
to in subsection (a) hereof.
ARTICLE 23
Electric Inclusion
Section 23.01.
(a) Landlord shall furnish electric energy on a rent inclusion basis
to the Demised Premises, the charges therefor being included in the minimum
rent. The amount included in the minimum rent is based upon the normal use
of such electric energy between the hours of 9:00 A.M. to 6:00 P.M. on
Mondays through Fridays, holidays excepted, for lighting and for the normal
use of lamps, typewriters, personal computers and similar customary office
machines. Landlord shall not be liable in any way for any loss, damage or
expense that Tenant may sustain or incur by reason of for any failure,
change, interruption or defect in the supply or character of electric
energy furnished to the Demised Premises by reason of any requirement, act
or omission of the Electric Service Provider or Alternate Service Provider
(as said terms are hereinafter defined) serving the Building with
electricity and no such failure, change, interruption or defect shall
constitute an actual of constructive eviction, in whole or in part, or
entitle Tenant to any abatement of minimum rent or additional rent or
relieve Tenant of its obligations under this Lease. Tenant shall furnish
and install, at its sole cost and expense, all lighting fixtures, tubes,
lamps, bulbs, ballasts and outlets relating to Tenant's electrical
equipment.
(b) Landlord has advised Tenant that presently Con Edison ("Electric
Service Provider") is the utility company selected by Landlord to provide
electricity service for the Building. Notwithstanding the foregoing, if
permitted by law, Landlord shall have the right at any time and from time
to time during the term of this Lease to either contract for service from a
different company or companies providing electricity service (each such
company shall hereinafter be referred to as an "Alternate Service
Provider") or continue to contract for service from the Electric Service
Provider.
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(c) Tenant shall cooperate with Landlord, the Electric Service
Provider, and any Alternate Service Provider at all times and, as
reasonably necessary, shall allow Landlord, Electric Service Provider, and
any Alternate Service Provider reasonable access to the Building's electric
lines, feeders, risers, wiring, and any other machinery within the Demised
Premises.
Section 23.02. Tenant's connected electrical load in the Demised Premises,
including lighting, shall not at any time exceed the capacity of any of the
electrical conductors and equipment in or serving the Demised Premises. In order
to insure that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without Landlord's
prior consent in each instance, connect any additional fixtures, appliances or
equipment (other than as set forth in Section 23.01) or make any alteration or
addition to the electric system of the Demised Premises existing on the
Commencement Date. Should Landlord grant such consent, all additional risers or
other equipment required therefor shall be provided by Landlord and the cost
thereof shall be paid by Tenant upon Landlord's demand. As a condition to
granting such consent, Landlord may require Tenant to agree to an increase in
the annual minimum rent by an amount which will reflect the value to Tenant of
the additional service to be furnished by Landlord, that is the potential
additional electrical energy to be made available to Tenant based upon the
estimated additional capacity of such additional risers or other equipment. If
Landlord and Tenant cannot agree thereon, the amount of such increase shall be
determined by a reputable, independent electrical engineer or consultant, to be
selected by Landlord whose fees or charges shall be paid by Tenant. When the
amount of such increase is so determined, Tenant shall pay to Landlord within
twenty (20) days following notification to Tenant of such determination the
amount thereof retroactive to the date of such increased usage, unless within
such twenty (20) day period Tenant disputes such determination. If Tenant
disputes such determination, it shall, at its own expense, obtain from a
reputable, independent electrical engineer or consultant, its own survey of the
additional electrical energy consumed by Tenant. Tenant's consultant and
Landlord's consultant shall then seek to agree on a finding of such
determination of such change in the consumption of electrical energy. If they
cannot agree, they shall choose a third reputable, independent electrical
engineer or consultant, whose cost shall be shared equally by Landlord and
Tenant, to make a similar survey, and the determination of such third consultant
shall be controlling. If they cannot agree on such third consultant, within ten
(10) days, then either party may apply to the Supreme Court in the County of New
York, for the appointment of such third consultant. However, pending such
determination, Tenant shall pay to Landlord the amount as determined by
Landlord's engineer or consultant. If the amount determined as aforesaid is
different from that determined by Landlord's engineer or consultant, then
Landlord and Tenant shall make adjustment for any deficiency owed by Tenant or
overage paid by Tenant. Following the final determination, the parties shall
execute an agreement supplementary hereto to reflect such increase in the annual
minimum rent and in the amount set forth in Section
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23.03; but such increase shall be effective even if such supplementary agreement
is not executed.
Section 23.03. If, during the term of this Lease, the public utility rate
paid by Landlord for the supply of electric current to the Building shall be
increased or if there shall be an increase in taxes or if additional taxes shall
be imposed upon the sale or furnishing of such electric energy (hereafter
collectively as the "cost") the annual minimum rent shall be increased by an
amount arrived at by multiplying $14,850 (or the sum to which said sum may have
been increased pursuant to the provisions of Section 23.02 or this Section 23.03
prior to the effective date of the cost increases; such sum being referred to
herein as the "Rent Inclusion Factor") by the percentage of the increase of such
cost. When the amount of such increase is so determined, Landlord and Tenant
shall execute an agreement supplementary hereto to reflect such increase in the
amount of the minimum rent payable and effective from the effective date of such
increase, but such increase shall be effective from such date whether or not
such a supplementary agreement is executed.
Section 23.04. Landlord reserves the right to discontinue furnishing
electric energy at any time, whether or not Tenant is in default under this
Lease, upon not less than thirty (30) days' notice to Tenant. If Landlord
exercises such right of discontinuance, this Lease shall continue in full force
and effect and shall be unaffected thereby, except only that, from and after the
effective date of such discontinuance, Landlord shall not be obligated to
furnish electric energy to Tenant, and the minimum rent payable under this Lease
shall be reduced by an amount per annum equal to the then prevailing Rent
Inclusion Factor. If Landlord so elects to discontinue furnishing electric
energy to Tenant, Tenant shall arrange to obtain electric energy directly from
the public utility company furnishing electric service to the Building or the
Alternate Service Provider. Notwithstanding the foregoing, Landlord shall not
discontinue furnishing electric energy until Tenant is able to obtain such
electric energy directly from said public utility or the Alternate Service
Provider. Such electric energy may be furnished to Tenant by means of the then
existing Building system feeders, risers and wiring. All meters and additional
panel boards, feeders, risers, wiring and other conductors and equipment which
may be required to obtain electric energy directly from such public utility
company, and which are to be located within the Demised Premises, shall be
installed by Landlord at its expense if such discontinuance was voluntary, or
installed by Landlord at Tenant's expense if such discontinuance was required by
law or the public utility company. Therefore, all of such equipment shall be
maintained by Tenant at its expense.
Section 23.05. At no time shall Tenant's connected electrical load
excluding the Building HVAC, in the Demised Premises, including lighting, exceed
five (5) watts per usable square foot.
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Section 23.06. If any additional charge or tax is imposed upon Landlord
with respect to electric energy furnished to Tenant by any federal, state or
municipal authority, Tenant, unless prohibited by law or by any governmental
authority having jurisdiction thereover, shall pay to Landlord, within ten (10)
days following Landlord's demand, accompanied by copies of all relevant bills or
back-up documentation, Tenant's pro rata share of such additional charge or tax.
ARTICLE 24
Broker
Landlord and Tenant covenant and represent that the sole brokers who
negotiated and brought about this transaction were GVA Williams and Cohen
Brothers Realty Corporation and Landlord agrees to pay a commission therefor as
per separate agreements. Landlord and Tenant agree to hold the other harmless
against any claims for a brokerage commission arising out of a breach by the
other of the representations contained in this Article.
ARTICLE 25
Subordination and Ground Lease
Section 25.01. This Lease is subject and subordinate to (a) the ground and
underlying lease, dated as of December 19, 1972 between William F. Wallace and
Stratford C. Wallace, as trustees u/t/a made by Dorita Fitzgerald Wallace,
landlord, and Madison Realty Associates, tenant, and to the rights of the
landlord thereunder (the landlord under said ground and underlying lease being
sometimes referred to in this Lease as the "Overlandlord"), (b) any other ground
and underlying lease, and (c) to all mortgages which may now or hereafter affect
any such ground and underlying lease or the Building, and to all renewals,
modifications, amendments, consolidations, replacements or extensions of any of
the foregoing. This clause shall be self-operative and no further instrument of
subordination shall be required. However, in confirmation of such subordination,
Tenant, at any time and from time to time, shall execute promptly, and within
fifteen (15) days of such request, any certificate and document that Landlord
may reasonably request which reasonably evidences such subordination, and Tenant
hereby irrevocably constitutes and appoints Landlord attorney-in-fact for Tenant
to execute any such instrument for and on behalf of Tenant if not so executed
and delivered by Tenant within said fifteen (15) day period.
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Section 25.02. (a) The Tenant covenants and agrees that if by reason
of a default under any underlying lease (including an underlying lease
through which the Landlord derives its leasehold estate in the Demised
Premises), or under any mortgage such underlying lease and the leasehold
estate of the Landlord in the Premises demised hereby is terminated, the
Tenant will attorn to the then holder of the reversionary interest in the
premises demised by this Lease and will recognize such holder as the
Tenant's Landlord under this Lease, unless the lessor under such underlying
lease or the holder of any such mortgage shall, in any proceeding to
terminate such underlying lease or foreclose such mortgage, elects to
terminate this Lease and the rights of Tenant hereunder provided, however,
the holder of the reversionary interest shall not be (i) liable for any act
or omission or negligence of Landlord under this Lease; (ii) subject to any
counterclaim, defense or offset, not expressly provided for in this Lease
and asserted with reasonable promptness which theretofore shall have
accrued to Tenant against Landlord; (iii) obligated to perform any work;
(iv) bound by any previous modification or amendment of this Lease or by
any previous prepayment of more than one (1) month's rent, unless such
modification or prepayment shall have been approved in writing by the
holder of such Mortgage; (v) obligated to repair the Demised Premises, or
the Building, or any part thereof, in the event of any damage beyond such
repair as can reasonably be accomplished from the net proceeds of insurance
actually made available to the then holder of the reversionary interest; or
(iv) obligated to repair the Demised Premises or the Building, or any part
thereof, in the event of partial condemnation of the Demised Premises or
the Building. Nothing contained in this subparagraph shall be construed to
impair any right otherwise exercisable by any such holder. Tenant agrees to
execute and deliver, at any time and from time to time, upon the request of
the Landlord of or the lessor under any such underlying lease or the holder
of any such mortgage any instrument which may be necessary or appropriate
to evidence such attornment, and Tenant hereby irrevocably constitutes and
appoints Landlord attorney-in-fact for Tenant to execute any such
instrument for and on behalf of Tenant if not so executed and delivered by
Tenant within said fifteen (15) day period. The Tenant further waives the
provisions of any statute or rule or law now or hereafter in effect which
may give or purport to give Tenant any right of election to terminate this
Lease or to surrender possession of the premises demised hereby in the
event any proceeding is brought by the lessor under any underlying lease or
the holder of any such mortgage to terminate the same, and agrees that
unless and until any such lessor, in connection with any such proceeding,
shall elect to terminate this Lease and the rights of Tenant
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hereunder, this Lease shall not be affected in any way whatsoever by any
such proceeding.
(b) Upon Tenant's receipt of a written notice from the lessor under
any underlying lease or the holder of any such mortgage to the effect that
(i) the lessor of said underlying lease or the holder of any such mortgage
is entitled to send a notice to the Landlord, as tenant under said
underlying lease, terminating said lease, and (ii) the Tenant should pay
the minimum rent and additional rent thereafter due and payable under this
Lease to said lessor or the holder of any such mortgage at a place
designated in such notice, Tenant shall pay such minimum rent and
additional rent to said lessor under said underlying lease or the holder of
any such mortgage at such designated place until such time as said lessor
or holder shall notify Tenant that Landlord is no longer in default under
said underlying lease or such mortgage and that Tenant may resume paying
all minimum rent and additional rent thereafter due and payable under this
Lease to Landlord. Tenant shall have no liability to the Landlord for
paying any minimum rent or additional rent to said lessor under the
underlying lease or holder of any such mortgage or otherwise acting in
accordance with the provisions of any notice sent to it under this
paragraph and shall be relieved of its obligations to pay Landlord any
minimum rent or additional rent under this Lease to the extent such
payments are made to said lessor under the underlying lease.
Section 25.03. In the event of any act or omission by Landlord which would
give Tenant the right to terminate this Lease or to claim a partial or total
eviction, pursuant to the terms of this Lease, if any, Tenant will not exercise
any such right until:
(a) it has given written notice to cure (whether concurrently with or
subsequent to any notice given to Landlord), regarding such act or omission
to the holder of any leasehold mortgage and to the landlord of any ground
or underlying lease, whose names and addresses shall previously have been
furnished to Tenant, addressed to such holder and landlord at the last
addresses so furnished, and
(b) a reasonable period of time (not to exceed the period in this
Lease or the ground lease or the mortgage, as the case may be) for
remedying such act or omission shall have elapsed following such giving of
notice during which such parties, or any of them, with reasonable
diligence, following the giving of such notice, shall not have commenced
and is or are not continuing to remedy such act or omission or to cause the
same to be remedied.
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Section 25.04. If, in connection with obtaining financing for the Building,
or of Landlord's interest in any ground or underlying lease, a banking,
insurance or other recognized institutional lender shall request modifications
in this Lease as a condition to such financing, Tenant will not withhold, delay
or defer its consent thereto and its execution and delivery of such modification
agreement, provided that such modifications do not increase the obligations of
Tenant hereunder or adversely affect the leasehold interest hereby created or
Tenant's use and enjoyment of the Demised Premises.
ARTICLE 26
Estoppel Certificate
Each party shall at any time, and from time to time, within ten (10)
business days after so requested by the other party execute, acknowledge and
deliver to the other party , a statement addressed to the other party or its
designee (a) certifying that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), (b) stating the dates to
which the minimum rent and additional rent have been paid, (c) stating whether
or not there exists any default by the other under this Lease, and, if so,
specifying each such default, and (d) such other information as may be required
by Landlord, Tenant or any mortgagee, it being intended that any such statement
may be relied upon by Landlord, by any mortgagee or prospective mortgagee of any
mortgage affecting the Building or the leasehold estate under any ground or
underlying lease affecting the land described in Schedule C and/or Building and
improvements thereon, or may be relied upon by the landlord under any such
ground or underlying lease or a purchaser of Lessee's estate under any such
ground or underlying lease or any interest therein, or by Tenant and any
permitted assignee.
ARTICLE 27
Waiver of Jury Trial
Tenant hereby waives the right to trial by jury in any summary proceeding
that may hereafter be instituted against it or in any action or proceeding that
may be brought by Landlord on matters which are connected with this Lease, or
any of its provisions or Tenant's use or occupancy of the Demised Premises,
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including any claims for injury or damage, or any emergency or other statutory
remedy with respect thereto.
ARTICLE 28
Surrender of Premises
Section 28.01. Upon the expiration or other termination of the term of this
Lease, Tenant shall quit and surrender the Demised Premises, vacant, broom
clean, in good order and condition, ordinary wear and tear and damage by fire or
other casualty excepted, and shall remove all its property therefrom, except as
otherwise provided in this Lease. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of the term of this
Lease.
Section 28.02. In the event Tenant shall remain in possession of the
Demised Premises after the expiration or other termination of the term of this
Lease, such holding over shall not constitute a renewal or extension of this
Lease. Landlord, may, at its option, elect to treat Tenant as one who is not
removed at the end of the term, and thereupon be entitled to all of the remedies
against Tenant provided by law in that situation or Landlord may elect to
construe such holding over as a tenancy from month-to-month, subject to all of
the terms and conditions of this Lease, except as to the duration thereof, and
the minimum rent shall be due, in either of such events, at a monthly rental
rate equal to two (2) times the monthly installment of minimum rent which would
otherwise be payable for such month, together with any and all additional rent.
Tenant shall also be responsible for and hereby indemnifies Landlord against any
claims made by any succeeding tenant or prospective tenant founded upon Tenant's
delay in surrendering the Demised Premises to Landlord.
ARTICLE 29
Rules and Regulations
Section 29.01. Tenant, its servants, employees, agents, visitors and
licensees shall observe faithfully and comply with the rules and regulations set
forth in Schedule "C" attached hereto and made a part hereof. Landlord shall
have the right from time to time during the term of this Lease to make
reasonable changes in and additions to the rules thus set forth provided such
changes and additions are
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applicable to all other office tenants in the Building. All rules and
regulations shall be enforced in a non-discriminatory manner.
Section 29.02. Any failure by Landlord to enforce any rules and regulations
now or hereafter in effect, either against Tenant or any other tenant in the
Building, shall not constitute a breach hereunder or waiver of any such rules
and regulations.
ARTICLE 30
Successors and Assigns and Definitions
Section 30.01. The covenants, conditions and agreements contained in this
Lease shall bind and enure to the benefit of Landlord and Tenant and their
respective distributees, legal representatives, successors and, except as
otherwise provided herein, their assigns.
Section 30.02. The term "Landlord" as used in this Lease, so far as the
covenants and agreements on the part of Landlord are concerned shall be limited
to mean and include only the owner or owners at the time in question of the
tenant's estate under any ground or underlying lease covering the land described
in Schedule "B" hereto annexed and/or the Building and improvements thereon. In
the event of any assignment or assignments of such tenant's estate, Landlord
herein named (and in case of any subsequent assignment, the then assignor) shall
be automatically freed and relieved from and after the date of such assignment
of all personal liability as respects to performance of any of Landlord's
covenants and agreements thereafter to be performed, and such assignee shall be
bound by all of such covenants and agreements; it being intended that Landlord's
covenants and agreements shall be binding on Landlord, its successors and
assigns only during and in respect of their successive periods of such
ownership.
However, in any event, the members in Landlord shall not have any personal
liability or obligation by reason of any default by Landlord under any of
Landlord's covenants and agreements in this Lease. In case of such default,
Tenant will look only to Landlord's estate, as tenant, under such ground or
underlying lease and its interest in the Building, to recover any loss or damage
resulting therefrom; and Tenant shall have no right to nor shall Tenant assert
any claim against nor have recourse to Landlord's other property or assets to
recover such loss or damage.
Section 30.03. All pronouns or any variation thereof shall be deemed to
refer to masculine, feminine or neuter, singular or plural as the identity of
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the person or persons may require; and if Tenant shall consist of more than one
(1) person, the obligations of such persons, as Tenant, under this Lease, shall
be joint and several.
Section 30.04. The definitions contained in Schedule E annexed hereto are
hereby made a part of this Lease.
ARTICLE 31
Notices
Any notice, statement, certificate, request, approval, consent or demand
required or permitted to be given under this Lease shall be in writing sent by
registered or certified mail (or reputable, commercial overnight courier
service) return receipt requested, addressed, as the case may be, to Landlord,
at 750 Lexington Avenue, New York, New York 10022, and to Tenant prior to the
Commencement Date at 1811 Chestnut Street, Philadelphia, Pennsylvania 19103, and
after the Commencement Date at the Demised Premises, or to such other addresses
as Landlord or Tenant respectively shall designate in the manner herein
provided. Such notice, statement, certificate, request, approval, consent or
demand shall be deemed to have been given on the date when mailed, as aforesaid,
or on the date of delivery by overnight courier.
ARTICLE 32
No Waiver; Entire Agreement
Section 32.01. The specific remedies to which Landlord may resort under the
provisions of this Lease are cumulative and are not intended to be exclusive of
any other remedies or means of redress to which Landlord may be lawfully
entitled in case of any breach or threatened breach by Landlord of any of the
terms, covenants and conditions of this Lease. The failure of Landlord to insist
upon the strict performance of any of the terms, covenants and conditions of
this Lease, or to exercise any right or remedy herein contained, shall not be
construed as a waiver or relinquishment for the future of such term, covenant,
condition, right or remedy. A receipt by Landlord of minimum rent or additional
rent with knowledge of the breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such breach. This Lease may not be changed
or terminated orally. In
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addition to the other remedies in this Lease provided, Landlord shall be
entitled to seek to restrain by injunction, the violation or attempted or
threatened violation of any of the terms, covenants and conditions of this Lease
or to a decree, any court having jurisdiction in the matter, compelling
performance of any such terms, covenants and conditions.
Section 32.02. No receipt of monies by Landlord from Tenant, after any
re-entry or after the cancellation or termination of this Lease in any lawful
manner, shall reinstate the Lease; and after the service of notice to terminate
this Lease, or after commencement of any action, proceeding or other remedy,
Landlord may demand, receive and collect any monies due, and apply them of
account of Tenant's obligations under this Lease but without in any respect
affecting such notice, action, proceeding or remedy, except that if a money
judgment is being sought in any such action or proceeding, the amount of such
judgment shall be reduced by such payment.
Section 32.03. If Tenant is in arrears in the payment of minimum rent or
additional rent, Tenant waives its right, if any, to designate the items in
arrears against which any payments made by Tenant are to be credited and
Landlord may apply any of such payments to any such items in arrears as
Landlord, in its sole discretion, shall determine, irrespective of any
designation or request by Tenant as to the items against which any such payments
shall be credited.
Section 32.04. No payment by Tenant nor receipt by Landlord of a lesser
amount than may be required to be paid hereunder shall be deemed to be other
than on account of any such payment, nor shall any endorsement or statement on
any check or any letter accompanying any check tendered as payment be deemed an
accord and satisfaction and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such payment due or
pursue any other remedy in this Lease provided.
Section 32.05. This Lease and the Schedules annexed hereto constitute the
entire agreement between Landlord and Tenant referable to the Demised Premises,
and all prior negotiations and agreements are merged herein.
Section 32.06. If any term or provision of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
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ARTICLE 33
Captions
The captions of Articles in this Lease are inserted only as a matter of
convenience and for reference and they in no way define, limit or describe the
scope of this Lease or the intent of any provision thereof.
ARTICLE 34
Inability to Perform
Tenant's obligation to pay minimum rent and additional rent and to perform
all of the other terms, covenants and conditions of this Lease shall not be
affected, diminished, or excused if by reason of unavoidable delays (as
hereinafter defined) Landlord fails or is unable to supply any services or make
any repairs or perform any work which under this Lease Landlord has expressly
agreed to supply, make or perform, and the time for the performance or
observance thereof shall be extended for the period of time as Landlord shall
have been so delayed.
The words "unavoidable delays", as used in this Lease shall mean (a) the
enactment of any law or issuance of any governmental order, rule or regulation
(i) prohibiting or restricting performance of work of the character required to
be performed by Landlord under this Lease, or (ii) establishing rationing or
priorities in the use of materials, or (iii) restricting the use of labor, and
(b) strikes, lockouts, acts of God, inability to obtain labor or materials,
enemy action, civil commotion, fire, unavoidable casualty or other similar types
of causes beyond the reasonable control of Landlord, other than financial
inability.
ARTICLE 35
No Representations by Landlord
Neither Landlord nor any agent or employee of Landlord has made any
representation whatsoever with respect to the Demised Premises except as
expressly set forth in this Lease.
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ARTICLE 36
Security Deposit
Section 36.01. Concurrently with the execution of this Lease, Tenant shall
deposit with Landlord the sum of $282,150.00, by Letter of Credit as provided in
Section 36.02, as security for the faithful performance and observance by Tenant
of the terms, provisions and conditions of this Lease. Tenant agrees that, in
the event that Tenant defaults in respect of any of the terms, provisions and
conditions of this Lease (including the payment of minimum rent and additional
rent), after any applicable notice and expiration of any applicable cure period,
Landlord may notify the "Issuing Bank" (as such term is defined in Section
36.02) and thereupon receive all of the monies represented by the said Letter of
Credit and use, apply, or retain the whole or any part of such proceeds, as the
case may be, to the extent required for the payment of any minimum rent,
additional rent, or any other sum as to which Tenant is in default, or for any
sum that Landlord may expend or may be required to expend by reason of Tenant's
default, in respect of any of the terms, covenants and conditions of this Lease
(including any damages or deficiency accrued before or after summary proceedings
or other re-entry by Landlord). In the event that Landlord applies or retains
any portion or all of the proceeds of such Letter of Credit Tenant shall, within
five (5) days after demand by Landlord, restore the amount so applied or
retained so that, at all times, the amount deposited shall be $282,150.00. Upon
Tenant's making such additional deposit, Landlord is hereby authorized to act as
Tenant's agent to use the proceeds of the Letter of Credit to obtain a new
Letter of Credit and Tenant hereby irrevocable appoints Landlord as Tenant's
agent and attorney-in-fact to obtain a replacement Letter of Credit from the
Issuing Bank or any other qualifying bank (such qualifying bank shall then be
the Issuing Bank). If Tenant shall fail or refuse to make such additional
deposit, Landlord shall have the same rights in law and in equity and under this
Lease as it has with respect to a default by Tenant in the payment of minimum
rent. In the event that Tenant shall fully and faithfully comply with all of the
terms, provisions, covenants and conditions of this Lease, the cash security or
Letter of Credit, as the case may be, shall be returned to Tenant within twenty
(20) days after the expiration date and after delivery of possession of the
entire Demised Premises to Landlord in the condition provided in this Lease for
such delivery of possession.
Section 36.02. Such letter of credit (the "Letter of Credit") shall be a
clean, irrevocable and unconditional Letter of Credit issued by and drawn upon
any commercial bank (the "Issuing Bank") with offices for banking purposes in
the City of New York and having a net worth of not less than $500,000,000.00,
which Letter of Credit shall have an initial term of not less than one year or
thereafter having a term expiring not less than ninety (90) days following the
expiration of the term of this
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Lease, shall permit multiple drawings, shall be transferable by the beneficiary
at one or more occasions at no charge to the beneficiary and otherwise be in
form and content satisfactory to Landlord, be for the account of Landlord and be
in the amount of $282,150.00. Notwithstanding the foregoing, if at any time the
net worth of the Issuing Bank is less than $500,000,000.00 or its rating is
downgraded from its current rating, and provided Tenant does not replace the
existing Letter of Credit with a Letter of Credit meeting the criteria of
Section 36.02 within the sooner of thirty (30) days following Tenant's receipt
of Landlord's notice to Tenant of either of the foregoing events or the number
of days remaining until the expiration date of the existing Letter of Credit,
Landlord shall have the right, at any time thereafter, to draw down the entire
proceeds pursuant to the terms of Section 36.01 as cash security pending the
replacement of such Letter of Credit. The Letter of Credit shall provide that:
(a) the Issuing Bank shall pay to Landlord or its duly authorized
representative an amount up to the face amount of the Letter of Credit upon
presentation of the Letter of Credit and a sight draft, in the amount to be
drawn, together with a statement by landlord that Tenant is in default
under this Lease after notice and expiration of any applicable cure period;
(b) it shall be deemed automatically renewed, without amendment, for
consecutive periods of one (1) year each thereafter during the term of this
Lease, unless Issuing Bank sends written notice (hereinafter referred to as
the Non-Renewal Notice) to Landlord by certified or registered mail, return
receipt requested, not less than sixty (60) days next preceding the
expiration date of the Letter of Credit that it elects not to have the
Letter of Credit renewed, and it being agreed that the giving of such
Non-Renewal Notice shall for the purpose of this Article 37 be deemed a
default under this Lease, unless Tenant replaces the Letter of Credit with
a substitute Letter of Credit meeting the criteria of this Section 36.02 or
with a cash deposit at least thirty (30) days prior to the expiration date
of the Letter of Credit.
(c) Landlord, subsequent to its receipt of a Non-Renewal Notice, and
prior to the expiration date of the Letter of Credit, shall have the right,
exercisable by means of sight draft, to receive the monies represented by
the Letter of Credit and hold such proceeds pursuant to the terms of
Section 36.01 as cash security pending the replacement of such Letter of
Credit; and
(d) upon Landlord's sale or assignment of its estate as Tenant under
any ground or underlying lease, the Letter of Credit shall be transferable
by Landlord, as provided in Section 36.03.
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Section 36.03. In the event Landlord's estate as tenant under any ground or
underlying Lease is sold or assigned, Landlord shall have the right to transfer
the Letter of Credit then held by Landlord to the vendee or assignee, and
Landlord shall thereupon be released by Tenant from all liability for the return
of such Letter of Credit. In such event, Tenant agrees to look solely to the new
Landlord for the return of said Letter of Credit. It is agreed that the
provisions hereof shall apply to every transfer or assignment made of the Letter
of Credit to a new Landlord.
Section 36.04. Tenant covenants that it will not assign or encumber, or
attempt to assign or encumber, the Letter of Credit deposited hereunder as
security, and that neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment, or attempted
encumbrance.
Section 36.05. The use of the security, as provided in this Article, shall
not be deemed or construed as a waiver of Tenant's default or as a waiver of any
other rights and remedies to which Landlord may be entitled under the provisions
of this Lease by reason of such default, it being intended that Landlord's
rights to use the whole or any part of the security shall be in addition to but
not in limitation of any such other rights and remedies; and Landlord may
exercise any of such other rights and remedies independent of or in conjunction
with its rights under this Article.
Section 36.06. Provided Tenant is not then in default under any of the
terms, covenants and conditions of this Lease on its part to be performed, after
the actual payment by Tenant of thirty-six (36) monthly installments of minimum
rent under this Lease, the amount of the security deposit hereunder shall be
reduced to $211,612.50. In such event, Tenant shall either deliver to Landlord a
replacement Letter of Credit in the reduced amount and Landlord will then return
to Tenant the existing Letter of Credit, or Tenant will deliver to Landlord an
amendment to the existing Letter of Credit reducing the amount thereof to
$211,612.50.
ARTICLE 37
Rent Control
In the event the minimum rent and/or additional rent or any part thereof
provided to be paid by Tenant under the provisions of this Lease during the
demised term shall become uncollectible or shall be reduced or required to be
reduced or refunded by virtue of any federal, state, county or city law, order
or regulation, or by any direction of a public officer or body pursuant to law,
or the orders, rules, code or regulations of any organization or entity formed
pursuant to law, Tenant shall enter
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into such agreement(s) and take such other steps (without additional expense or
liability to Tenant) as Landlord may reasonably request and as may be legally
permissible to permit Landlord to collect the maximum rents which from time to
time during the continuance of such legal rent restriction may be legally
permissible (and not in excess of the amounts reserved therefor under this
Lease). Upon the termination of such legal rent restriction, (a) the minimum
rent and/or additional rent shall become and thereafter be payable in accordance
with the amounts reserved herein for the periods following such termination, and
(b) Tenant shall pay to Landlord promptly upon being billed, to the maximum
extent legally permissible, an amount equal to (i) minimum rent and/or
additional rent which would have been paid pursuant to this Lease but for such
legal rent restriction less (ii) the rents paid by Tenant during the period such
legal rent restriction was in effect.
ARTICLE 38
Landlord's Contribution
Subject to the provisions of Article 5 of this Lease, Tenant agrees to
perform the initial work and installations required to make the Demised Premises
suitable for the conduct of Tenant's business. Tenant agrees to deliver to
landlord, for Landlord's approval the plans and specifications for Tenant's
initial work within thirty (30) days from the date hereof. Landlord agrees to
contribute up to the sum of $148,500.00 (Landlord's Contribution") toward the
cost of such work, which shall be only for hard costs, design and engineering
costs, furniture (including built-in furniture and fixtures, equipment, and
moving expenses and excluding all other soft costs which shall be paid for by
Tenant. Landlord shall pay to Tenant, from time to time, but not more often that
once a month, ninety (90%) percent of the cost of the work requested by Tenant
theretofore performed by the contractor, provided Tenant delivers to Landlord
concurrently with its request, receipted bills of the contractor involved
approved by Tenant, a certificate by Tenant's architect that such bills have
been approved and the work or materials evidenced by such bills have been
satisfactorily performed or delivered and a waiver of mechanic's lien signed by
the contractor with respect to the amount paid as evidenced by the receipted
bill, such payment to be made to Tenant within ten (10) days after receipt of
Tenant's request together with the aforesaid documentation. Within ten (10) days
after Landlord receives a certificate from Tenant's architect stating that
Tenant's work has been substantially completed, that the same has been performed
in compliance with all applicable Governmental Requirements and the approved
plans and specifications and delivery to Landlord of the final "sign-off"
letters and equipment use permits (as necessary) for all work performed from the
applicable municipal authorities, Landlord shall pay to Tenant the aggregate of
the ten (10%) percent sums retained by Landlord. Landlord shall have no
obligation or responsibility to pay any cost
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exceeding the amount of Landlord's Contribution. If the amount Tenant expends
for the cost exceeds the amount of Landlord's Contribution, Tenant shall be
responsible for the payment to the contractors of the excess. If said amount is
less than the amount of Landlord's Contribution, Landlord shall not be obligated
to pay such difference to Tenant. Tenant shall indemnify and hold Landlord
harmless from and against any and all claims, costs and expenses in connection
with such work exceeding the amount of Landlord's Contribution.
ARTICLE 39
Supplemental Air Conditioning
Tenant may use the existing three (3) ton supplemental air conditioning
system (the "System) in the Demised Premises. Tenant shall pay Landlord's
charges, as the same exist from time to time, for all hours of operation of the
System. Landlord's charges are currently $1,250.00 per ton per year. Tenant, at
its own cost, shall maintain such System in good condition and repair and shall
make any replacements thereof as may be required. However, Landlord represents
that the said System will be in good working order on the Commencement Date.
Tenant, at its own expense, shall obtain in its own name the use permits for
such System and provide Landlord with copies of same. Tenant shall also obtain
and pay for all annual renewal fees in connection therewith, and provide
Landlord with a copy of such annual renewals. Tenant shall indemnify and hold
Landlord harmless from and against any loss, claims, costs and expenses
(including reasonable attorneys' fees) in connection with the repair and
maintenance of said System. Landlord shall install a device to measure the hours
of operation of the System, which device is capable of providing a print-out
verifying the date and time of usage. Tenant, as additional rent, agrees to pay
for the cost of electricity consumed in connection with the operation of the
System, as set forth in said device, at the rate from time to time payable by
Landlord for the purchase of electric current from the public
utility furnishing electric current to the Building, together with any taxes or
other charges of any kind imposed by the utility. Such payment shall be made
within ten (10) days after submission to Tenant of bills therefor.
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
135 EAST 57TH STREET LLC
By: 135 East 57th Street Managing Co., Inc.,
its managing member
By:
-----------------------------------
Charles Steven Cohen, President
Landlord
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
-----------------------------------
Title:
Tenant
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STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the __________ day of _______________ in the year 1999 before me, the
undersigned, a Notary Public in and said State, personally appeared Charles
Steven Cohen, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
------------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the __________ day of _______________ in the year 1999 before me, the
undersigned, a Notary Public in and said State, personally appeared
_________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
------------------------------------
Notary Public
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SCHEDULE A
Floor Plan
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SCHEDULE B
Description of Land
All that certain lot, piece and parcel of land situate, lying and being in
the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the northerly side of
57th Street with the westerly side of Lexington Avenue;
RUNNING THENCE westerly along the northerly side of 57th Street, 215 feet;
THENCE northerly and parallel with Park Avenue and part of the distance
through a party wall, 100 feet 5 inches to the center line of the block;
THENCE easterly along the center line of the block, 108 feet 9 inches to a
point, 106 feet 3 inches west of the westerly side of Lexington Avenue;
THENCE northerly parallel with Lexington Avenue and part of the distance
through a party wall, 100 feet 5 inches to the southerly side of 58th Street;
THENCE easterly along the southerly side of 58th Street; 37 feet 6 inches;
THENCE southerly parallel with Lexington Avenue, 80 feet 5 inches;
THENCE easterly parallel with 58th Street and part of the distance through
a party wall, 68 feet 9 inches to the westerly side of Lexington Avenue;
THENCE southerly along the westerly side of Lexington Avenue, 120 feet 5
inches to the corner aforesaid, the point or place of BEGINNING.
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SCHEDULE C
Rules and Regulations
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees, guests,
customers and invitees, and no tenant shall use, or permit the use of, the
entrances, corridors, escalators or elevators for any other purpose. No tenant
shall invite to the tenant's premises, or permit the visit of, persons in such
numbers or under such conditions as to interfere with the use and enjoyment of
any of the plazas, entrances, corridors, escalators, elevators and other
facilities of the Building by other tenants. Fire exits and stairways are for
emergency use only, and they shall not be used for any other purposes by the
tenants, their employees, licensees or invitees. No tenant shall encumber or
obstruct, or permit the encumbrance or obstruction of any of the sidewalks,
plazas, entrances, corridors, escalators, elevators, fire exits or stairways of
the Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities,
furnished for the common use of the tenants, in such manner as it deems best for
the benefit of the tenants generally.
2. The reasonable cost of repairing any damage to the public portions of
the Building or the public facilities or to any facilities used in common with
other tenants, caused by a tenant or the employees, licensees or invitees of the
tenant, shall be paid by such tenant.
3. The Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by the Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. Tenant's employees, agents and visitors shall be permitted to enter
and leave the building after ordinary business hours whenever appropriate
arrangements have been previously made between the Landlord and the Tenant with
respect thereto. Each tenant shall be responsible for all persons for whom he
requests such permission and shall be liable to the Landlord for all acts of
such persons. Any person whose presence in the Building at any time shall, in
the judgment of the Landlord, be prejudicial to the safety, character,
reputation and interests of the Building or its tenants may be denied access to
the Building or may be rejected therefrom. In case of invasion, riot, public
excitement or other commotion the Landlord may prevent all access to the
Building during the continuance of the same, by closing the doors or otherwise,
for the safety of the tenants and protection of property in the Building. The
Landlord may require any person leaving the Building with any package or other
object to exhibit a pass from the tenant from whose
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premises the package or object is being removed, but the establishment and
enforcement of such requirement shall not impose any responsibility on the
Landlord for the protection of any tenant against the removal of property from
the premises of the tenant. The Landlord shall, in no way, be liable to any
tenant for damages or loss arising from the admission, exclusion or ejection of
any person to or from the tenant's premises or the Building under the provisions
of this rule.
4. No tenant shall obtain or accept for use in its premises towel,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning or
other similar services from any persons not authorized by the Landlord in
writing to furnish such services, provided always that the charges for such
services by persons authorized by the Landlord are comparable to the industry
charge. Such services shall be furnished only at such hours, in such places
within the tenant's premises and under such reasonable regulations as may be
fixed by the Landlord.
5. No awnings or other projections over or around the windows shall be
installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by the Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
7. All entrance doors in each tenant's premises shall be left locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
any time. All windows in each tenant's premises shall be kept closed at all
times and all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the Building air conditioning system to cool or ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of the Landlord, might disturb other tenants
in the Building shall be made or permitted by any tenant. Nothing shall be done
or permitted in any tenant's premises, and nothing shall be brought into or kept
in any tenant's premises, which would impair or interfere with any of the
Building services or the proper and economic heating, cleaning or other
servicing of the Building or the premises, or the use or enjoyment by any other
tenant of any other premises, nor shall there be installed by any tenant any
ventilating, air conditioning, electrical or other equipment of any kind which,
in the judgment of the Landlord, might cause any such impairment or
interference. No dangerous, flammable, combustible or explosive object or
material shall be brought into the Building by any tenant or with the permission
of any tenant.
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9. Tenant shall not permit any cooking or food odors emanating within the
Demised Premises to seep into other portions of the Building.
10. No acids, vapor or other materials shall be discharged or permitted to
be discharged into the waste lines, vents or flues of the Building which may
damage them. the water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purpose for which they were designed or constructed, and no sweepings, rubbish,
rags, acids or other foreign substances shall be deposited therein. All damages
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
11. No signs, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside or inside
the premises or the Building without the prior written consent of the Landlord.
In the event of the violation of the foregoing by any tenant, Landlord may
remove the same without any liability, and may charge the expense incurred by
such removal to the tenant or tenants violating this rule. Interior signs and
lettering on doors and elevators shall be inscribed, painted, or affixed for
each tenant by Landlord at the expense of such tenant, (the charge not to exceed
that which a reputable outside contractor would charge), and shall be of a size,
color and style reasonably acceptable to Landlord. Landlord shall have the right
to prohibit any advertising by any tenant which impairs the reputation of the
building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
12. No additional locks or belts of any kind shall be placed upon any of
the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Upon the termination of a tenant's
lease, all keys of the tenant's premises and toilet rooms shall be delivered to
the Landlord.
13. No tenant shall mark, paint, drill into or in any way deface any part
of the Building or the premises demised to such tenant. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
Landlord, which will not be unreasonably withheld or delayed, and as Landlord
may reasonably direct. No tenant shall install any resilient tile or similar
floor covering in the premises demised to such tenant except in a manner
approved by Landlord.
14. No tenant shall use or occupy, or permit any portion of the premises
demised to such tenant to be used or occupied, as an office for a public
stenographer or typist, or as a barber or manicure shop, or as an employment
bureau. No tenant or occupant shall engage or pay any employees in the Building,
except those actually working for such tenant or occupant in the Building, nor
advertise for laborers giving an address at the Building.
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15. No premises shall be used, or permitted to be used, at any time, as a
store for the sale or display of goods, wares or merchandise of any kind, or as
a restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which predominantly involves direct patronage of the
general public in the premises demised to such tenant, or for manufacturing or
for other similar purposes.
16. The requirements of tenants will be attended only upon application at
the office of the Building. Employees of Landlord shall not perform any work or
do anything outside of the regular duties, unless under special instructions
from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
18. The tenant's employees shall not loiter around the hallways, stairways,
elevators, front, roof or any other part of the Building used in common by the
occupants thereof.
19. If the premises demised to any tenant become infested with vermin, such
tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord and shall
employ such exterminators therefor as shall be approved by Landlord.
20. No bicycle or other vehicle and no animals shall be allowed in the
showrooms, offices, halls, corridors or any other parts of the Building.
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SCHEDULE D
Cleaning Specifications
for
135 East 57th Street
Landlord will perform cleaning services in the Demised Premises and related
areas as follows:
NIGHTLY
Empty and wipe clean all ash trays.
Empty and wipe clean all waste receptacles.
Wipe clean all areas within hand high reach; including but not
limited to window sills, wall ledgers, chairs, desks, tables,
baseboards, file cabinets, convector enclosures, pictures and
all manner of office furniture.
Wipe clean all glass top desks and tables.
Sweep with treated cloths all composition tile flooring.
Carpet sweep all carpeted areas, and vacuum clean weekly.
PUBLIC LAVATORIES (Nightly or as otherwise designated)
Wash and dry all bowls, seats urinals, washbasins and mirrors.
Wash and wipe dry all metal work.
Supply and insert toilet tissue, toweling and soap in
dispensers.
Empty paper towel and sanitary napkin disposal receptacles and
remove to designated area.
Sweep and wash floors.
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Wipe clean all sills, partitions and ledges.
Wipe clean exterior of waste cans and dispensing units.
Wash both partitions monthly.
Wash tile walls monthly.
Wash and dry interior of waste cans and sanitary disposal
containers weekly. Machine scrub flooring monthly.
Dust exterior of light fixtures monthly.
FLOOR MAINTENANCE
A. Public Corridors in Multi-Tenanted Floors only.
Damp mop and buff all composition flooring monthly.
B. High Dusting Public Areas.
High dust all walls, ledges, pictures, anemostats,
registers, grilles, etc., not reached in normal
nightly cleaning quarterly.
WINDOW CLEANING SERVICES
Clean all exterior windows, inside and out periodically during
the year, as Landlord deems necessary.
RUBBISH REMOVAL SERVICES
Remove all ordinary dry rubbish and paper only from the office
premises of the Demised Premises daily, Monday through Friday,
holidays excepted.
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SCHEDULE E
Definitions
(a) The term mortgage shall include an indenture of mortgage and deed of
trust to a trustee to secure an issue of bonds, and the term mortgagee shall
include such a trustee.
(b) The terms include, including and such as shall each be construed as if
followed by phrase "without being limited to".
(c) The term obligations of this lease, and words of like import, shall
mean the covenants to pay rent and additional rent under this lease and all of
the other covenants and conditions contained in this lease. Any provision in
this lease that one party or the other or both shall do or not do or shall cause
or permit or not cause or permit a particular act, condition, or circumstance
shall be deemed to mean that such party so covenants or both parties so
covenant, as the case may be.
(d) The term Tenant's obligations hereunder, and words of like import, and
the term Landlord's obligations hereunder, and words of like import, shall mean
the obligations of this lease which are to be performed or observed by Tenant,
or by Landlord, as the case may be. Reference to performance of either party's
obligations under this lease shall be construed as "performance and observance".
(e) Reference to Tenant being or not being in default hereunder, or words
of like import, shall mean that Tenant is in default, after any applicable
notice and cure period, in the performance of one or more of Tenant's
obligations hereunder, or that Tenant is not in default, after any applicable
notice and cure period, in the performance of any of Tenant's obligations
hereunder, or that a condition of the character described in Section 25.01 has
occurred and continues or has not occurred or does not continue, as the case may
be.
(f) References to Landlord as having no liability to Tenant or being
without liability to Tenant, shall mean that Tenant is not entitled to terminate
this lease, or to claim actual or constructive eviction, partial or total, or to
receive any abatement or diminution of rent, or to be relieved in any manner of
any of its other obligations hereunder, or to be compensated for loss or injury
suffered or to enforce any other kind of liability whatsoever against Landlord
under or with respect to this lease or with respect to Tenant's use or occupancy
of the Demised Premises.
(g) The term laws and/or requirements of public authorities and words of
like import shall mean laws and ordinances of any or all of the Federal, state,
city, county and borough governments and rules, regulations, orders and/or
directives of any or all departments, subdivisions, bureaus, agencies or offices
thereof, or of any other governmental, public or quasi-public authorities,
having jurisdiction in the premises, and/or the direction of any public officer
pursuant to law.
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(h) The term requirements of insurance bodies and words of like import
shall mean rules, regulations, orders and other requirements of the New York
Board of Fire Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance of the Building and/or the
Demised Premises.
(i) The term repair shall be deemed to include restoration and replacement
as may be necessary to achieve and/or maintain good working order and condition.
(j) Reference to termination of this lease includes expiration or earlier
termination of the term of this lease or cancellation of this lease pursuant to
any of provisions of this lease or to law. Upon a termination of this lease, the
term and estate granted by this lease shall end at noon of the date of
termination as if such date were the date of expiration of the term of this
lease and neither party shall have any further obligation or liability to the
other after such termination (i) except as shall be expressly provided for in
this lease, or (ii) except for such obligation as by its nature or under the
circumstances can only be, or by the provisions of this lease, may be, performed
after such termination, and, in any event, unless expressly otherwise provided
in this lease, any liability for a payment which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this lease.
(k) The term Tenant shall mean Tenant herein named or any assignee or other
successor in interest (immediate or remote) of Tenant herein named, while such
Tenant or such assignee or other successor in interest, as the case may be, is
in possession of the Demised Premises as owner of the Tenant's estate and
interest granted by this lease and also, if Tenant is not an individual or a
corporation, all of the persons, firms and corporations then comprising Tenant.
(l) Words and phrases used in the singular shall be deemed to include the
plural and vice versa, and nouns and pronouns used in any particular gender
shall be deemed to include any other gender.
(m) The rule of ejusdem generis shall not be applicable to limit a general
statement following or referable to an enumeration of specific matters to
matters similar to the matters specifically mentioned.
70
ASSIGNMENT
THIS ASSIGNMENT is dated as of May 10, 1999 by and between The Shaar Fund
Ltd. ("Assignor") and Interactive Flight Technologies, Inc. ("Assignee").
WHEREAS, Assignor and Assignee are parties to that certain Securities
Purchase Agreement dated May 6, 1999 (the "Securities Purchase Agreement");
WHEREAS, pursuant to the terms of the Securities Purchase Agreement and
this Assignment, Assignor is assigning to Assignee all of its rights under and
with respect to 1,500 shares (the "Shares") of the Series B Convertible
Preferred Stock of The Network Connection, Inc. ("TNC").
NOW, THEREFORE, for the purchase price set forth in the Securities Purchase
Agrement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties hereto agree
as follows:
1. Assignor hereby sells, assigns, transfers, conveys and delivers to Assignee
all of Assignor's right, title and interest in and to the Shares, including
without limitation (a) all of Assignor's rights of first refusal set forth in
Paragraph IV.G. of that certain Securities Purchase Agreement between TNC and
Assignor dated October 23, 1998 (the "Securities Purchase Agreement") and (b)
the stock registration rights with respect to the Shares set forth in that
certain Registration Rights Agreement between TNC and Assignor dated October 23,
1998 (the "Registration Rights Agreement").
2. Assignee hereby agrees, from and after the date hereof, to be bound by all of
the provisions of the Registration Rights Agreement and to observe and comply
with all obligations and restrictions imposed on Assignor thereunder with
respect to the Shares which obligations or restrictions first arise after the
date hereof. Assignee acknowledges and agrees that the restrictive legend
endorsement set forth in Paragraph IV.A. of the Securities Purchase Agreement
will apply to the Shares and any shares of Common Stock issued in conversion
thereof.
3. This Assignment may be signed in any number of counterparts, each of which
shall be an original, but all of which when taken together shall constitute one
and the same instrument.
4. This Assignment shall be construed in accordance with and governed by the
laws of the State of New York applicable to agreements made and to be performed
entirely within such State, without regard to the choice of law principles
thereof.
5. Each of Assignor and Assignee agrees, at any time and from time to time
hereafter, to execute, acknowledge, where appropriate, and deliver such further
instruments and documents,
<PAGE>
and to take such other action, as may reasonably be requested by the other, in
order to carry out the intents and purposes, or effectuate the provisions of
this Assignment.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment this
day of May, 1999.
ASSIGNOR
THE SHAAR FUND LTD.
By:
---------------------------------
Name:
Title:
ASSIGNEE
INTERACTIVE FLIGHT TECHNOLOGIES, LTD.
By:
--------------------------------
Name: Irwin L. Gross
Title: President
The undersigned understands and consents to the foregoing Assignment and
acknowledges and agrees that from and after the date hereof, Assignee shall have
and enjoy all of the rights assigned to it pursuant to the terms hereof.
THE NETWORK CONNECTION, INC.
By:
------------------------
Name: Wilbur Riner
Title: Chief Executive Officer
2
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT is made this 10th day
of May, 1999 by and between THE NETWORK CONNECTION, INC., a Georgia corporation
(the "Company"), and Interactive Flight Technologies, Inc., a Delaware
corporation ("IFT").
WHEREAS, the Company and The Shaar Fund Ltd. ("Shaar") entered into a
Registration Rights Agreement dated October 23, 1998 (the "Registration Rights
Agreement");
WHEREAS, the Company issued to Shaar 1,500 shares of Series B 8%
Convertible Preferred Stock (the "Series B Stock") pursuant to that certain
Securities Purchase Agreement between the Company and Shaar dated October 23,
1998;
WHEREAS, on the date hereof Shaar sold the Series B Stock to IFT, and in
connection with such sale, assigned its rights under the Registration Rights
Agreement to IFT;
WHEREAS, the Company issued to IFT 800 shares of Series C 8% Convertible
Preferred Stock (the "Series C Stock") on the date hereof, pursuant to that
certain Securities Purchase Agreement dated on the date hereof;
WHEREAS, the Company, as Maker, and IFT, as Payee, are parties to that
certain Secured Promissory Note, dated January 26, 1999, as amended by the
Allonge to Secured Promissory Note dated January 29, 1999, the Second Allonge to
Secured Promissory Note dated March 19, 1999, the Third Allonge to Secured
Promissory Note dated March 24, 1999, and the Fourth Allonge to Secured
Promissory Note dated the date hereof (collectively, the "Note"), which is
convertible into shares of Series C Stock;
WHEREAS, the parties desire that any shares of Common Stock issuable upon
conversion of the Series C Stock be registrable pursuant to the terms of the
Registration Rights Agreement;
WHEREAS, the parties desire to have IFT waive certain defaults of the
Company which have occurred under the Registration Rights Agreement; and
WHEREAS, the Company and IFT wish to confirm and modify IFT's registration
rights under the Registration Rights Agreement and to amend the Registration
Rights Agreement, as described below, by entering into this Amendment No. 1.
NOW, THEREFORE, for and in consideration of the premises contained herein,
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties agree
and amend the Registration Rights Agreement as follows:
<PAGE>
1. The definition of the term "Registrable Securities" contained in
subparagraph 1(a) of the Registration Rights Agreement be and it hereby is
amended to include in addition to the securities originally within such
definition, from and after the date hereof, (i) any and all shares of Common
Stock issued pursuant to the conversion of the Series C Stock, or issued in lieu
of cash dividend payments thereon, and (ii) any and all shares of Common Stock
issued pursuant to the exercise of any of the Additional Warrants (as such term
is defined in the Note) that were issued by the Company to IFT on March 24, 1999
in accordance with the Note. The Company's obligations under the Registration
Rights Agreement shall henceforth apply to any and all such shares described in
the foregoing sentence.
2. Subparagraph 2(a) of the Registration Rights Agreement be and it hereby
is amended to read as follows:
(a) Filing and Effectiveness of Registration Statement. The Company
shall prepare and file with the Commission by not later than fifteen (15)
business days after the date hereof, a Registration Statement relating to
the offer and sale of the Registrable Securities and shall use its best
efforts to cause the Commission to declare such Registration Statement
effective under the Securities Act as promptly as practicable but not later
than 120 calendar days after such date. Such registration statement shall
assume a conversion price of One Dollar Fifty Cents ($1.50) per share. The
Company shall not include any other securities in the Registration
Statement relating to the offer and sale of the Registrable Securities. The
Company shall notify IFT by written notice that such Registration Statement
has been declared effective by the Commission within 48 hours of such
declaration by the Commission.
3. Subparagraph 2(b) of the Registration Rights Agreement be and it hereby
is amended to read as follows:
(b) Registration Default. If the Registration Statement covering the
Registrable Securities or the Additional Registrable Securities (as defined
in Section 2(d) hereof) required to be filed by the Company pursuant to
Section 2(a) or 2(d) hereof, as the case may be, is not (i) filed with the
Commission within the time required by the terms of this Agreement or (ii)
declared effective by the Commission within the time required by the terms
of this Agreement (either of which, without duplication, an "Initial
Date"), then the Company shall make the payments to IFT as provided in the
next sentence as liquidated damages and not as a penalty. The amount to be
paid by the Company to IFT shall be determined as of each Computation Date
(as defined below), and such amount shall be equal to 2% (the "Liquidated
Damage Rate") of the Stated Value per share of all shares of Series B
2
<PAGE>
Preferred Stock and all shares of Series C Preferred Stock outstanding from
the Initial Date to the first Computation Date and for each Computation
Date thereafter, calculated on a pro rata basis to the date on which the
Registration Statement is filed with (in the event of an Initial Date
pursuant to (b) (i) above) or declared effective by (in the event of an
Initial Date pursuant to (b) (ii) above) the Commission (the "Periodic
Amount"); provided, however, that if any Liquidated Damages are payable,
then the Liquidated Damages shall not be less than Forty Thousand Dollars
($40,000). The full Periodic Amount shall be paid by the Company to IFT by
wire transfer of immediately available funds within three days after each
Computation Date. As used in this Section 2(b), "Computation Date" means
the date which is 30 days after the Initial Date and, if the Registration
Statement required to be filed by the Company pursuant to Section 2(a) has
not theretofore been declared effective by the Commission, each date which
is 30 days after the previous Computation Date until such Registration
Statement is so declared effective. Notwithstanding the above, if the
Registration Statement covering the Registrable Securities or the
Additional Registrable Securities (as defined in Section 2(d) hereof)
required to be filed by the Company pursuant to Section 2(a) or (2d)
hereof, as the case may be, is not filed with the Commission within the
time required by the terms of this Agreement, the Company shall be in
default of this Registration Rights Agreement, as amended.
4. IFT hereby waives, to the fullest extent permitted by law, all breaches,
failures, defaults, and events of defaults of the Company on and as of the date
of this Amendment No. 1 under the Registration Rights Agreement. This waiver is
limited strictly as written and shall not require or imply any other or further
waivers of any future such breaches, failures, defaults, or events of default of
the Company, and therefore, IFT reserves all of its rights to insist on strict
compliance by the Company with the terms of the Registration Rights Agreement as
hereby amended from and after the date hereof.
5. The Company hereby acknowledges IFT as the holder of all rights under
the Registration Rights Agreement, as hereby amended.
6. This Amendment No. 1 is executed, and shall be considered, as an
amendment to the Registration Rights Agreement, and shall form a part thereof,
and the provisions of the Registration Rights Agreement as amended by this
Amendment No. 1, are hereby ratified and confirmed in all respects.
3
<PAGE>
7. This Amendment No. 1 may be executed in any number of counterparts, each
of which shall be deemed an original, and all of which taken together shall
constitute but one and the same instrument. This Amendment No. 1 shall become
binding only when each party hereto has executed and delivered to the other
party one or more counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 to Registration Rights Agreement as of the date first above written.
THE NETWORK CONNECTION, INC.
By:
---------------------------------
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
4
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made as of May 10, 1999, between THE
NETWORK CONNECTION, INC., a Georgia corporation with principal executive offices
located at 1324 Union Hill Road, Alpharetta, Georgia 30004, (the "Company"), and
INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Shaar Fund, Ltd. ("Shaar') are parties to that
certain Securities Purchase Agreement (the "Shaar Purchase Agreement") dated
October 23, 1998 pursuant to which Shaar purchased from the Company 1,500 shares
of the Company's Series B 8% Convertible Preferred Stock, $1,000 Stated Value
per share (the "Series B Shares");
WHEREAS, in connection with Shaar's purchase of the Series B Shares, the
Company and Shaar also entered into a Registration Rights Agreement dated
October 23, 1998 (the "Registration Rights Agreement") pursuant to which the
Company agreed to register certain shares of its capital stock for the benefit
of Shaar;
WHEREAS, the Company has failed to pay any dividends on the Series B Shares
since the date of issuance and is therefore in arrears with respect to its
dividend obligations;
WHEREAS, the Company has defaulted with respect to its obligations under
the Registration Rights Agreement and pursuant to the terms thereof is liable
for certain damages stated therein on account of such default;
WHEREAS, the Company purported to redeem the Series B Shares from Shaar by
notice dated December 14, 1998, but such notice was defective and in any event,
the Company failed to tender the redemption price of such Series B Shares to
Shaar thereafter;
WHEREAS, Shaar and Buyer have entered into a Securities Purchase Agreement
(the "Series B Securities Purchase Agreement") pursuant to which Buyer will
acquire the Series B Shares;
WHEREAS, Shaar will transfer to Buyer Shaar's rights under the Registration
Rights Agreement, Shaar's rights under the Shaar Purchase Agreement, and certain
other rights Shaar obtained in connection with the purchase by Shaar of the
Series B Shares;
WHEREAS, it is a condition to the closing of the transactions between Buyer
and Shaar that the Company execute this Agreement;
WHEREAS, Buyer has agreed to waive all prior dividend arrearages on the
Series B Shares to and including the date hereof, and to waive any and all prior
defaults arising in connection with the Series B Shares, whether arising under
the Registration Rights Agreement,
<PAGE>
the Shaar Purchase Agreement, any ancillary agreements with respect thereto
(whether oral or written), or otherwise;
WHEREAS, the Company has agreed to issue to Buyer 800 shares of the
Company's Series C 8% Convertible Preferred Stock, $1,000 Stated Value per share
(the "Series C Shares") having the designations rights, preferences,
limitations, and privileges set forth in the Articles of Amendment to the
Articles of Incorporation of the Company dated the date hereof (the
"Amendment"), in consideration for such waivers;
WHEREAS, Buyer is the holder of that certain Secured Promissory Note dated
January 26, 1999, as amended by the Allonge to Secured Promissory Note dated
January 29, 1999, the Second Allonge to Secured Promissory Note dated March 19,
1999, and the Third Allonge to Secured Promissory Note dated March 24, 1999
(collectively, the "Note"), made by the Company and payable to the order of
Buyer in the current principal amount of $750,000;
WHEREAS, Buyer and the Company have agreed to amend the Note by the
issuance on the date hereof of that certain Fourth Allonge to Secured Promissory
Note and Buyer has agreed to waive any alleged defaults through the date hereof
under the Note; and
WHEREAS, the parties wish to confirm that the Series B Shares issued and
outstanding after the transfer thereof from Shaar to Buyer will be in full force
and effect in accordance with their terms as they existed on the original date
of issuance of such shares.
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF SERIES C SHARES
A. Transaction. Buyer hereby agrees to purchase from the Company, and the
Company hereby agrees to issue and sell to the Buyer in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act"), 800 Series C Shares.
B. Purchase Price; Form of Payment. In exchange for receipt of the Series C
Shares, and the additional consents and assurances given by the Company pursuant
to Article III herein, Buyer hereby agrees to waive, to the fullest extent
permitted by law, all prior Company defaults and arrearages arising out of or
related to the Series B Shares, including but not limited to, the Company's
failure to file a registration statement with respect to the Common Stock as
provided in the Registration Rights Agreement, the failure to have such
registration statement declared effective by the Commission (as hereafter
defined) the failure to pay Liquidated Damages as provided in the Registration
Rights Agreement, the failure to declare or pay dividends on or with respect to
the Series B Shares to and including the date hereof, and any and all defaults,
events of default, and asserted failures and breaches by the Company under the
Shaar Purchase Agreement and ancillary agreements related thereto (whether oral
or written) with respect to redemption of Series B Shares or otherwise.
2
<PAGE>
II. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to and covenants and agrees with the Company
as follows:
A. Buyer is purchasing the Series C Shares and the shares of Common Stock
issuable upon conversion of the Series C Shares (the "Conversion Shares" and,
collectively with the Series C Shares, the "Securities") for its own account,
for investment purposes only and not with a view towards or in connection with
the public sale or distribution thereof in violation of the Securities Act.
B. Buyer is (i) experienced in making investments of the kind contemplated
by this Agreement, (ii) capable, by reason of its business and financial
experience, of evaluating the relative merits and risks of an investment in the
Securities, and (iii) able to afford the loss of its investment in the
Securities.
C. Buyer understands that the Securities are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Buyer's compliance with, Buyer's
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of the
Company, and all other materials requested by Buyer to enable it to make an
informed investment decision with respect to the Securities.
E. Buyer acknowledges that it has been furnished with copies of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998 and all other reports and documents heretofore filed by the Company with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since December 31, 1998 (collectively the "Commission
Filings").
F. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
G. Buyer understands that the Securities have not been approved or
disapproved by the Commission or any state securities commission and that the
foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
3
<PAGE>
H. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates nor any person acting on its or their
behalf has the intention of entering, or will enter into, prior to the closing,
any put option, short position or other similar instrument or position with
respect to the Common Stock and neither Buyer nor any of its affiliates nor any
person acting on its or their behalf will use at any time shares of Common Stock
acquired pursuant to this Agreement to settle any put option, short position or
other similar instrument or position that may have been entered into prior to
the execution of this Agreement.
III. COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to and covenants and agrees with the
Buyer as follows:
A. Capitalization. 1. The authorized capital stock of the Company consists
of 10,000,000 shares of Common Stock, of which 5,278,737 shares are outstanding
on the date hereof and 2,500,000 shares of Preferred Stock, of which only 1,500
shares of Series B 8% Convertible Preferred Stock are outstanding on the date
hereof. All of the issued and outstanding shares of Common Stock and Preferred
Stock have been duly authorized and validly issued and are fully paid and
non-assessable. As of the date hereof, the Company has outstanding stock options
and warrants to purchase 1,863,096 shares of Common Stock. The Conversion Shares
have been duly and validly authorized and reserved for issuance by the Company,
and when issued by the Company upon conversion of, or in lieu of accrued
dividends on, the Series C Shares, will be duly and validly issued, fully paid
and non-assessable and will not subject the holder thereof to personal liability
by reason of being such holder. There are no preemptive, subscription, "call" or
other similar rights to acquire the Common Stock (including the Conversion
Shares) that have been issued or granted to any person.
2. The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity.
B. Organization; Reporting Company Status. 1. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Georgia and is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the consummation of any
of the transactions contemplated by this Agreement (a "Material Adverse
Effect").
2. The Company has registered its Common Stock pursuant to Section 12 of
the Exchange Act and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. The Common
4
<PAGE>
Stock is listed and traded on the NASDAQ Stock Market ("NASDAQ") and the Company
has not received any notice regarding, and to its knowledge there is no threat,
of the termination or discontinuance of the eligibility of the Common Stock for
such listing.
C. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion, of the Series C Shares (assuming for purposes of this Section III.C.
a Conversion Price (as defined in the Amendment) of $1.50 per share. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Series C Shares and the potential conversion of the
Series C Shares the Common Stock. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Series C Shares in
accordance with this Agreement and the Series C Shares is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to enter into this Agreement, the Amendment, the
Fourth Allonge to Secured Promissory Note, and Amendment No. 1 to Registration
Rights Agreement dated the date hereof (collectively, the "Transaction
Documents"), and to perform all of its obligations hereunder and thereunder
(including the issuance, sale and delivery to Buyer of the Securities). The
execution, delivery and performance by the Company of this Agreement, the
Transaction Documents, and the consummation by the Company of the transactions
contemplated hereby and thereby, has been duly authorized by all necessary
corporate action on the part of the Company. Each Transaction Document
constitutes a valid and binding obligation of the Company enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
E. Non-contravention. The execution and delivery by the Company of the
Transaction Documents, the issuance of the Securities, and the consummation by
the Company of the other transactions contemplated hereby and thereby, do not
and will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default (or an event which, with notice,
passage of time or both, would constitute a default) under (i) the Articles of
Incorporation or By-laws of the Company or (ii) except for such conflict, breach
or default which would not have a Material Adverse Effect, any indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Company is a party or by which its properties or assets are bound, or any law,
rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets.
F. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by the Company for the
issuance and sale of
5
<PAGE>
the Series C Shares (or the Conversion Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. Commission Filings. None of the Commission Filings contained at the time
they were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
H. Absence of Certain Changes. Except as disclosed in the Commission
Filings, since the Balance Sheet Date (as defined in Section III.L.), there has
not occurred any change, event or development in the business, financial
condition, or results of operations of the Company, and there has not existed
any condition having or reasonably likely to have, a Material Adverse Effect.
I. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to the Buyer that (i) reasonably would be
expected to have a Material Adverse Effect or (ii) reasonably would be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement, the Amendment or the Registration Rights
Agreement.
J. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge, threatened, by
or before any court or public or governmental authority which, if determined
adversely to the Company, would have a Material Adverse Effect.
K. Absence of Events of Default. No "Event of Default" (as defined in any
agreement or instrument to which the Company is a party) and no event which,
with notice, lapse of time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing, which could have a Material Adverse
Effect.
L. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
December 31, 1998 and the related audited statements of operations and cash
flows for the fiscal year ended December 31, 1998 including the related notes
and schedules thereto (the "Financial Statements"). The Financial Statements are
complete and correct in all material respects, has been prepared in accordance
with United States General Accepted Accounting Principles ("GAAP") and in
conformity with the practices consistently applied by the Company without
modification of the accounting principles used in the preparation thereof, and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at December 31, 1998 is hereinafter
referred to as the "Balance Sheet" and December 31, 1998 is hereinafter referred
to as the "Balance Sheet Date." The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the Balance Sheet or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against
6
<PAGE>
or otherwise described in the Balance Sheet or the notes thereto or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date.
M. Compliance with Laws; Permits. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
non-compliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. Securities Law Matters. Based, in part on the representations and
warranties of Buyer set forth in Article II hereof, the offer and sale by the
Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable United States state securities and "blue sky" laws. The
Company shall not directly or indirectly take, and shall not permit any of its
directors, officers or Affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any person or entity of
Series C Shares or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Buyer of the Series C Shares (and the Conversion Shares)
as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Series C
Shares (and the Conversion Shares) as contemplated by this Agreement or any
other agreement to which the Company is a party.
O. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company is a party or by which its
properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
P. Right of First Refusal. Other than a right of first refusal which
expires on July 23, 1999, granted to Shaar under the terms of the Shaar Purchase
Agreement (which right has been duly and properly assigned to Buyer and is in
full force and effect), the Company does not have in effect any right of first
refusal with any person with respect to the issuance or sale of Common Stock,
securities convertible into Common Stock, or debt of the Company.
Q. Environmental Matters. The operations of the Company are in material
compliance with all applicable environmental laws and all permits issued
pursuant to
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environmental laws or otherwise. The Company has not received since the Balance
Sheet Date, any written communications alleging that it may be in violation of
any environmental law or any permit issued pursuant to any environmental law, or
may have any liability under any environmental law.
R. Labor Matters. The Company is not a party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of the Company.
S. Tax Matters. The Company has filed all tax returns which it is required
to file under applicable laws except for such tax returns in respect of which
the failure to so file does not and could not have a Material Adverse Effect.
All such tax returns as filed are true and correct in all material respects and
have been prepared in accordance with all applicable laws. The Company is in
compliance in all material respects with all provisions of the Employee
Retirement Income Security Act of 1974 and the regulations promulgated
thereunder which are applicable to it.
T. Property. The Company has good and marketable title to all real and
personal property (tangible and intangible, and including all technology rights
and assets) owned by it, free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company, and except for the lien securing the obligation represented by
the Note. The Company owns or possesses adequate and enforceable rights to all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge necessary for the conduct of its business as now being
conducted. To the best of the Company's knowledge, the Company is not infringing
upon or in conflict with any right of any other person with respect to any of
the foregoing intellectual property. No claims have been asserted by any person
to the ownership or use of such intellectual property and has no knowledge of
any basis for such a claim.
U. No Misrepresentation. To the Company's knowledge, no representation or
warranty of the Company contained in this Agreement, any schedule, annex or
exhibit hereto or any agreement, instrument or certificate furnished by the
Company to Buyer pursuant to this Agreement, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading.
V. Adequacy of Consideration. The Board of Directors of the Company has
determined that the consideration to be received for the Series C Shares to be
issued pursuant to the terms of this Agreement is adequate in accordance with
Section 14-2-621 of the Georgia Business Corporation Code.
8
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IV. COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Buyer acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Securities shall have endorsed thereon a legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of Securities):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
OTHER LAWS."
B. Filings. The Company shall make all necessary SEC and "blue sky" filings
required to be made by the Company in connection with the sale of the Securities
to the Buyer as required by all applicable Laws, and shall provide a copy
thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall use its best efforts to file all reports required
to be filed by it with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act.
D. Listing. Except to the extent the Company lists its Common Stock on The
New York Stock Exchange or the Nasdaq National Market System, the Company shall
use its best efforts to maintain its listing of the Common Stock on the NASDAQ.
E. Reserved Conversion Shares. Subject to Article 6 of the Amendment, the
Company at all times from and after the date hereof shall have a sufficient
number of shares of Common Stock duly and validly authorized and reserved for
issuance to satisfy the conversion, in full, of the Series C Shares (assuming
for purposes of this Section IV.E., a Conversion Price of $1.50 per share. In
the event the Current Market Price (as defined in the Amendment) declines to
$1.25, the Company shall, within 10 days of the occurrence of such event,
authorize and reserve for issuance such additional shares of Common Stock
sufficient in number for the conversion, in full, of the Series C Shares,
assuming for purposes of this Section IV.E. a Conversion Price of not greater
than $ 1.00 per share, subject to Article 6 of the Amendment.
F. The Series B Shares. 1. Consent to Transfer and Assignment. The Company
hereby consents to the transfer of the Series B Shares from Shaar to Buyer, and
further consents to the assignment referred to in Paragraph B of Article VIII of
the Series B Securities Purchase Agreement, providing for the assignment by
Shaar to Buyer of all of its rights under the Series B Stock.
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2. Series B Dividends. The Company confirms, represents and warrants that
no dividends have been paid on or with respect to the Series B Shares since the
date of issuance nor have funds been set aside for such purpose. After giving
effect to the waiver referred to in Section I.B, dividends on the Series B Stock
shall begin to accrue as of the date hereof.
3. Redemption. The Company hereby withdraws the December 14, 1998 notice of
redemption of the Series B Shares, and the Company and the Buyer hereby confirm,
represent, warrant and acknowledge to one another that such notice of
redemption, and any other agreement with respect to a redemption of Series B
Shares (whether oral or written), is withdrawn or rescinded, and in either event
is of no force or effect, and is void ab initio. The Company hereby acknowledges
that the Series B Shares are issued and outstanding and have the designations,
rights, preferences, limitations, and privileges set forth in the Company's
Articles of Incorporation as in effect on the date such shares were originally
issued. Neither the sending of the redemption notice referred to above nor the
putative redemption resulting therefrom, nor any other act or failure to act has
had the effect of terminating or limiting any dividend, conversion,
registration, transfer, or other right of any such Series B Share, except and
only to the extent specifically set forth in this Agreement
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Series C Shares otherwise shall be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement and applicable law. Nothing contained in this
Section V.A. shall affect in any way Buyer's obligations and agreement to comply
with all applicable securities laws upon resale of such Common Stock. If, at any
time, Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of the resale by Buyer of such
Common Stock is not required under the Securities Act and that the removal of
restrictive legends is permitted under applicable law, the Company shall permit
the transfer of such Common Stock and, promptly instruct the Company's transfer
agent to issue one or more certificates for Common Stock without any restrictive
legends endorsed thereon.
B. The Company shall permit Buyer to exercise its right to convert the
Series C Shares by telecopying an executed and completed Notice of Conversion to
the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. Promptly after Buyer delivers the Notice of Conversion to the
Company, Buyer shall deliver to the Company the Series C Shares being converted.
The Company shall transmit the certificates evidencing the shares of Common
Stock issuable upon conversion of any Series C Shares (together with
certificates evidencing any Series C Shares not being so converted) to Buyer via
express courier, by electronic transfer or otherwise, within ten business days
after receipt by the Company of the Notice of Conversion (the "Delivery Date").
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C. The Company understands that a delay in the issuance of the shares of
Common Stock issuable in lieu of cash dividends on the Series C Shares or upon
the conversion of the Series C Shares beyond the applicable Delivery Date could
result in economic loss to Buyer. As compensation to Buyer for such loss (and
not as a penalty), the Company agrees to pay to Buyer for late issuance of
Common Stock issuable in lieu of cash dividends on the Series C Shares or upon
conversion of the Series C Shares in accordance with the following schedule
(where "No. Business Days" is defined as the number of business days beyond ten
(10) business days from the Delivery Date referred to in Section V.B.):
Compensation For Each
500 Shares of Series C
Shares Not Converted
Timely or 500 Shares of
Common Stock Issuable
In Lieu of Cash
Dividends or
Compensation For Each
500 Shares of Series C
Shares Not Converted
Timely or 500 Shares of
Common Stock Issuable
In Lieu of Cash
No. Business Days Dividends
- ----------------- -----------------------
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
more than 10 $250 + 100 for each
Business Day Late
beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer (which actual damages shall be reduced by the
amount of any compensation paid by the Company as described above in this
Section V.D.), and in addition to any other remedies which
11
<PAGE>
may be available to Buyer, in the event the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the relevant Interest Payment Due Date, or the Delivery Date, as applicable,
Buyer shall be entitled to rescind the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and
Buyer shall each be restored to their respective original positions immediately
prior to delivery of such Notice of Conversion on delivery.
VI. CLOSING.
The date and time of the issuance and sale of the Series C Shares (the
"Closing Date") shall be the date hereof at 10:00 a.m. local time or such other
as shall be mutually agreed upon in writing. The issuance and sale of the
Securities shall occur on the Closing Date at the offices of Weil, Gotshal &
Manages LLP, 767 Fifth Avenue, New York, New York.
VII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
A. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date;
B. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
VIII. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the Securities
on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O Buyer)
evidencing the Securities to be purchased by Buyer pursuant to this Agreement;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties made by the Company in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by the
Company in all material respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
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<PAGE>
C. Buyer's having received an opinion of counsel for the Company, dated the
Closing Date, substantially in the form of Annex I attached hereto.
D. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, or (iii) in the case of the foregoing existing at
the date of this Agreement, a material acceleration or worsening thereof.
E. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and forseeably would have a
Material Adverse Effect.
F. The Company shall have delivered to Buyer reimbursement of Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by the Note and this Agreement (including the fees and
disbursements of Buyer's legal counsel in an amount not to exceed $50,000).
G. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
H. Buyer's receipt of a duly executed Amendment No. 1 to Registration
Rights Agreement in form and substance satisfactory to Buyer.
IX. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby for a period of one year. In the event
of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement or otherwise, whether at
law or in equity, irrespective of any investigation made by or on behalf of such
party on or prior to the Closing Date.
B. The Company hereby agrees to indemnify and hold harmless the Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Buyer Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits
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<PAGE>
hereto or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
2. any failure by the Company to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact, or breach of any of Buyer's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by Buyer pursuant to this Agreement; or
2. any failure by Buyer to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement
or any instrument, certificate or agreement entered into or delivered by Buyer
pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section IX (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section IX is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, (i) potentially differing
interests between such parties in the conduct of the defense of such Claim, or
(ii) if there may be legal defenses available to the Indemnified Party that are
in addition to or disparate from those available to the Indemnifying Party and
which can not be presented by counsel to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel
14
<PAGE>
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
X. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York, without regard to the conflicts of law principles
of such state. Each of the parties consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XI. NOTICES. Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, by facsimile
with confirmation back if followed promptly by first class mail, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
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<PAGE>
(1) if to the Company, to:
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30004
Attention: Wilbur Riner
With a copy to:
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022-7001
Attention: Peter W. Rothberg, Esquire
(2) if to Buyer, to
Interactive Flight Technologies, Inc.
4041 North Central Avenue
Suite B 200
Phoenix, AZ 86012
Attention: Irvin R. Gross
with a copy to:
Mesirov Gelman Jaffe Cramer Jamieson, LLP
1735 Market Street
Suite 3800
Philadelphia, PA 19103-7598
Attn: Richard P. Jaffe, Esquire
The Company or Buyer may change the foregoing address by notice given pursuant
to this Section XI.
XII. CONFIDENTIALITY. Each of the Company and Buyer agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
XIII. ASSIGNMENT. This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; provided,
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<PAGE>
however, that Buyer may assign its rights and obligations hereunder, in whole or
in part, to any affiliate of Buyer who furnishes to the Company the
representations and warranties set forth in Section II hereof and otherwise
agrees to be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
THE NETWORK CONNECTION, INC.
By:
---------------------------------
Name:
Title:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
17
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made as of the 25th day
of June, 1999, between GALAPACO HOLDINGS, LTD., a corporation organized under
the laws of the Bahamas, and MATTERHORN, LTD., a corporation organized under the
laws of Switzerland (collectively, the "Holders") and INTERACTIVE FLIGHT
TECHNOLOGIES, INC., a Delaware corporation ("IFT").
W I T N E S S E T H:
WHEREAS, the Holders are the holders of notes identified on Schedule B
attached hereto (the "Notes") issued by The Network Connection, Inc., a Georgia
corporation with principal executive offices at 1324 Union Hill Road,
Alpharetta, Georgia 30201 ("TNC"), having an aggregate principal amount of
$470,750 and aggregate accrued interest, redemption premiums, and other amounts
due thereon totaling $239,781 (collectively, the "Redemption Premium"); and
WHEREAS, IFT has agreed to purchase the Notes in exchange for a total of
177,633 shares of the Class A Common Stock of IFT, par value $.01 per share (the
"Common Stock").
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF NOTES
A. Transaction. The Holders hereby severally agree to sell to IFT, and IFT
agrees to purchase from the Holders, the respective Notes (including all
principal and the Redemption Premium having an aggregate balance due of
$710,531) owned by each such Holder, in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Securities Act"), in accordance with the information set forth
on Schedule A attached hereto.
B. Purchase Price; Form of Payment. The consideration for the Notes to be
purchased by IFT shall be 177,633 shares of Common Stock payable to the Holders
as set forth on Schedule A attached hereto.
II. HOLDERS' REPRESENTATIONS AND WARRANTIES
The Holders severally represent and warrant to IFT as follows:
A. Each of the Holders is acquiring the Common Stock for their own account,
for investment purposes only and not with a view towards or in connection with
the public sale or distribution thereof in violation of the Securities Act.
B. Each of the Holders is (i) experienced in making investments of the kind
contemplated by this Agreement, (ii) capable, by reason of his, her or its
respective business and
<PAGE>
financial experience, of evaluating the relative merits and risks of an
investment in the Common Stock, and (iii) able to afford the loss of the entire
investment in the Common Stock.
C. Each Holder understands that the Common Stock is being offered and sold
by IFT in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that IFT
is relying upon the accuracy of, and the Holders' compliance with, the Holders'
respective representations, warranties and covenants set forth in this Agreement
to determine the availability of such exemption and the eligibility of the
Holders to purchase the Common Stock.
D. The Holders have each been furnished with or provided access to all
materials relating to the business, financial position and results of operations
of IFT and TNC, and all other materials requested by the Holders to enable them
to each make an informed investment decision with respect to the Common Stock
and the Notes.
E. The Holders acknowledge that they have each been furnished with copies
of IFT's Annual Report on Form 10-KSB for the fiscal year ended October 31,
1998, IFT's Quarterly Report on Form 10-QSB for the fiscal quarter ended April
30, 1999, IFT's Schedule 13D dated May 11, 1999 filed with respect to IFT's
beneficial ownership of TNC Common Stock; IFT's Current Report on Form 8-K dated
May 17, 1999; IFT's Proxy Statement with respect to its annual meeting of
Stockholders held on February 4, 1999, and all other reports and documents
heretofore filed by IFT with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), since January 31, 1999 (collectively the
"Commission Filings"). The Holders also acknowledge that they have each been
furnished with copies of TNC's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998; TNC's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 1999; and all other reports and documents heretofore
filed by TNC with the Commission pursuant to the Securities Act and the Exchange
Act, since December 31, 1998.
F. The Holders each acknowledge that in making their decision to acquire
the Common Stock they have each been given an opportunity to ask questions of
and to receive answers from IFT's and TNC's respective executive officers,
directors and management personnel concerning the business and officers of IFT
and TNC, respectively.
G. The Holders each understand that the Common Stock has not been approved
or disapproved by the Commission or any state securities commission and that the
foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Common Stock and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by the Holders and is a valid and binding agreement of each of the
Holders enforceable against each of them in accordance with its terms, subject
to applicable bankruptcy, insolvency,
2
<PAGE>
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally.
I. None of the Holders nor their affiliates nor any person acting on behalf
of any of the Holders have the intention of entering into, and each such holder
covenants severally that it will not enter into prior to the closing, any put
option, short position or other similar instrument or position with respect to
the Common Stock and none of the Holders nor any of their affiliates nor any
person acting on the behalf of any of the Holders will use at any time shares of
Common Stock acquired pursuant to this Agreement to settle any put option, short
position or other similar instrument or position that may have been entered into
prior to the execution of this Agreement.
J. Each of the Holders has good, marketable, and unencumbered title to
their respective Notes, free and clear of all liens, security interests,
pledges, claims, options, and rights of others. There are no restriction on any
of the Holders' right to transfer the Notes to IFT pursuant to the terms of this
Agreement. None of the Notes have been modified or amended except as set forth
on Schedule B attached hereto. The amounts set forth on Schedule A are a true,
complete, and accurate statement of the amounts due under the Notes as of the
date hereof.
K. Galapaco Holdings, Ltd. and Matterhorn, Ltd., are corporations duly
organized, validly existing and in good standing under the laws of the Bahamas
and Switzerland, respectively, with their principal places of business at
Charlotte House, Charlotte St., P.O. Box N-8318, Nassau, Bahamas, and P.O. Box
735, CH-6045, Meggen, Switzerland, respectively, and were not organized for the
purpose of acquiring the Common Stock. Each Holder has the power to acquire the
Common Stock pursuant to the terms hereof.
III. IFT'S REPRESENTATIONS AND WARRANTIES
IFT represents and warrants to and covenants and agrees with the Holders as
follows:
A. Capitalization. The authorized capital stock of IFT consists of
40,000,000 shares of Common Stock, of which 5,460,636 shares are outstanding on
the date hereof and 5,000,000 shares of Preferred Stock, of which 3,000 Series A
Preferred Shares are outstanding on the date hereof. All of the issued and
outstanding shares of Common Stock and Preferred Stock have been duly authorized
and validly issued and are fully paid and non-assessable. The Common Stock has
been duly and validly authorized, and when issued by IFT, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
B. Organization; Reporting IFT Status. IFT is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of IFT or on the consummation of any of the transactions contemplated
by this Agreement (a "Material Adverse Effect").
3
<PAGE>
C. Authority; Validity and Enforceability. IFT has the requisite corporate
power and authority to enter into this Agreement and the Registration Rights
Agreement to be dated and delivered at Closing as referred to in Section VIII.F
(collectively, the "Transaction Documents"), and to perform all of its
obligations hereunder and thereunder (including the issuance, sale and delivery
to the Holders of the Common Stock). The execution, delivery and performance by
IFT of this Agreement, the Transaction Documents, and the consummation by IFT of
the transactions contemplated hereby and thereby, has been duly authorized by
all necessary corporate action on the part of IFT. Each Transaction Document
constitutes a valid and binding obligation of IFT enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Common Stock has been duly and
validly authorized for issuance by IFT and, when executed and delivered by IFT,
will be valid and binding obligations of IFT enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally.
D. Non-contravention. The execution and delivery by IFT of the Transaction
Documents, the issuance of the Common Stock, and the consummation by IFT of the
other transactions contemplated hereby and thereby, do not and will not conflict
with or result in a breach by IFT of any of the terms or provisions of, or
constitute a default (or an event which, with notice, passage of time or both,
would constitute a default) under (i) the Certificate of Incorporation or
By-laws of IFT or (ii) except for such conflict, breach or default which would
not have a Material Adverse Effect, any indenture, mortgage, deed of trust or
other material agreement or instrument to which IFT is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over IFT or any of IFT's properties or assets.
E. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by IFT for the issuance of
the Common Stock to the Holders as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained by IFT prior to
the date hereof.
F. Commission Filings. None of the Commission Filings contained at the time
they were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
G. Absence of Certain Changes. Except as disclosed in the Commission
Filings, since January 31, 1999, there has not occurred any change, event or
development in the business, financial condition, or results of operations of
IFT, and there has not existed any condition having or reasonably likely to
have, a Material Adverse Effect.
H. Securities Law Matters. Based in part on the representations and
warranties of the Holders set forth in Article II hereof, the offer and issuance
by IFT of the Common Stock pursuant to the terms of this Agreement is exempt
from (i) the registration and prospectus delivery requirements of the Securities
Act and the rules and regulations of the Commission
4
<PAGE>
thereunder and (ii) the registration and/or qualification provisions of all
applicable United States state securities and "blue sky" laws. IFT shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take, any action, so as to make
unavailable the exemption from the Securities Act registration being relied upon
by IFT for the issuance to the Holders of the Common Stock as contemplated by
this Agreement. No form of general solicitation or advertising has been used or
authorized by IFT or any of its officers, directors or Affiliates in connection
with the offer or sale of the Common Stock as contemplated by this Agreement or
any other agreement to which IFT is a party.
I. Adequacy of Consideration. The Board of Directors of IFT has determined
that the consideration to be received for the Common Stock to be issued pursuant
to the terms of this Agreement is adequate in accordance with Section 153 of the
Delaware General Corporation Law.
IV. COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. The Holders acknowledge and agree that, upon
issuance pursuant to this Agreement, the Common Stock shall have endorsed
thereon legends in substantially the following forms:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OR SUCH OTHER LAWS.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES
ACT OF 1973," AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN
EFFECTIVE REGISTRATION UNDER SUCH ACT.
B. Filings. IFT shall make all necessary SEC and state "blue sky" filings
required to be made by IFT in connection with the issuance of the Common Stock
to the Holders (based on the representations and warranties of the Holders) as
required by all applicable laws, and shall provide a copy thereof to the Holders
promptly after such filing.
VI. CLOSING.
The date and time of the closing pursuant to this Agreement (the "Closing
Date") shall be July 9, 1999 at 9:00 a.m. local time or such other as shall be
mutually agreed upon in
5
<PAGE>
writing at the offices of Balboni Law Group, LLC, 3475 Lenox Rd. N.E.,
Suite 990, Atlanta, GA 30326.
VII. CONDITIONS TO IFT'S OBLIGATIONS.
IFT's obligation to close hereunder is conditioned upon the following, any
of which may be waived by IFT:
A. The accuracy in all material respects on the Closing Date of the
representations and warranties of each of the Holders contained in this
Agreement as if made on the Closing Date (except for representations and
warranties which, by their express terms, speak as of and relate to a specified
date, in which case such accuracy shall be measured as of such specified date)
and the performance by the each of the Holders in all material respects on or
before the Closing Date of their respective covenants and agreements required to
be performed by each of them pursuant to this Agreement on or before the Closing
Date;
B. The absence of any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement;
C. IFT's receipt of (1) a duly executed Irrevocable Proxy in the form
attached hereto as Exhibit A from each Holder; (2) a duly executed Allonge to
Secured Promissory Note from TNC in form and substance satisfactory to IFT; (3)
a duly executed Registration Rights Agreement in the form attached hereto as
Exhibit C; (4) all of the original Notes and Addenda thereto duly endorsed to
the order of IFT; (5) a General Release in the form attached hereto as Exhibit D
from each Holder; and (6) a duly executed Put/Call Agreement in the form
attached hereto as Exhibit E from each Holder; and
D. The Closing of the transactions between IFT and five third parties (who
are also holders of notes signed by TNC) pursuant to those certain Securities
Purchase Agreements dated as of the date hereof.
VIII. CONDITIONS TO THE HOLDERS' OBLIGATIONS.
The Holders' obligation to close hereunder is conditioned upon the
following, any of which may be waived by the Holders severally:
A. The receipt by each Holder of one or more certificates registered in the
name of each Holder, respectively) evidencing the Common Stock to be acquired by
such Holder pursuant to this Agreement, as set forth on Schedule A attached
hereto;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties made by IFT in this Agreement as if made on the
Closing Date (except for representations and warranties which, by their express
terms, speak as of and relate to a specified date, in which case such accuracy
shall be measured as of such specified date) and the performance by IFT in all
material respects on or before the Closing Date of all covenants and
6
<PAGE>
agreements of IFT required to be performed by it pursuant to this Agreement on
or before the Closing Date;
C. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock of IFT on NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, or (iii) in the case of the foregoing existing at
the date of this Agreement, a material acceleration or worsening thereof;
D. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeably would have a
Material Adverse Effect;
E. The absence of any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement; and
F. Each Holder's receipt of (1) a duly executed Registration Rights
Agreement in the form of Exhibit C attached hereto; and (2) a duly executed
Put/Call Agreement in the form of Exhibit E attached hereto.
IX. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of IFT and
each of the Holders in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by either of them pursuant to this Agreement, shall survive the
Closing and the consummation of the transactions contemplated hereby for a
period of one year. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. IFT hereby agrees to indemnify and hold harmless each Holder, their
respective affiliates and their respective officers, directors, partners and
members (collectively, the "Holder Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse Holder Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by Holder Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of IFT's
representations or warranties contained in this Agreement, the exhibits hereto
or any instrument, agreement or certificate entered into or delivered by IFT
pursuant to this Agreement; or
7
<PAGE>
2. any failure by IFT to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement,
the exhibits hereto or any instrument, agreement or certificate entered into or
delivered by IFT pursuant to this Agreement.
C. The Holders hereby agree to indemnify and hold harmless IFT, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "IFT Indemnitees"), from and against any and all Losses, and
agrees to reimburse IFT Indemnitees for all out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by IFT Indemnitees and to the extent arising out of or in connection
with:
1. any misrepresentation, omission of fact, or breach of any of the
Holders' representations or warranties contained in this Agreement, the exhibits
hereto or any instrument, agreement or certificate entered into or delivered by
the Holders pursuant to this Agreement; or
2. any failure by any of the Holders to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or delivered
by any of the Holders pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section IX (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section IX is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate (i) due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
(ii) if there may be legal defenses available to the Indemnified Party that are
in addition to or disparate from those available to the Indemnifying Party and
which can not be presented by counsel to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided
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<PAGE>
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
X. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the Federal courts whose districts encompass any part of the City of
Philadelphia or the state courts of Commonwealth of Pennsylvania sitting in the
City of Philadelphia in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement have been inserted for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
XI. NOTICES. Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, by facsimile
with confirmation back if followed promptly by first class mail, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
(1) if to a Holder at the respective address set forth in Section II.K.
(2) if to IFT, to
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<PAGE>
Interactive Flight Technologies, Inc.
4041 North Central Avenue
Suite B 200
Phoenix, AZ 86012
Attention: Irwin L. Gross
with a copy to:
Mesirov Gelman Jaffe Cramer Jamieson, LLP
1735 Market Street - Suite 3800
Philadelphia, PA 19103-7598
Attn: Steven B. King, Esquire
IFT or any of the Holders may change his, her, or its respective address for
notices by notice given pursuant to this Article XI.
XII. CONFIDENTIALITY. IFT and each of the Holders agree to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
------------------------------------
Name:
Title:
(Signatures continued on next page)
10
<PAGE>
GALAPACO HOLDINGS, LTD.
By:
------------------------------------
Name:
Title:
MATTERHORN, LTD.
By:
------------------------------------
Name:
Title:
11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Shares of Class A Principal
Common Stock of Amount of Redemption
IFT to be Received Notes Premium to
Holder by Holder Held June 3, 1999 Total Due
------ ------------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Galapaco Holdings 107,181 $270,750 $157,975 $428,725
Matterhorn, Ltd. 70,452 200,000 81,806 281,806
------- -------- -------- --------
TOTALS 177,633 $470,750 $239,781 $710,531
- ------ ======= ======== ======== ========
</TABLE>
<PAGE>
SCHEDULE B
AMENDMENTS TO NOTES
<TABLE>
<CAPTION>
Key Addendum
Holder Date of Note Addendum Date Provisions
------ ------------ ------------- ------------
<S> <C> <C> <C>
Galapaco Holdings, Inc. October 12, 1998 January 13, 1999 full redemption of Note by 2/1/99 or
additional redemption bonus due to
Holder
Galapaco Holdings, Inc. October 12, 1998 ?? (illegible) full redemption of Note by 2/25/99
or additional redemption bonus due
to Holder; warrants reissued at
$2.50 exercise price
Matterhorn, Ltd. December 11, 1998 February 12, 1999 full redemption of Note by 3/15/99
or additional redemption bonus due
to Holder; warrants reissued at
$2.50 exercise price
</TABLE>
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
<PAGE>
EXHIBIT B
[Intentionally Omitted)
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
GENERAL RELEASE
<PAGE>
EXHIBIT E
PUT/CALL AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is dated this _____ day of July, 1999
(this "Agreement") between Interactive Flight Technologies, Inc., a Delaware
corporation, with principal offices located at 4041 North Central Avenue, Suite
B 200, Phoenix, Arizona 85012 (the "Company"), and each of the undersigned
Initial Investors (the "Initial Investors").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of those certain
Securities Purchase Agreements dated June 25, 1999, between the Initial
Investors and the Company (individually, a "Securities Purchase Agreement," and
collectively, the "Securities Purchase Agreements"), the Company has agreed to
issue to the Initial Investors the number of shares of the Company's Class A
Common Stock (the "Common Stock") set forth in the Securities Purchase
Agreements; and
WHEREAS, to induce each Initial Investor to execute and deliver his, her,
or its respective Securities Purchase Agreement, the Company has agreed to
provide with respect to the Common Stock issued certain registration rights
under the Securities Act (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following respective meanings:
(i) "Commission" means the Securities and Exchange Commission.
(ii) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(iii) "Investors" means the Initial Investors and any transferee or
assignee of Registrable Securities who agrees to become bound by all of the
terms and provisions of this Agreement in accordance with Section 8 hereof.
<PAGE>
(iv) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
(v) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed pursuant
to Rule 424(b) under the Securities Act, including any prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance on Rule 430A under the Securities Act)
included in the Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement and by all
other amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Company under the Exchange Act and incorporated
by reference therein.
(vi) "Registrable Securities" means the Common Stock issued or
issuable pursuant to a Securities Purchase Agreement; provided, however, a share
of Common Stock shall cease to be a Registrable Security for purposes of this
Agreement when it no longer is a Restricted Security.
(vii) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Registrable Securities pursuant to Rule 415 under the Securities
Act, including the Prospectus contained therein and forming a part thereof, any
amendments to such registration statement and supplements to such Prospectus,
and all exhibits and other material incorporated by reference in such
registration statement and Prospectus.
(viii) "Restricted Security" means any share of Common Stock issued
or issuable pursuant to a Securities Purchase Agreement except any such share
that (i) has been registered pursuant to an effective registration statement
under the Securities Act and sold in a manner contemplated by the Prospectus
included in the Registration Statement, (ii) has been transferred in compliance
with the resale provisions of Rule 144 under the Securities Act (or any
successor provision thereto) or is transferable pursuant to paragraph (k) of
Rule 144 under the Securities Act (or any successor provision thereto), or (iii)
otherwise has been transferred and a new share of Common Stock not subject to
transfer restrictions under the Securities Act has been delivered by or on
behalf of the Company.
2
<PAGE>
(ix) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreements.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company
shall use reasonable commercial efforts to prepare and file with the Commission
not later than December 31, 1999, a Registration Statement relating to the offer
and sale of the Registrable Securities, and shall use reasonable commercial
efforts to cause the Commission to declare such Registration Statement effective
under the Securities Act as promptly as practicable after filing. The Company
shall notify the Initial Investors by written notice that such Registration
Statement has been declared effective by the Commission promptly after such
declaration by the Commission. Notwithstanding the foregoing provisions of this
Section 2(a), the Company may defer such filing one time for a period not to
exceed fifteen (15) days if the Board of Directors of the Company determines in
good faith that because of a material, pending corporate transaction such as a
pending merger or other business combination or the planned material acquisition
or divestiture of assets, it is in the best interests of the Company to defer
such filing, and prior to or contemporaneously with such deferral the Company
provides the Investors with written notice of such deferral, which notice need
not specify the nature of the event giving rise to such deferral.
(b) Eligibility for Use of Form S-3. The Company agrees that at such
time after December 31, 1999 as it meets all the requirements for the use of
Securities Act Registration Statement on Form S-3 it shall file all reports and
information required to be filed by it with the Commission in a timely manner
and take all such other action so as to maintain such eligibility for the use of
such form.
(c) Piggyback Obligation. (i) If the Company, after September 30, 1999,
proposes to register any of its warrants or any other shares of common stock of
the Company under the Securities Act (other than a registration (A) on Form S-8
or S-4 or any successor or similar forms, (B) relating to Common Shares or any
other shares of common stock of the Company issuable upon exercise of employee
share options or in connection with any employee benefit or similar plan of the
Company, (C) in connection with a direct or indirect acquisition by the Company
of another Person or any transaction with respect to which Rule 145 (or any
successor provision) under the Securities Act applies, or (D) on behalf of the
Shaar Fund, Ltd., and its permitted successors and assigns), whether or not for
sale for its own account, it will each such time, give prompt written notice at
least twenty (20) days prior to the anticipated filing date of the registration
statement
3
<PAGE>
relating to such registration to the Investors, which notice shall set forth
such Investors' rights under this Section 2(c) and shall offer the Investors the
opportunity to include in such registration statement such number of Registrable
Securities owned by such Investors as the Investors may request. Upon the
written request of an Investor made within ten (10) days after the receipt of
notice from the Company (which request shall specify the number of Registrable
Securities intended to be disposed of by such Investor), the Company will use
its best efforts to effect the registration under the Securities Act of all
Registrable Securities that the Company has been so requested to register by the
Investors, to the extent requisite to permit the disposition of the Registrable
Securities so to be registered; provided, however, that (A) if such registration
involves an underwritten offering, the Investors who elect to participate in
such offering must sell their Registrable Securities to the underwriters
selected as provided in Section 2(c)(ii) hereof on the same terms and conditions
as apply to the Company and the other prospective sellers and (B) if, at any
time after giving written notice of its intention to register any Registrable
Securities pursuant to this Section 2 and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such Registrable Securities, the
Company shall give written notice to the Investors and, thereupon, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration. The Company's obligations under this Section 2(c) shall
terminate on the date that the registration statement to be filed in accordance
with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(c) involves an
underwritten offering and the managing underwriter thereof advises the Company
that, in its view, the number of warrants or other shares of Common Stock that
the Company and the Investors and all other prospective sellers holding
registration rights intend to include in such registration exceeds the largest
number of shares of Common Stock or warrants that can be sold without having an
adverse effect on such offering (the "Maximum Offering Size"), the Company will
include in such registration, only that number of shares of common stock or
warrants, as applicable, such that the number of Registrable Securities
registered does not exceed the Maximum Offering Size, with the difference
between the number of shares in the Maximum Offering Size and the number of
shares to be issued by the Company and by the Shaar Fund, Ltd. (if any) in the
aggregate to be allocated among the Investors and such other prospective sellers
(other than the Company and the Shaar Fund, Ltd.) pro rata on the basis of the
relative number of Registrable Securities to be offered for sale under such
registration by each of the Investors and such other prospective sellers (other
than the Company and the Shaar Fund, Ltd.).
If as a result of the proration provisions of this Section 2(c)(ii), any
Investor is not entitled to include all such Registrable Securities in such
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registration, any such Investor may elect to withdraw its request to include any
Registrable Securities in such registration. With respect to registrations
pursuant to this Section 2(c), the number of securities required to satisfy any
underwriters' over-allotment option shall be allocated pro rata among the
Company, the Investors, the Shaar Fund, Ltd., and the other prospective sellers
on the basis of the relative number of securities otherwise to be included by
each of them in the registration with respect to which such over-allotment
option relates.
3. Obligations of the Company. In connection with any required registration
of the Registrable Securities under this Agreement, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two (2) years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, redeemed by
the Company, transferred pursuant to Rule 144 under the Securities Act or
otherwise transferred in a manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act (the "Registration
Period") and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and (B) the Prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the Registration
Period include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing provisions of this Section 3(a), the
Company may, during the Registration Period, suspend the use of the Prospectus
for a period not to exceed 120 days (whether or not consecutive) in any 12-month
period if the Board of Directors of the Company determines in good faith that
because of valid business reasons, including pending mergers or other business
combination transactions, the planned acquisition or divestiture of assets,
pending material corporate developments and similar events, it is in the best
interests of the Company to suspend such use, and prior to or contemporaneously
with suspending such use the Company provides the Investors with written notice
of such suspension, which notice need not specify the nature of the event giving
rise to such
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suspension. At the end of any such suspension period, the Company shall provide
the Investors with written notice of the termination of such suspension.
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to Registrable Securities covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the Investors as set forth in the Prospectus forming part of the Registration
Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an
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untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and promptly
prepare an amendment to the Registration Statement and supplement to the
Prospectus to correct such untrue statement or omission, and deliver a number of
copies of such supplement and amendment to each Investor as such Investor may
reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three (3) business days after a Registration Statement which includes
Registrable Securities is declared effective by the Commission, deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Investors of their Registrable Securities
in accordance with the intended methods therefor provided in the Prospectus
which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than eighteen (18) months after (i) the
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effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and (ii) cause the Company's
officers, directors and employees to supply all information reasonably requested
by such underwriter, attorney, accountant or agent in connection with the
Registration Statement, in each case, as is customary for similar due diligence
examinations; provided, however, that all records, information and documents
that are designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by such underwriter, attorney, accountant or agent (pursuant to an
appropriate confidentiality agreement in the case of any such holder or agent),
unless such disclosure is made pursuant to judicial process in a court
proceeding (after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the information sought to be
disclosed) or is required by law, or such records, information or documents
become available to the public generally or through a third party not in
violation of an accompanying obligation of confidentiality; and provided further
that, if the foregoing inspection and information gathering would otherwise
disrupt the Company's conduct of its business, such inspection and information
gathering shall, to the maximum extent possible, be coordinated by parties
entitled thereto by one firm of counsel designed by and on behalf of the
majority in interest of Investors and other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
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(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(r) In the event that any broker-dealer registered under the Exchange
Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement
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<PAGE>
relating to such Registrable Securities, to exercise usual standards of due
diligence in respect thereof and to recommend the public offering price of such
Registrable Securities, (B) indemnifying such qualified independent underwriter
to the extent of the indemnification of underwriters provided in Section 5
hereof, and (C) providing such information to such broker-dealer as may be
required in order for such broker-dealer to comply with the requirements of the
NASD Rules.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. As least seven (7) days
prior to the first anticipated filing date of the Registration Statement, the
Company shall notify each Investor of the information the Company requires from
each such Investor (the "Requested Information") if such Investor elects to have
any of its Registrable Securities included in the Registration Statement. If at
least two (2) business days prior to the anticipated filing date the Company has
not received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor. Thereafter, at
the request of such Non-Responsive Investor the Company shall, if legally
permitted to do so, amend such Registration Statement to include any of the
Registrable Securities of such Non-Responsive Investor but such Non-Responsive
Investor shall bear the reasonable costs and expenses of the Company incurred in
connection with such filing.
(b) Each Investor by its acceptance of the Registrable Securities agrees
to cooperate with the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its Registrable Securities
from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f) or of a notice pursuant to Section 3(a), it shall immediately discontinue
its disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(e) or of
receipt of
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notice from the Company pursuant to Section 3(a), as applicable, and, if so
directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 2, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company shall
be borne by the Company. The Investors shall be responsible for payment of their
share of any underwriting discounts or commissions and for expenses of their
counsel.
6. Indemnification and Contribution.
(a) Indemnification by Company. The Company shall indemnify and hold
harmless each Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities and each of their respective officers and
directors and each person who controls such Investor or underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being sometimes hereinafter referred to as an "Indemnified
Person") from and against any losses, claims, damages or liabilities, joint or
several, to which such Indemnified Person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, not misleading, or arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Prospectus or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company hereby
agrees to reimburse such Indemnified Person for all reasonable legal and other
expenses incurred by them in connection with investigating or defending any such
action or claim as and when such expenses are incurred; provided, however, that
the Company shall not be liable to any such Indemnified Person in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e) or of the
delivery of a notice pursuant to Section 3(a) or 3(f), the use by
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the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein, and (ii) reimburse the Company for any
legal or other expenses incurred by the Company in connection with investigating
or defending any such action or claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim the Indemnifying Party shall be entitled to assume the
defense thereof. Notwithstanding the assumption of the defense of any Claim by
the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel
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and to participate in the defense of such Claim at the reasonable cost and
expense of the Indemnifying Party unless the Indemnified Party and the
Indemnifying Party shall reasonably have concluded that representation of the
Indemnified Party by the Indemnifying Party by the same legal counsel would not
be appropriate due to actual or, as reasonably determined by legal counsel to
the Indemnified Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or the Indemnifying Party shall have
failed to employ legal counsel reasonably satisfactory to the Indemnified Party
within a reasonable period of time after notice of the commencement of such
Claim. Except as provided above, the Indemnifying Party shall not, in connection
with any Claim in the same jurisdiction, be liable for the fees and expenses of
more than one firm of counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnifying Party shall not, without the prior
written consent of the Indemnifying Party (which consent shall not unreasonably
be withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnifying
Party from all liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6
is unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the
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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. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Limitations on Indemnification. Notwithstanding any other provision
of this Section 6, in no event shall any (i) Investor be required to undertake
liability to any person under this Section 6 for any amounts in excess of the
dollar amount of the proceeds to be received by such Investor from the sale of
such Investor's Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are to be registered under the Securities Act
and (ii) underwriter be required to undertake liability to any Person hereunder
for any amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter with respect to the Registrable
Securities underwritten by it and distributed pursuant to the Registration
Statement.
(f) Non-Exclusive Obligations. The obligations of the Company under this
Section 6 shall be in addition to any liability which the Company may otherwise
have to any Indemnified Person and the obligations of any Indemnified Person
under this Section 6 shall be in addition to any liability which such
Indemnified Person may otherwise have to the Company. The remedies provided in
this Section 6 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to an indemnified party at law or in equity.
7. Rule 144. With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("Rule 144"), the Company agrees
to use reasonable commercial efforts to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
8. Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned
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by the Investors to any permitted transferee of all or any portion of such
Registrable Securities only if: (a) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment, the securities so transferred or assigned to the transferee or
assignee constitute Restricted Securities, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
9. Amendment and Waiver. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
15
<PAGE>
(1) if to the Company, to:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
Suite B 200
Phoenix, Arizona 86012
Attention: Irwin L. Gross
with a copy to:
16
<PAGE>
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
38th Floor
Philadelphia, Pennsylvania 19103-7598
Attn: Steven B. King, Esquire
(2) if to an Initial Investor,
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(3) if to any other Investor, at such address as
such Investor shall have provided in writing
to the Company.
The Company, the Initial Investors or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania. Each of the parties consents
to the jurisdiction of the Federal courts whose districts encompass any part of
the City of Philadelphia, Pennsylvania or the state courts of the Commonwealth
of Pennsylvania sitting in the City of Philadelphia in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions
17
<PAGE>
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. Without limiting the generality of the foregoing, without the
written consent of the Holders of a majority in interest of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are not otherwise in conflict or inconsistent with the provisions of
this Agreement. The restrictions on the Company's rights to grant registration
rights under this paragraph shall terminate on the date the Registration
Statement to be filed pursuant to Section 2(a) is declared effective by the
Commission.
(h) This Agreement and the Securities Purchase Agreements between the
Company and the Initial Investors constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement and the Securities Purchase Agreements,
supersede all prior agreements and undertakings among the parties hereto with
respect to the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to perform
its obligations under Section 2, or any delay in such performance could result
in direct damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct damages caused by such failure or
delay.
(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
INITIAL INVESTORS:
(SEAL)
-------------------------------
Peter Che Nan Chen
(SEAL)
-------------------------------
Sui Wa Chau
LUFENG INVESTMENTS, LTD.
By:
---------------------------------
Name:
Title:
CORRELLUS INTERNATIONAL, LTD. GALAPACO HOLDINGS, LTD.
By: By:
------------------------------ ---------------------------------
Name: Name:
Title: Title:
MATTERHORN, LTD. KEYWAY HOLDINGS CO.
By: By:
------------------------------ ---------------------------------
Name: Name:
Title: Title:
19
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this _____ day of July, 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Galapaco Holdings, Ltd. ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.50 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to
require Company to purchase any or all of the Shares on the terms and
subject to the conditions hereinafter set forth in this Agreement (the "Put
Option").
(b) Holder hereby grants to Company the right and option to purchase
all or any of the Shares held by Holder, on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised,
shall be Three Dollars and Fifty Cents ($3.50) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
<PAGE>
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of
election (the "Put Notice of Election") to the Company in the form attached
hereto and incorporated herein by reference. The Put Notice of Election
shall be in writing, shall be sent to the Company at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between
12:01 a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000
(the "Effective Period"). The date and time of the exercise of the Put
Option shall be that date and time when the Put Notice of Election is
actually received by the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of
immediately available funds to the bank account set forth on the Put Notice
of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election
shall be in writing, shall be sent to the Holder at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all
of the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and
time when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
2
<PAGE>
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab
initio and Closing shall be held pursuant to the Put Option.
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period or, if earlier, the date on which
any Shares are sold by the Holder pursuant to a registration statement declared
effective by the Securities and Exchange Commission.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock
of the Company shall be changed into or exchanged for a different number or
kind of shares of capital stock of the Company or shall be changed into or
exchanged for a different number or kind of shares of capital stock or
other securities of the Company or of another company (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, or
otherwise), then there shall be substituted for each remaining Share not
acquired by exercise of either the Put Option or the Call Option prior to
the record date for such merger, consolidation, recapitalization,
reclassification, split-up, or otherwise, the number and kind of shares of
capital stock or other securities into which each outstanding share of
Class A Common Stock of the Company shall be so changed or for which each
such share of capital stock shall be so exchanged. In the event that there
shall be any such change or exchange, then (i) Holder shall be entitled to
sell to the Company pursuant to the Put Option all of such capital stock
and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would
have been required to be paid for such Share assuming there had been no
such change or exchange, and otherwise in accordance with the terms of this
Agreement; and (ii) the Company shall be entitled to purchase from the
Holder pursuant to the Call Option all of such capital stock and other
securities into which each Share shall have been changed or for which it
shall have been exchanged for the Call Option Price which would have been
required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into
a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and
the Call Option Price shall be proportionately decreased or increased, as
the case may be, and the number of remaining Shares (those not acquired by
exercise of either the Put or Call Option prior to the record date of such
stock dividend, stock split, or combination of shares) subject to the Put
or Call Option shall be proportionately increased or decreased as the case
may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or
combination.
3
<PAGE>
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; by way of stock options, stock warrants, subscription rights; or
otherwise.
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the
Put Notice of Election or Call Notice of Election shall not be less than
fourteen (14) nor more than sixty (60) days after the date of such Put
Notice of Election or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the
Company, or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to
the Put Notice of Election or Call Notice of Election and Holder shall
deliver to the Company all of the Shares (or other securities) being
purchased duly endorsed for transfer or with an executed stock power
attached, in either such case with signature guaranteed by a member of the
Stock Transfer Agents' Medallion Program.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege
with respect to any occurrence be construed as a
4
<PAGE>
waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is
signed by the party asserted to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such
jurisdiction to the contrary, and without the aid of any canon, custom or
rule of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(ii) If to Company:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
B-200
Phoenix, AZ 85014
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
5
<PAGE>
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except
that neither party may assign or transfer its rights nor delegate its
obligations under this Agreement without the prior written consent of the
other party hereto.
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they
form no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or Holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or Holiday. For purposes of
this subparagraph (i), the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks with branches in the
Commonwealth of Pennsylvania are or may elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall be
and be deemed to be references to lawful currency of the United States of
America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ------------------------------- -----------------------------
Secretary Name:
[Corporate Seal] Title:
GALAPACO HOLDINGS, LTD.
- ------------------------------- -----------------------------
[Corporate Seal] (if applicable) Name:
Title:
Shares of Class A Common Stock of the Company 107,181
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated __________ __, 1999. Pursuant
to the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ___________________________
Branch (if applicable): ___________________
Bank Location: _________________________
Bank Routing Number: __________________
For Credit to Account No. ________________
Name of Account: _______________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
--------------------------- ----------------------------------
Name:
Address:
Number of Shares:
-----------------------------
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated ___________ __,
1999. Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m. local time, on __________ ___,
2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
--------------------------- -----------------------------------
Name:
Title:
<PAGE>
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this _____ day of July, 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Matterhorn, Ltd. ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.50 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to
require Company to purchase any or all of the Shares on the terms and
subject to the conditions hereinafter set forth in this Agreement (the "Put
Option").
(b) Holder hereby grants to Company the right and option to purchase
all or any of the Shares held by Holder, on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised,
shall be Three Dollars and Fifty Cents ($3.50) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
<PAGE>
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of
election (the "Put Notice of Election") to the Company in the form attached
hereto and incorporated herein by reference. The Put Notice of Election
shall be in writing, shall be sent to the Company at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between
12:01 a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000
(the "Effective Period"). The date and time of the exercise of the Put
Option shall be that date and time when the Put Notice of Election is
actually received by the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of
immediately available funds to the bank account set forth on the Put Notice
of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election
shall be in writing, shall be sent to the Holder at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all
of the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and
time when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
2
<PAGE>
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab
initio and Closing shall be held pursuant to the Put Option.
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock
of the Company shall be changed into or exchanged for a different number or
kind of shares of capital stock of the Company or shall be changed into or
exchanged for a different number or kind of shares of capital stock or
other securities of the Company or of another company (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, or
otherwise), then there shall be substituted for each remaining Share not
acquired by exercise of either the Put Option or the Call Option prior to
the record date for such merger, consolidation, recapitalization,
reclassification, split-up, or otherwise, the number and kind of shares of
capital stock or other securities into which each outstanding share of
Class A Common Stock of the Company shall be so changed or for which each
such share of capital stock shall be so exchanged. In the event that there
shall be any such change or exchange, then (i) Holder shall be entitled to
sell to the Company pursuant to the Put Option all of such capital stock
and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would
have been required to be paid for such Share assuming there had been no
such change or exchange, and otherwise in accordance with the terms of this
Agreement; and (ii) the Company shall be entitled to purchase from the
Holder pursuant to the Call Option all of such capital stock and other
securities into which each Share shall have been changed or for which it
shall have been exchanged for the Call Option Price which would have been
required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into
a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and
the Call Option Price shall be proportionately decreased or increased, as
the case may be, and the number of remaining Shares (those not acquired by
exercise of either the Put or Call Option prior to the record date of such
stock dividend, stock split, or combination of shares) subject to the Put
or Call Option shall be proportionately increased or decreased as the case
may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or
combination.
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; by way of stock options, stock warrants, subscription rights; or
otherwise.
3
<PAGE>
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the
Put Notice of Election or Call Notice of Election shall not be less than
fourteen (14) nor more than sixty (60) days after the date of such Put
Notice of Election or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the
Company, or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to
the Put Notice of Election or Call Notice of Election and Holder shall
deliver to the Company all of the Shares (or other securities) being
purchased duly endorsed for transfer or with an executed stock power
attached, in either such case with signature guaranteed by a member of the
Stock Transfer Agents' Medallion Program.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege
with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver
shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
4
<PAGE>
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such
jurisdiction to the contrary, and without the aid of any canon, custom or
rule of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(ii) If to Company:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
B-200
Phoenix, AZ 85014
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except
that neither party may assign or transfer its rights nor delegate its
obligations under this Agreement without the prior written consent of the
other party hereto.
5
<PAGE>
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they
form no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or Holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or Holiday. For purposes of
this subparagraph (i), the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks with branches in the
Commonwealth of Pennsylvania are or may elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall
be and be deemed to be references to lawful currency of the United States
of America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ------------------------------- -----------------------------
Secretary Name:
[Corporate Seal] Title:
MATTERHORN, LTD
- ------------------------------- -----------------------------
[Corporate Seal] (if applicable) Name:
Title:
Shares of Class A Common Stock of the Company 70,452
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated __________ __, 1999. Pursuant
to the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ___________________________
Branch (if applicable): ___________________
Bank Location: _________________________
Bank Routing Number: __________________
For Credit to Account No. ________________
Name of Account: _______________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
--------------------------- ----------------------------------
Name:
Address:
Number of Shares:
-----------------------------
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated ___________ __,
1999. Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m.
local time, on __________ ___, 2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
--------------------------- -----------------------------------
Name:
Title:
<PAGE>
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this _____ day of July, 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Correllus International, Ltd. ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.50 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to
require Company to purchase any or all of the Shares on the terms and
subject to the conditions hereinafter set forth in this Agreement (the "Put
Option").
(b) Holder hereby grants to Company the right and option to purchase
all or any of the Shares held by Holder, on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised,
shall be Three Dollars and Fifty Cents ($3.50) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
<PAGE>
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of
election (the "Put Notice of Election") to the Company in the form attached
hereto and incorporated herein by reference. The Put Notice of Election
shall be in writing, shall be sent to the Company at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between
12:01 a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000
(the "Effective Period"). The date and time of the exercise of the Put
Option shall be that date and time when the Put Notice of Election is
actually received by the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of
immediately available funds to the bank account set forth on the Put Notice
of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election
shall be in writing, shall be sent to the Holder at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all
of the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and
time when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
2
<PAGE>
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab
initio and Closing shall be held pursuant to the Put Option.
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock
of the Company shall be changed into or exchanged for a different number or
kind of shares of capital stock of the Company or shall be changed into or
exchanged for a different number or kind of shares of capital stock or
other securities of the Company or of another company (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, or
otherwise), then there shall be substituted for each remaining Share not
acquired by exercise of either the Put Option or the Call Option prior to
the record date for such merger, consolidation, recapitalization,
reclassification, split-up, or otherwise, the number and kind of shares of
capital stock or other securities into which each outstanding share of
Class A Common Stock of the Company shall be so changed or for which each
such share of capital stock shall be so exchanged. In the event that there
shall be any such change or exchange, then (i) Holder shall be entitled to
sell to the Company pursuant to the Put Option all of such capital stock
and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would
have been required to be paid for such Share assuming there had been no
such change or exchange, and otherwise in accordance with the terms of this
Agreement; and (ii) the Company shall be entitled to purchase from the
Holder pursuant to the Call Option all of such capital stock and other
securities into which each Share shall have been changed or for which it
shall have been exchanged for the Call Option Price which would have been
required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into
a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and
the Call Option Price shall be proportionately decreased or increased, as
the case may be, and the number of remaining Shares (those not acquired by
exercise of either the Put or Call Option prior to the record date of such
stock dividend, stock split, or combination of shares) subject to the Put
or Call Option shall be proportionately increased or decreased as the case
may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or
combination.
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; by way of stock options, stock warrants, subscription rights; or
otherwise.
3
<PAGE>
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the
Put Notice of Election or Call Notice of Election shall not be less than
fourteen (14) nor more than sixty (60) days after the date of such Put
Notice of Election or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the
Company, or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to
the Put Notice of Election or Call Notice of Election and Holder shall
deliver to the Company all of the Shares (or other securities) being
purchased duly endorsed for transfer or with an executed stock power
attached, in either such case with signature guaranteed by a member of the
Stock Transfer Agents' Medallion Program.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege
with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver
shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
4
<PAGE>
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such
jurisdiction to the contrary, and without the aid of any canon, custom or
rule of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(ii) If to Company:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
B-200
Phoenix, AZ 85014
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except
that neither party may assign or transfer its rights nor delegate its
obligations under this Agreement without the prior written consent of the
other party hereto.
5
<PAGE>
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they
form no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or Holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or Holiday. For purposes of
this subparagraph (i), the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks with branches in the
Commonwealth of Pennsylvania are or may elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall
be and be deemed to be references to lawful currency of the United States
of America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ------------------------------- -----------------------------
Secretary Name:
[Corporate Seal] Title:
CORRELLUS INTERNATIONAL, LTD.
- ------------------------------- -----------------------------
[Corporate Seal] (if applicable) Name:
Title:
Shares of Class A Common Stock of the Company 50,940
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated __________ __, 1999. Pursuant
to the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ___________________________
Branch (if applicable): ___________________
Bank Location: _________________________
Bank Routing Number: __________________
For Credit to Account No. ________________
Name of Account: _______________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
--------------------------- ----------------------------------
Name:
Address:
Number of Shares:
-----------------------------
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated ___________ __,
1999. Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m.
local time, on __________ ___, 2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
--------------------------- -----------------------------------
Name:
Title:
<PAGE>
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this _____ day of July, 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Sui Wa Chau ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.50 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to
require Company to purchase any or all of the Shares on the terms and
subject to the conditions hereinafter set forth in this Agreement (the "Put
Option").
(b) Holder hereby grants to Company the right and option to purchase
all or any of the Shares held by Holder, on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised,
shall be Three Dollars and Fifty Cents ($3.50) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
<PAGE>
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of
election (the "Put Notice of Election") to the Company in the form attached
hereto and incorporated herein by reference. The Put Notice of Election
shall be in writing, shall be sent to the Company at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between
12:01 a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000
(the "Effective Period"). The date and time of the exercise of the Put
Option shall be that date and time when the Put Notice of Election is
actually received by the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of
immediately available funds to the bank account set forth on the Put Notice
of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election
shall be in writing, shall be sent to the Holder at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all
of the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and
time when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
2
<PAGE>
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab
initio and Closing shall be held pursuant to the Put Option.
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock
of the Company shall be changed into or exchanged for a different number or
kind of shares of capital stock of the Company or shall be changed into or
exchanged for a different number or kind of shares of capital stock or
other securities of the Company or of another company (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, or
otherwise), then there shall be substituted for each remaining Share not
acquired by exercise of either the Put Option or the Call Option prior to
the record date for such merger, consolidation, recapitalization,
reclassification, split-up, or otherwise, the number and kind of shares of
capital stock or other securities into which each outstanding share of
Class A Common Stock of the Company shall be so changed or for which each
such share of capital stock shall be so exchanged. In the event that there
shall be any such change or exchange, then (i) Holder shall be entitled to
sell to the Company pursuant to the Put Option all of such capital stock
and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would
have been required to be paid for such Share assuming there had been no
such change or exchange, and otherwise in accordance with the terms of this
Agreement; and (ii) the Company shall be entitled to purchase from the
Holder pursuant to the Call Option all of such capital stock and other
securities into which each Share shall have been changed or for which it
shall have been exchanged for the Call Option Price which would have been
required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into
a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and
the Call Option Price shall be proportionately decreased or increased, as
the case may be, and the number of remaining Shares (those not acquired by
exercise of either the Put or Call Option prior to the record date of such
stock dividend, stock split, or combination of shares) subject to the Put
or Call Option shall be proportionately increased or decreased as the case
may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or
combination.
3
<PAGE>
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; by way of stock options, stock warrants, subscription rights; or
otherwise.
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the
Put Notice of Election or Call Notice of Election shall not be less than
fourteen (14) nor more than sixty (60) days after the date of such Put
Notice of Election or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the
Company, or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to
the Put Notice of Election or Call Notice of Election and Holder shall
deliver to the Company all of the Shares (or other securities) being
purchased duly endorsed for transfer or with an executed stock power
attached, in either such case with signature guaranteed by a member of the
Stock Transfer Agents' Medallion Program.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege
with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver
shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
4
<PAGE>
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such
jurisdiction to the contrary, and without the aid of any canon, custom or
rule of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(ii) If to Company:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
B-200
Phoenix, AZ 85014
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except
that neither party may assign or transfer its rights nor delegate its
obligations under this Agreement without the prior written consent of the
other party hereto.
5
<PAGE>
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they
form no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or Holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or Holiday. For purposes of
this subparagraph (i), the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks with branches in the
Commonwealth of Pennsylvania are or may elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall
be and be deemed to be references to lawful currency of the United States
of America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ------------------------------- -----------------------------
Secretary Name:
[Corporate Seal] Title:
HOLDER:
- ------------------------------- -----------------------------
[Corporate Seal] (if applicable) Sui Wa Chau
Shares of Class A Common Stock of the Company 8,109
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated __________ __, 1999. Pursuant
to the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ___________________________
Branch (if applicable): ___________________
Bank Location: _________________________
Bank Routing Number: __________________
For Credit to Account No. ________________
Name of Account: _______________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
--------------------------- ----------------------------------
Name:
Address:
Number of Shares:
-----------------------------
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated ___________ __,
1999. Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m.
local time, on __________ ___, 2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
--------------------------- -----------------------------------
Name:
Title:
<PAGE>
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this _____ day of July, 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Peter Che Nan Chen ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.50 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to
require Company to purchase any or all of the Shares on the terms and
subject to the conditions hereinafter set forth in this Agreement (the "Put
Option").
(b) Holder hereby grants to Company the right and option to purchase
all or any of the Shares held by Holder, on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised,
shall be Three Dollars and Fifty Cents ($3.50) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
<PAGE>
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of
election (the "Put Notice of Election") to the Company in the form attached
hereto and incorporated herein by reference. The Put Notice of Election
shall be in writing, shall be sent to the Company at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between
12:01 a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000
(the "Effective Period"). The date and time of the exercise of the Put
Option shall be that date and time when the Put Notice of Election is
actually received by the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of
immediately available funds to the bank account set forth on the Put Notice
of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election
shall be in writing, shall be sent to the Holder at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all
of the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and
time when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
2
<PAGE>
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab
initio and Closing shall be held pursuant to the Put Option.
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock
of the Company shall be changed into or exchanged for a different number or
kind of shares of capital stock of the Company or shall be changed into or
exchanged for a different number or kind of shares of capital stock or
other securities of the Company or of another company (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, or
otherwise), then there shall be substituted for each remaining Share not
acquired by exercise of either the Put Option or the Call Option prior to
the record date for such merger, consolidation, recapitalization,
reclassification, split-up, or otherwise, the number and kind of shares of
capital stock or other securities into which each outstanding share of
Class A Common Stock of the Company shall be so changed or for which each
such share of capital stock shall be so exchanged. In the event that there
shall be any such change or exchange, then (i) Holder shall be entitled to
sell to the Company pursuant to the Put Option all of such capital stock
and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would
have been required to be paid for such Share assuming there had been no
such change or exchange, and otherwise in accordance with the terms of this
Agreement; and (ii) the Company shall be entitled to purchase from the
Holder pursuant to the Call Option all of such capital stock and other
securities into which each Share shall have been changed or for which it
shall have been exchanged for the Call Option Price which would have been
required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into
a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and
the Call Option Price shall be proportionately decreased or increased, as
the case may be, and the number of remaining Shares (those not acquired by
exercise of either the Put or Call Option prior to the record date of such
stock dividend, stock split, or combination of shares) subject to the Put
or Call Option shall be proportionately increased or decreased as the case
may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or
combination.
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; by way of stock options, stock warrants, subscription rights; or
otherwise.
3
<PAGE>
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the
Put Notice of Election or Call Notice of Election shall not be less than
fourteen (14) nor more than sixty (60) days after the date of such Put
Notice of Election or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the
Company, or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to
the Put Notice of Election or Call Notice of Election and Holder shall
deliver to the Company all of the Shares (or other securities) being
purchased duly endorsed for transfer or with an executed stock power
attached, in either such case with signature guaranteed by a member of the
Stock Transfer Agents' Medallion Program.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege
with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver
shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
4
<PAGE>
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such
jurisdiction to the contrary, and without the aid of any canon, custom or
rule of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(ii) If to Company:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
B-200
Phoenix, AZ 85014
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except
that neither party may assign or transfer its rights nor delegate its
obligations under this Agreement without the prior written consent of the
other party hereto.
5
<PAGE>
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they
form no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or Holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or Holiday. For purposes of
this subparagraph (i), the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks with branches in the
Commonwealth of Pennsylvania are or may elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall
be and be deemed to be references to lawful currency of the United States
of America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ------------------------------- -----------------------------
Secretary Name:
[Corporate Seal] Title:
HOLDER:
- ------------------------------- -----------------------------
[Corporate Seal] (if applicable) Peter Che Nan Chen
Shares of Class A Common Stock of the Company 13,544
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated __________ __, 1999. Pursuant
to the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ___________________________
Branch (if applicable): ___________________
Bank Location: _________________________
Bank Routing Number: __________________
For Credit to Account No. ________________
Name of Account: _______________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
--------------------------- ----------------------------------
Name:
Address:
Number of Shares:
-----------------------------
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated ___________ __,
1999. Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m.
local time, on __________ ___, 2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
--------------------------- -----------------------------------
Name:
Title:
<PAGE>
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this _____ day of July, 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Keyway Holdings Co. ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.50 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to
require Company to purchase any or all of the Shares on the terms and
subject to the conditions hereinafter set forth in this Agreement (the "Put
Option").
(b) Holder hereby grants to Company the right and option to purchase
all or any of the Shares held by Holder, on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised,
shall be Three Dollars and Fifty Cents ($3.50) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
<PAGE>
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of
election (the "Put Notice of Election") to the Company in the form attached
hereto and incorporated herein by reference. The Put Notice of Election
shall be in writing, shall be sent to the Company at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between
12:01 a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000
(the "Effective Period"). The date and time of the exercise of the Put
Option shall be that date and time when the Put Notice of Election is
actually received by the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of
immediately available funds to the bank account set forth on the Put Notice
of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election
shall be in writing, shall be sent to the Holder at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all
of the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and
time when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
2
<PAGE>
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab
initio and Closing shall be held pursuant to the Put Option.
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock
of the Company shall be changed into or exchanged for a different number or
kind of shares of capital stock of the Company or shall be changed into or
exchanged for a different number or kind of shares of capital stock or
other securities of the Company or of another company (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, or
otherwise), then there shall be substituted for each remaining Share not
acquired by exercise of either the Put Option or the Call Option prior to
the record date for such merger, consolidation, recapitalization,
reclassification, split-up, or otherwise, the number and kind of shares of
capital stock or other securities into which each outstanding share of
Class A Common Stock of the Company shall be so changed or for which each
such share of capital stock shall be so exchanged. In the event that there
shall be any such change or exchange, then (i) Holder shall be entitled to
sell to the Company pursuant to the Put Option all of such capital stock
and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would
have been required to be paid for such Share assuming there had been no
such change or exchange, and otherwise in accordance with the terms of this
Agreement; and (ii) the Company shall be entitled to purchase from the
Holder pursuant to the Call Option all of such capital stock and other
securities into which each Share shall have been changed or for which it
shall have been exchanged for the Call Option Price which would have been
required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into
a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and
the Call Option Price shall be proportionately decreased or increased, as
the case may be, and the number of remaining Shares (those not acquired by
exercise of either the Put or Call Option prior to the record date of such
stock dividend, stock split, or combination of shares) subject to the Put
or Call Option shall be proportionately increased or decreased as the case
may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or
combination.
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; by way of stock options, stock warrants, subscription rights; or
otherwise.
3
<PAGE>
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the
Put Notice of Election or Call Notice of Election shall not be less than
fourteen (14) nor more than sixty (60) days after the date of such Put
Notice of Election or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the
Company, or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to
the Put Notice of Election or Call Notice of Election and Holder shall
deliver to the Company all of the Shares (or other securities) being
purchased duly endorsed for transfer or with an executed stock power
attached, in either such case with signature guaranteed by a member of the
Stock Transfer Agents' Medallion Program.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege
with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver
shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
4
<PAGE>
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such
jurisdiction to the contrary, and without the aid of any canon, custom or
rule of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(ii) If to Company:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
B-200
Phoenix, AZ 85014
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except
that neither party may assign or transfer its rights nor delegate its
obligations under this Agreement without the prior written consent of the
other party hereto.
5
<PAGE>
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they
form no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or Holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or Holiday. For purposes of
this subparagraph (i), the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks with branches in the
Commonwealth of Pennsylvania are or may elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall
be and be deemed to be references to lawful currency of the United States
of America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ------------------------------- -----------------------------
Secretary Name:
[Corporate Seal] Title:
KEYWAY HOLDINGS CO.
- ------------------------------- -----------------------------
[Corporate Seal] (if applicable) Name:
Title:
Shares of Class A Common Stock of the Company 13,374
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated __________ __, 1999. Pursuant
to the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ___________________________
Branch (if applicable): ___________________
Bank Location: _________________________
Bank Routing Number: __________________
For Credit to Account No. ________________
Name of Account: _______________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
--------------------------- ----------------------------------
Name:
Address:
Number of Shares:
-----------------------------
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated ___________ __,
1999. Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m.
local time, on __________ ___, 2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
--------------------------- -----------------------------------
Name:
Title:
<PAGE>
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this _____ day of July, 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Lufeng Investments, Ltd. ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.50 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to
require Company to purchase any or all of the Shares on the terms and
subject to the conditions hereinafter set forth in this Agreement (the "Put
Option").
(b) Holder hereby grants to Company the right and option to purchase
all or any of the Shares held by Holder, on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised,
shall be Three Dollars and Fifty Cents ($3.50) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
<PAGE>
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of
election (the "Put Notice of Election") to the Company in the form attached
hereto and incorporated herein by reference. The Put Notice of Election
shall be in writing, shall be sent to the Company at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between
12:01 a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000
(the "Effective Period"). The date and time of the exercise of the Put
Option shall be that date and time when the Put Notice of Election is
actually received by the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of
immediately available funds to the bank account set forth on the Put Notice
of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election
shall be in writing, shall be sent to the Holder at the address and in the
manner set forth in subparagraph 10(c) hereof (or to such other address as
shall then be applicable if such address has been changed in the manner set
forth in such subparagraph), and shall contain the information about the
Closing set forth in subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all
of the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and
time when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
2
<PAGE>
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab
initio and Closing shall be held pursuant to the Put Option.
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock
of the Company shall be changed into or exchanged for a different number or
kind of shares of capital stock of the Company or shall be changed into or
exchanged for a different number or kind of shares of capital stock or
other securities of the Company or of another company (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, or
otherwise), then there shall be substituted for each remaining Share not
acquired by exercise of either the Put Option or the Call Option prior to
the record date for such merger, consolidation, recapitalization,
reclassification, split-up, or otherwise, the number and kind of shares of
capital stock or other securities into which each outstanding share of
Class A Common Stock of the Company shall be so changed or for which each
such share of capital stock shall be so exchanged. In the event that there
shall be any such change or exchange, then (i) Holder shall be entitled to
sell to the Company pursuant to the Put Option all of such capital stock
and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would
have been required to be paid for such Share assuming there had been no
such change or exchange, and otherwise in accordance with the terms of this
Agreement; and (ii) the Company shall be entitled to purchase from the
Holder pursuant to the Call Option all of such capital stock and other
securities into which each Share shall have been changed or for which it
shall have been exchanged for the Call Option Price which would have been
required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into
a greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and
the Call Option Price shall be proportionately decreased or increased, as
the case may be, and the number of remaining Shares (those not acquired by
exercise of either the Put or Call Option prior to the record date of such
stock dividend, stock split, or combination of shares) subject to the Put
or Call Option shall be proportionately increased or decreased as the case
may be, so as appropriately to reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or
combination.
(c) No such adjustment shall be made, however, by reason of the
issuance of shares of common stock of the Company for cash, property, or
services; by way of stock options, stock warrants, subscription rights; or
otherwise.
3
<PAGE>
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the
Put Notice of Election or Call Notice of Election shall not be less than
fourteen (14) nor more than sixty (60) days after the date of such Put
Notice of Election or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the
Company, or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to
the Put Notice of Election or Call Notice of Election and Holder shall
deliver to the Company all of the Shares (or other securities) being
purchased duly endorsed for transfer or with an executed stock power
attached, in either such case with signature guaranteed by a member of the
Stock Transfer Agents' Medallion Program.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege
with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver
shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
4
<PAGE>
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such
jurisdiction to the contrary, and without the aid of any canon, custom or
rule of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered
or when deposited in the United States mails, registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
c/o Sovereign Capital Advisors, LLC
Tower Place - Suite 1965
3340 Peachtree Road, NE
Atlanta, GA 30328
(ii) If to Company:
Interactive Flight Technologies, Inc.
4041 North Central Avenue
B-200
Phoenix, AZ 85014
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except
that neither party may assign or transfer its rights nor delegate its
obligations under this Agreement without the prior written consent of the
other party hereto.
5
<PAGE>
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they
form no part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or Holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or Holiday. For purposes of
this subparagraph (i), the term "Holiday" shall mean a day, other than a
Saturday or Sunday, on which national banks with branches in the
Commonwealth of Pennsylvania are or may elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall
be and be deemed to be references to lawful currency of the United States
of America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ------------------------------- -----------------------------
Secretary Name:
[Corporate Seal] Title:
LUFENG INVESTMENTS, LTD.
- ------------------------------- -----------------------------
[Corporate Seal] (if applicable) Name:
Title:
Shares of Class A Common Stock of the Company 9,010
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated __________ __, 1999. Pursuant
to the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ___________________________
Branch (if applicable): ___________________
Bank Location: _________________________
Bank Routing Number: __________________
For Credit to Account No. ________________
Name of Account: _______________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
--------------------------- ----------------------------------
Name:
Address:
Number of Shares:
-----------------------------
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated ___________ __,
1999. Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m.
local time, on __________ ___, 2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
--------------------------- -----------------------------------
Name:
Title:
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made this 9th day of August, 1999,
between XCEL CAPITAL, LLC a Georgia limited liability company, ("XCEL"), ELAINE
MARTIN, an individual ("Martin"), and INTERACTIVE FLIGHT TECHNOLOGIES, INC., a
Delaware corporation ("IFT").
W I T N E S S E T H:
WHEREAS, XCEL and Martin are, respectively, the holders of notes dated
October 20, 1998 and October 21, 1998 issued by The Network Connection, Inc., a
Georgia corporation with principal executive offices at 1324 Union Hill Road,
Alpharetta, Georgia 30201 ("TNC") having an aggregate face value of $350,000
(the "Series D Notes"), and which have aggregate accrued interest, redemption
premiums, and other amounts due thereon totaling $127,750 (the "Redemption
Premium");
WHEREAS, TNC as lessor and XCEL Investments, LLC as lessee are parties to
that certain Lease Agreement and Leased Product Agreement, each dated November
4, 1997 (collectively, the "Equipment Lease");
WHEREAS, TNC as Payee and XCEL Investments, LLC, as Obligor are parties to
that certain note dated September 4, 1997 in the original face amount of One
Hundred Thousand Dollars ($100,000) (the "XCEL Note");
WHEREAS, there is approximately Twenty-One Thousand Dollars ($21,000) of
accrued interest due on the XCEL Note; and
WHEREAS, IFT has agreed to purchase the Series D Notes in exchange for a
total of 105,000 shares of the Class A Common Stock of IFT, par value $.01 per
share (the "Common Stock") and the assignment to XCEL without recourse of the
Equipment Lease and the endorsement to XCEL without recourse of the XCEL Note.
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF SERIES D NOTES
A. Transaction. XCEL and Martin hereby severally agree to sell to IFT, and
IFT agrees to purchase from XCEL and Martin, the Series D Notes (including all
principal and the Redemption Premium, having an aggregate balance due of
$477,750), in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
in accordance with the information set forth on Schedule A hereto.
<PAGE>
B. Purchase Price; Form of Payment. The consideration for the Series D
Notes to be purchased by IFT shall be 105,000 shares of Common Stock payable to
XCEL and Martin as set forth on Schedule A attached hereto, and the assignment
to XCEL without recourse of the Equipment Lease and the endorsement to XCEL
without recourse of the XCEL Note.
II. XCEL AND MARTIN'S REPRESENTATIONS AND WARRANTIES
XCEL and Martin severally represent and warrant to IFT as follows:
A. XCEL and Martin are each acquiring the Common Stock for their own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
B. XCEL and Martin are each (i) experienced in making investments of the
kind contemplated by this Agreement, (ii) capable, by reason of their respective
business and financial experience, of evaluating the relative merits and risks
of an investment in the Common Stock, and (iii) able to afford the loss of their
investment in the Common Stock.
C. XCEL and Martin each understand that the Common Stock is being offered
and sold by IFT in reliance on an exemption from the registration requirements
of the Securities Act and equivalent state securities and "blue sky" laws, and
that IFT is relying upon the accuracy of, and XCEL and Martin's compliance with,
XCEL and Martin's respective representations, warranties and covenants set forth
in this Agreement to determine the availability of such exemption and the
eligibility of XCEL and Martin to purchase the Common Stock.
D. XCEL and Martin have each been furnished with or provided access to all
materials relating to the business, financial position and results of operations
of IFT and TNC, and all other materials requested by XCEL and Martin to enable
them to each make an informed investment decision with respect to the Common
Stock and the Series D Notes.
E. XCEL and Martin acknowledge that they have each been furnished with
copies of IFT's Annual Report on Form 10-KSB for the fiscal year ended October
31, 1998, IFT's Quarterly Report on Form 10-QSB for the fiscal quarters ended
January 31, 1999 and April 30, 1999, IFT's Schedule 13D dated May 11, 1999; and
all other reports and documents heretofore filed by IFT with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), since April
30, 1999 (collectively the "Commission Filings"). XCEL and Martin also
acknowledge that they have each been furnished with copies of TNC's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998; TNC's
Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 1999; and
all other reports and documents heretofore filed by TNC with the Commission
pursuant to the Securities Act and the Exchange Act, since December 31, 1998.
F. XCEL and Martin each acknowledge that in making their decision to
acquire the Common Stock they have each been given an opportunity to ask
questions of and to receive
2
<PAGE>
answers from IFT's and TNC's respective executive officers, directors and
management personnel concerning the business and affairs of IFT and TNC,
respectively.
G. XCEL and Martin each understand that the Common Stock has not been
approved or disapproved by the Commission or any state securities commission and
that the foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Common Stock and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by XCEL and Martin and is a valid and binding agreement of both XCEL
and Martin enforceable against each of them in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally.
I. Neither XCEL nor Martin nor their affiliates nor any person acting on
the behalf of XCEL or Martin have the intention of entering, or will enter into,
prior to the closing, any put option, short position or other similar instrument
or position with respect to the Common Stock and neither XCEL nor Martin nor any
of their affiliates nor any person acting on the behalf of XCEL or Martin will
use at any time shares of Common Stock acquired pursuant to this Agreement to
settle any put option, short position or other similar instrument or position
that may have been entered into prior to the execution of this Agreement.
J. XCEL owns the Series D Notes acquired from Sara Ann and Robert E.
Benninger, Jr. and from Will D. Brantley on April 13, 1999 and April 23, 1999,
respectively, for value and in good faith. XCEL and Martin have good,
marketable, and unencumbered title to their respective Series D Notes, free and
clear of all liens, security interests, pledges, claims, options, and rights of
others. There are no restriction on XCEL and Martin's right to transfer the
Series D Notes to IFT pursuant to the terms of this Agreement. None of the
Series D Notes have been modified or amended. The Series D Notes are binding
obligations of TNC, in full force and effect, and enforceable in accordance with
their terms and the amounts set forth in Schedule A are a true, complete, and
accurate statement of the amounts due under the Series D Notes as of the date
hereof.
K. XCEL is a Limited Liability Company duly organized, validly existing and
in good standing under the laws of the State of Georgia with its principal place
of business at 5500 Interstate North Parkway, Suite 515, Atlanta, GA 30328.
Martin resides at 2274 E. Yunsoo Big Canoe, Jasper, GA 30143. XCEL and Martin
each have the power to acquire the Common Stock pursuant to the terms hereof.
XCEL was not organized for the purpose of acquiring the Common Stock.
L. XCEL understands and acknowledges that by virtue of the non-recourse
assignment of the Equipment Lease and the non-recourse endorsement of the XCEL
Note, respectively, and further by virtue of the General Release contemplated to
be delivered at Closing pursuant to Section VII. C, XCEL shall have no recourse
against IFT or TNC in connection with either such instrument.
3
<PAGE>
III. IFT'S REPRESENTATIONS AND WARRANTIES
IFT represents and warrants to and covenants and agrees with XCEL and
Martin as follows:
A. Capitalization. The authorized capital stock of IFT consists of
40,000,000 shares of Common Stock, of which 5,744,699 shares are outstanding on
the date hereof and 5,000,000 shares of Preferred Stock, of which 3,000 Series A
Preferred Shares are outstanding on the date hereof. All of the issued and
outstanding shares of Common Stock and Preferred Stock have been duly authorized
and validly issued and are fully paid and non-assessable. The Common Stock has
been duly and validly authorized, and when issued by IFT, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
B. Organization; Reporting IFT Status. IFT is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of IFT or on the consummation of any of the transactions contemplated
by this Agreement (a "Material Adverse Effect").
C. Authority; Validity and Enforceability. IFT has the requisite corporate
power and authority to enter into this Agreement and the Registration Rights
Agreement to be dated and delivered at Closing as referred to in Section VIII. F
(collectively, the "Transaction Documents"), and to perform all of its
obligations hereunder and thereunder (including the issuance, sale and delivery
to XCEL and Martin of the Common Stock). The execution, delivery and performance
by IFT of the Transaction Documents, and the consummation by IFT of the
transactions contemplated hereby and thereby, has been duly authorized by all
necessary corporate action on the part of IFT. Each Transaction Document
constitutes a valid and binding obligation of IFT enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Common Stock has been duly and
validly authorized for issuance by IFT and, when executed and delivered by IFT,
will be valid and binding obligations of IFT enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally.
D. Non-contravention. The execution and delivery by IFT of the Transaction
Documents, the issuance of the Common Stock, and the consummation by IFT of the
other transactions contemplated hereby and thereby, do not and will not conflict
with or result in a breach by IFT of any of the terms or provisions of, or
constitute a default (or an event which, with notice, passage of time or both,
would constitute a default) under (i) the Certificate of Incorporation or
By-laws of IFT or (ii) except for such conflict, breach or default which would
not have a Material Adverse Effect, any indenture, mortgage, deed of trust or
other material agreement or instrument to which IFT is a party or by which its
properties or assets are bound, or
4
<PAGE>
any law, rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over IFT or any of IFT's properties
or assets.
E. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by IFT for the issuance of
the Common Stock to XCEL and Martin as contemplated by this Agreement, except
such authorizations, approvals and consents that have been obtained by IFT prior
to the date hereof.
F. Commission Filings. None of the Commission Filings contained at the time
they were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
G. Absence of Certain Changes. Except as disclosed in the Commission
Filings, since October 31, 1998, there has not occurred any change, event or
development in the business, financial condition, or results of operations of
IFT constituting, and there has not existed any condition having or reasonably
likely to have, a Material Adverse Effect.
H. Securities Law Matters. Based in part on the representations and
warranties of XCEL and Martin set forth in Article II hereof, the offer and
issuance by IFT of the Common Stock pursuant to the terms of this Agreement is
exempt from (i) the registration and prospectus delivery requirements of the
Securities Act and the rules and regulations of the Commission thereunder and
(ii) the registration and/or qualification provisions of all applicable United
States state securities and "blue sky" laws. IFT shall not directly or
indirectly take, and shall not permit any of its directors, officers or
Affiliates directly or indirectly to take, any action, so as to make unavailable
the exemption from the Securities Act registration being relied upon by IFT for
the issuance to XCEL and Martin of the Common Stock as contemplated by this
Agreement. No form of general solicitation or advertising has been used or
authorized by IFT or any of its officers, directors or Affiliates in connection
with the offer or sale of the Common Stock as contemplated by this Agreement or
any other agreement to which IFT is a party.
I. Adequacy of Consideration. The Board of Directors of IFT has determined
that the consideration to be received for the Common Stock to be issued pursuant
to the terms of this Agreement is adequate in accordance with Section 153 of the
Delaware General Corporation Law.
IV. COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. XCEL and Martin acknowledge and agree that, upon
issuance pursuant to this Agreement, the Common Stock shall have endorsed
thereon legends in substantially the following forms:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION
5
<PAGE>
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13)
OF CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT
UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
B. Filings. IFT shall make all necessary SEC and "blue sky" filings
required to be made by IFT in connection with the issuance of the Common Stock
to XCEL and Martin as required by all applicable laws, and shall provide a copy
thereof to XCEL and Martin promptly after such filing.
VI. CLOSING.
The date and time of the closing pursuant to this Agreement (the "Closing
Date") shall be August 12, 1999 at 11:00 a.m. local time or such other time as
shall be mutually agreed upon in writing at the offices of Mesirov Gelman Jaffe
Cramer & Jamieson, LLP, 1735 Market Street, Philadelphia, PA 19103.
VII. CONDITIONS TO IFT'S OBLIGATIONS.
IFT's obligation to close hereunder is conditioned upon the following, any
of which may be waived by IFT:
A. The accuracy in all material respects on the Closing Date of the
representations and warranties of XCEL and Martin contained in this Agreement as
if made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by XCEL and Martin in all material respects on or before the Closing Date of
their respective covenants and agreements of XCEL and Martin required to be
performed by each of them pursuant to this Agreement on or before the Closing
Date;
B. The absence of any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement;
C. IFT's receipt of (1) a duly executed Irrevocable Proxy from each of XCEL
and Martin in form and substance satisfactory to IFT; (2) a duly executed
Allonge to Secured Promissory Note from TNC in form and substance satisfactory
to IFT; (3) a duly executed Registration Rights Agreement in form and substance
satisfactory to IFT; (4) Series D Notes duly endorsed to the order of IFT; (5) a
duly executed General Release in form and substance
6
<PAGE>
satisfactory to IFT from each of XCEL and Martin in form and substance
satisfactory to IFT; (6) a duly executed Put and Call Agreement with each of
XCEL and Martin in form and substance satisfactory to IFT; and (7) a Mutual
Release between TNC and First Atlanta Financial Group, LLC in form and substance
satisfactory to IFT.
VIII. CONDITIONS TO XCEL and Martin'S OBLIGATIONS.
XCEL and Martin's obligation to close hereunder is conditioned upon the
following, any of which may be waived by XCEL and Martin severally:
A. The receipt by XCEL and Martin, respectively, of one or more
certificates (registered in its or her name, respectively) evidencing the Common
Stock to be acquired by XCEL and Martin, respectively, pursuant to this
Agreement, as set forth on Schedule A attached hereto.
B. The accuracy in all material respects on the Closing Date of the
representations and warranties made by IFT in this Agreement as if made on the
Closing Date (except for representations and warranties which, by their express
terms, speak as of and relate to a specified date, in which case such accuracy
shall be measured as of such specified date) and the performance by IFT in all
material respects on or before the Closing Date of all covenants and agreements
of IFT required to be performed by it pursuant to this Agreement on or before
the Closing Date.
C. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock of IFT on NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, or (iii) in the case of the foregoing existing at
the date of this Agreement, a material acceleration or worsening thereof.
D. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and forseeably would have a
Material Adverse Effect.
E. The absence of any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement.
F. XCEL's and Martin's receipt of (1) a duly executed Registration Rights
Agreement in form and substance satisfactory to them and (2) a duly executed Put
and Call Agreement in form and substance satisfactory to them.
G. XCEL's receipt of an Assignment of the Equipment Lease without recourse
and the XCEL Note duly endorsed to the order of XCEL without recourse and a
Mutual Release between TNC and First Atlanta Financial Group, LLC in form and
substance satisfactory to XCEL.
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<PAGE>
IX. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of IFT, XCEL
and Martin in this Agreement, and any annexes, schedules and exhibits hereto and
in each instrument, agreement and certificate entered into and delivered by
either of them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby for a period of one year.
In the event of a breach or violation of any of such representations, warranties
or covenants, the party to whom such representations, warranties or covenants
have been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement or otherwise, whether at
law or in equity, irrespective of any investigation made by or on behalf of such
party on or prior to the Closing Date.
B. IFT hereby agrees to indemnify and hold harmless XCEL, Martin, their
respective affiliates and their respective officers, directors, partners and
members (collectively, the "XCEL Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse XCEL Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by XCEL Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of IFT's
representations or warranties contained in this Agreement, the exhibits hereto
or any instrument, agreement or certificate entered into or delivered by IFT
pursuant to this Agreement; or
2. any failure by IFT to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement,
the exhibits hereto or any instrument, agreement or certificate entered into or
delivered by IFT pursuant to this Agreement.
C. XCEL and Martin hereby agree severally to indemnify and hold harmless
IFT, its Affiliates and their respective officers, directors, partners and
members (collectively, the "IFT Indemnitees"), from and against any and all
Losses, and agrees to reimburse IFT Indemnitees for all out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by IFT Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any of XCEL or
Martin's representations or warranties contained in this Agreement, the exhibits
hereto or any instrument, agreement or certificate entered into or delivered by
XCEL and Martin pursuant to this Agreement; or
2. any failure by XCEL or Martin to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or delivered
by XCEL or Martin pursuant to this Agreement.
8
<PAGE>
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section IX (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section IX is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate (i) due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
(ii) if there may be legal defenses available to the Indemnified Party that are
in addition to or disparate from those available to the Indemnifying Party and
which can not be presented by counsel to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
9
<PAGE>
X. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of
Philadelphia or the state courts of Commonwealth of Pennsylvania sitting in the
City of Philadelphia in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement have been inserted for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
XI. NOTICES. Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, by facsimile
with confirmation back if followed promptly by first class mail, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
(1) if to XCEL:
5500 Interstate North Parkway
Suite 515
Atlanta, GA 30328
(2) if to Elaine Martin:
2274 E. Yunsoo
Big Canoe
Jasper, GA 30143
(3) if to IFT:
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<PAGE>
Interactive Flight Technologies, Inc.
222 N. 44th Street
Phoenix, AZ 85034
Attention: Irvin L. Gross
with a copy to:
Mesirov Gelman Jaffe Cramer Jamieson, LLP
1735 Market Street
Suite 3800
Philadelphia, PA 19103-7598
Attn: Steven B. King, Esquire
IFT, Martin or XCEL may change their respective foregoing address for notices by
notice given pursuant to this Article XI.
XII. CONFIDENTIALITY. Each of IFT, XCEL and Martin agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
------------------------------
Name:
Title:
XCEL CAPITAL, LLC
By:
------------------------------
Name:
Title:
(SEAL)
------------------------------
Elaine Martin
11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Shares of Class A Face Amount of Redemption
Common Stock of Series D Notes Premium to
Holder IFT to be Received Held August 12, 1999 Total Due
------ ------------------ -------------- --------------- ---------
<S> <C> <C> <C> <C>
XCEL Capital, LLC 75,000 $250,000 $ 91,250 $341,250
Elaine Martin 30,000 $100,000 $ 36,500 $136,500
------ -------- ------- --------
Totals 105,000 $350,000 $127,750 $477,750
- ------ ------- -------- -------- --------
</TABLE>
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT is made this 9th day of August, 1999,
between ROBERT E. BENNINGER, JR. and SARA ANNE BENNINGER, husband and wife
(collectively, the "Seller"), and INTERACTIVE FLIGHT TECHNOLOGIES, INC., a
Delaware corporation ("IFT").
W I T N E S S E T H:
WHEREAS, Seller is the holder of a Warrant dated October 20, 1998, to
purchase 20,000 shares of the Common Stock of The Network Connection, Inc., a
Georgia corporation, with principal executive offices at 1324 Union Hill Road,
Alpharetta, Georgia 30201 ("TNC") (the "Warrant");
WHEREAS, IFT has agreed to purchase the Warrant in exchange for 2,857
shares of the Class A Common Stock of IFT, par value $.01 per share (the "Common
Stock"), to be paid to Seller.
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF WARRANT
A. Transaction. Seller hereby agrees to sell to IFT, and IFT agrees to
purchase from the Seller, the Warrant, in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Securities Act").
B. Purchase Price; Form of Payment. The consideration for the Warrant to be
purchased by IFT shall be 2,857 shares of Common Stock payable to the Seller as
set forth on Schedule A attached hereto.
II. SELLER'S REPRESENTATIONS AND WARRANTIES
The Seller represents and warrants to IFT as follows:
A. The Seller is acquiring the Common Stock for Seller's own account, for
investment purposes only and not with a view towards or in connection with the
public sale or distribution thereof in violation of the Securities Act.
B. The Seller is (i) experienced in making investments of the kind
contemplated by this Agreement, (ii) capable, by reason of Seller's business and
financial experience, of evaluating the relative merits and risks of an
investment in the Common Stock, and (iii) able to afford the loss of Seller's
investment in the Common Stock.
<PAGE>
C. The Seller understands that the Common Stock is being offered and sold
by IFT in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that IFT
is relying upon the accuracy of, and Seller's compliance with, the Seller's
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of the Seller
to purchase the Common Stock.
D. The Seller has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of IFT
and TNC, and all other materials requested by the Seller to enable Seller to
make an informed investment decision with respect to the Common Stock and the
Warrant.
E. The Seller acknowledges that Seller has been furnished with copies of
IFT's Annual Report on Form 10-KSB for the fiscal year ended October 31, 1998,
IFT's Quarterly Report on Form 10-QSB for the fiscal quarters ended January 31,
1999 and April 30, 1999, IFT's Schedule 13D dated May 11, 1999; and all other
reports and documents heretofore filed by IFT with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since April 30, 1999
(collectively the "Commission Filings"). The Seller also acknowledges that
Seller has been furnished with copies of TNC's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998; TNC's Quarterly Report on Form 10-QSB
for the fiscal quarter ended March 31, 1999; and all other reports and documents
heretofore filed by TNC with the Commission pursuant to the Securities Act and
the Exchange Act, since December 31, 1998.
F. The Seller acknowledges that in making his decision to acquire the
Common Stock, he has been given an opportunity to ask questions of and to
receive answers from IFT's and TNC's respective executive officers, directors
and management personnel concerning the business and affairs of IFT and TNC,
respectively.
G. The Seller understands that the Common Stock has not been approved or
disapproved by the Commission or any state securities commission and that the
foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Common Stock and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by the Seller and is a valid and binding agreement of the Seller
enforceable against the Seller in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally.
I. Neither the Seller nor any person acting on the behalf of the Seller has
the intention of entering, or will enter into, prior to the closing, any put
option, short position or other similar instrument or position with respect to
the Common Stock and neither the Seller nor any person acting on the behalf of
the Seller will use at any time shares of Common Stock acquired pursuant to this
Agreement to settle any put option, short position or other similar instrument
or position that may have been entered into prior to the execution of this
Agreement.
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J. The Seller has good, marketable, and unencumbered title to Seller's
Warrant, free and clear of all liens, security interests, pledges, claims,
options, and rights of others. There is no restriction on the Seller's right to
transfer the Warrant to IFT pursuant to the terms of this Agreement. The Warrant
has not been modified or amended. The Warrant is a binding obligation of TNC, in
full force and effect, and is enforceable in accordance with its terms. The
Warrant has not been exercised in whole or in part.
K. Seller resides at 375 Champions View Drive, Alpharetta, GA 30004, and
has the power to acquire the Common Stock pursuant to the terms hereof.
III. IFT'S REPRESENTATIONS AND WARRANTIES
IFT represents and warrants to and covenants and agrees with the Seller as
follows:
A. Capitalization. The authorized capital stock of IFT consists of
40,000,000 shares of Common Stock, of which 5,744,699 shares are outstanding on
the date hereof and 5,000,000 shares of Preferred Stock, of which 3,000 Series A
Preferred Shares are outstanding on the date hereof. All of the issued and
outstanding shares of Common Stock and Preferred Stock have been duly authorized
and validly issued and are fully paid and non-assessable. The Common Stock has
been duly and validly authorized, and when issued by IFT, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
B. Organization; Reporting IFT Status. IFT is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of IFT or on the consummation of any of the transactions contemplated
by this Agreement (a "Material Adverse Effect").
C. Authority; Validity and Enforceability. IFT has the requisite corporate
power and authority to enter into this Agreement and to perform all of its
obligations. The execution, delivery and performance by IFT of this Agreement,
and the consummation by IFT of the transactions contemplated hereby has been
duly authorized by all necessary corporate action on the part of IFT. This
Agreement constitutes a valid and binding obligation of IFT enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Common Stock has been duly and
validly authorized for issuance by IFT and, when executed and delivered by IFT,
will be valid and binding obligations of IFT enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally.
D. Non-contravention. The execution and delivery by IFT of the this
Agreement, the issuance of the Common Stock, and the consummation by IFT of the
other
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transactions contemplated hereby and thereby, do not and will not conflict with
or result in a breach by IFT of any of the terms or provisions of, or constitute
a default (or an event which, with notice, passage of time or both, would
constitute a default) under (i) the Certificate of Incorporation or By-laws of
IFT or (ii) except for such conflict, breach or default which would not have a
Material Adverse Effect, any indenture, mortgage, deed of trust or other
material agreement or instrument to which IFT is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over IFT or any of IFT's properties or assets.
E. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by IFT for the issuance of
the Common Stock to the Sellers as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained by IFT prior to
the date hereof.
F. Commission Filings. None of the Commission Filings contained at the time
they were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
G. Absence of Certain Changes. Except as disclosed in the Commission
Filings, since October 31, 1998, there has not occurred any change, event or
development in the business, financial condition, or results of operations of
IFT constituting, and there has not existed any condition having or reasonably
likely to have, a Material Adverse Effect.
H. Securities Law Matters. Based in part on the representations and
warranties of The Sellers set forth in Article II hereof, the offer and issuance
by IFT of the Common Stock pursuant to the terms of this Agreement is exempt
from (i) the registration and prospectus delivery requirements of the Securities
Act and the rules and regulations of the Commission thereunder and (ii) the
registration and/or qualification provisions of all applicable United States
state securities and "blue sky" laws. IFT shall not directly or indirectly take,
and shall not permit any of its directors, officers or Affiliates directly or
indirectly to take, any action, so as to make unavailable the exemption from the
Securities Act registration being relied upon by IFT for the issuance to Seller
of the Common Stock as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by IFT or any of its
officers, directors or Affiliates in connection with the offer or sale of the
Common Stock as contemplated by this Agreement or any other agreement to which
IFT is a party.
I. Adequacy of Consideration. The Board of Directors of IFT has determined
that the consideration to be received for the Common Stock to be issued pursuant
to the terms of this Agreement is adequate in accordance with Section 153 of the
Delaware General Corporation Law.
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IV. COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. The Seller acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Common Stock shall have endorsed
thereon a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13)
OF CODE SECTION 10-5-9 OF THE `GEORGIA SECURITIES ACT OF 1973,' AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT
UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
B. Filings. IFT shall make all necessary SEC and "blue sky" filings
required to be made by IFT in connection with the issuance of the Common Stock
to the Seller as required by all applicable laws, and shall provide a copy
thereof to the Seller promptly after such filing.
VI. CLOSING.
The date and time of the closing pursuant to this Agreement (the "Closing
Date") shall be August 12, 1999, at 11:00 a.m. local time or such other time as
shall be mutually agreed upon in writing at the offices of Mesirov Gelman Jaffe
Cramer & Jamieson, LLP, 1735 Market Street, Philadelphia, PA 19103.
VII. CONDITIONS TO IFT'S OBLIGATIONS.
IFT's obligation to close hereunder is conditioned upon the following, any
of which may be waived by IFT:
A. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Seller contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Seller in all material respects on or before the Closing Date of the
covenants and agreements of the Seller required to be performed by Seller
pursuant to this Agreement on or before the Closing Date.
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B. The absence of any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement;
C. IFT's receipt of (1) a duly executed Assignment of Warrant to IFT in
form and substance satisfactory to IFT, (2) a General Release in form and
substance satisfactory to IFT, and (3) the original Warrant.
VIII. CONDITIONS TO SELLER'S OBLIGATIONS.
The Seller's obligation to close hereunder is conditioned upon the
following, any of which may be waived by the Seller:
A. Seller's receipt of one or more certificates registered in the name of
Seller evidencing the Common Stock to be acquired by the Seller, pursuant to
this Agreement.
B. The accuracy in all material respects on the Closing Date of the
representations and warranties made by IFT in this Agreement as if made on the
Closing Date (except for representations and warranties which, by their express
terms, speak as of and relate to a specified date, in which case such accuracy
shall be measured as of such specified date) and the performance by IFT in all
material respects on or before the Closing Date of all covenants and agreements
of IFT required to be performed by it pursuant to this Agreement on or before
the Closing Date.
C. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock of IFT on NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, or (iii) in the case of the foregoing existing at
the date of this Agreement, a material acceleration or worsening thereof.
D. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and forseeably would have a
Material Adverse Effect.
E. The absence of any law or order, ruling, judgment or writ of any court
or public or governmental authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement.
F. Seller's receipt of a duly executed Registration Rights Agreement in
form and substance satisfactory to Seller.
IX. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by IFT and the Seller
in this Agreement, and in each instrument, agreement and certificate entered
into and delivered by either of them pursuant to this Agreement, shall survive
the Closing and the consummation of the transactions contemplated hereby for a
period of one year. In the event of a breach or violation
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of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. IFT hereby agrees to indemnify and hold harmless Seller and Seller's
executors, administrators, heirs and assigns (collectively, the "Seller
Indemnitees"), from and against any and all losses, claims, damages, judgments,
penalties, liabilities and deficiencies (collectively, "Losses"), and agrees to
reimburse Seller Indemnitees for all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by Seller Indemnitees and to the extent arising out of or in connection
with:
1. any misrepresentation, omission of fact or breach of any of IFT's
representations or warranties contained in this Agreement, or any instrument,
agreement or certificate entered into or delivered by IFT pursuant to this
Agreement; or
2. any failure by IFT to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement,
or any instrument, agreement or certificate entered into or delivered by IFT
pursuant to this Agreement.
C. The Seller hereby agrees to indemnify and hold harmless IFT, its
affiliates and their respective officers, directors, partners and members
(collectively, the "IFT Indemnitees"), from and against any and all Losses, and
agrees to reimburse IFT Indemnitees for all out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by IFT Indemnitees and to the extent arising out of or in connection
with:
1. any misrepresentation, omission of fact, or breach of any of the
Seller's representations or warranties contained in this Agreement, or any
instrument, agreement or certificate entered into or delivered by the Seller
pursuant to this Agreement; or
2. any failure by the Seller to perform in any material respect any of
Seller's covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or delivered
by the Seller pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section IX (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section IX is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
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participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate (i) due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
(ii) if there may be legal defenses available to the Indemnified Party that are
in addition to or disparate from those available to the Indemnifying Party and
which can not be presented by counsel to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
X. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of
Philadelphia or the state courts of Commonwealth of Pennsylvania sitting in the
City of Philadelphia in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement have been inserted for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this
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Agreement or the validity or enforceability of this Agreement in any other
jurisdiction. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement. This Agreement supersedes
all prior agreements and understandings among the parties hereto with respect to
the subject matter hereof.
XI. NOTICES. Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, by facsimile
with confirmation back if followed promptly by first class mail, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
(1) if to Seller:
375 Champions View Drive
Alpharetta, GA 30004
(2) if to IFT:
Interactive Flight Technologies, Inc.
222 N. 44th Street
Phoenix, AZ 85034
Attention: Irvin L. Gross
with a copy to:
Mesirov Gelman Jaffe Cramer Jamieson, LLP
1735 Market Street
Suite 3800
Philadelphia, PA 19103-7598
Attn: Steven B. King, Esquire
IFT and Seller may change their respective foregoing addresses for notices by
notice given pursuant to this Article XI.
XII. CONFIDENTIALITY. Seller and IFT agree to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law
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(including, without limitation, pursuant to Item 10 of Rule 601 of Regulation
S-K under the Securities Act and the Exchange Act).
XIII. GENDER CLAUSE. Whenever used herein, the singular number shall
include the plural, the plural the singular, the use of any gender shall include
all genders, and the words "Seller" and "IFT" wherever used, shall include their
respective heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
------------------------------
Name:
Title:
(SEAL)
-----------------------------
Robert E. Benninger, Jr.
(SEAL)
-----------------------------
Sara Anne Benninger
10
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is dated this 12th day of August, 1999
(this "Agreement") between Interactive Flight Technologies, Inc., a Delaware
corporation, with principal offices located at 222 N. 44th Street, Phoenix,
Arizona 85034 (the "Company"), and the undersigned (the "Initial Investors").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of that certain
Securities Purchase Agreement dated August 9, 1999, between the Initial
Investors and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue to the Initial Investors in the aggregate 105,000 shares of its
Class A Common Stock (the "Common Stock"); and
WHEREAS, to induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued certain registration rights under the Securities Act (as
hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following respective meanings:
(i) "Commission" means the Securities and Exchange Commission.
(ii) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(iii) "Investors" means the Initial Investors and any transferee or
assignee of Registrable Securities who agrees to become bound by all of the
terms and provisions of this Agreement in accordance with Section 8 hereof.
(iv) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
(v) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed pursuant
<PAGE>
to Rule 424(b) under the Securities Act, including any prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance on Rule 430A under the Securities Act)
included in the Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement and by all
other amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Company under the Exchange Act and incorporated
by reference therein.
(vi) "Registrable Securities" means the Common Stock issued or
issuable pursuant to the Securities Purchase Agreement; provided, however, a
share of Common Stock shall cease to be a Registrable Security for purposes of
this Agreement when it no longer is a Restricted Security.
(vii) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Registrable Securities pursuant to Rule 415 under the Securities
Act, including the Prospectus contained therein and forming a part thereof, any
amendments to such registration statement and supplements to such Prospectus,
and all exhibits and other material incorporated by reference in such
registration statement and Prospectus.
(viii) "Restricted Security" means any share of Common Stock issued
or issuable pursuant to the Securities Purchase Agreement except any such share
that (i) has been registered pursuant to an effective registration statement
under the Securities Act and sold in a manner contemplated by the Prospectus
included in the Registration Statement, (ii) has been transferred in compliance
with the resale provisions of Rule 144 under the Securities Act (or any
successor provision thereto) or is transferable pursuant to paragraph (k) of
Rule 144 under the Securities Act (or any successor provision thereto), or (iii)
otherwise has been transferred and a new share of Common Stock not subject to
transfer restrictions under the Securities Act has been delivered by or on
behalf of the Company.
(ix) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company
shall use its best efforts to prepare and file with the Commission not later
than December 31, 1999, a Registration Statement relating to the offer and sale
of the Registrable
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Securities, and shall use its best efforts to cause the Commission to declare
such Registration Statement effective under the Securities Act as promptly as
practicable after filing. The Company shall notify the Initial Investors by
written notice that such Registration Statement has been declared effective by
the Commission promptly after such declaration by the Commission.
Notwithstanding the foregoing provisions of this Section 2(a), the Company may
defer such filing one time for a period not to exceed 30 days if the Board of
Directors of the Company determines in good faith that because of valid business
reasons, including pending mergers or other business combination transactions,
the planned acquisition or divestiture of assets, pending material corporate
developments and similar events, it is in the best interests of the Company to
defer such filing. In such event, the Company shall provide the Investors with
written notice of such deferral, which notice need not specify the nature of the
event giving rise to such deferral.
(b) Eligibility for Use of Form S-3. The Company represents and warrants
that it meets the requirements for use of Form S-3 for registration of the sale
by the Initial Investors, and the Company shall file all reports and information
required to be filed by it with the Commission in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.
(c) Piggyback Obligation. (i) If the Company, after the date of this
Agreement, proposes to register any of its warrants or any other shares of
common stock of the Company under the Securities Act (other than a registration
(A) on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common
Shares or any other shares of common stock of the Company issuable upon exercise
of employee share options or in connection with any employee benefit or similar
plan of the Company, (C) in connection with a direct or indirect acquisition by
the Company of another Person or any transaction with respect to which Rule 145
(or any successor provision) under the Securities Act applies, or (D) on behalf
of the Shaar Fund, Ltd. and its permitted successors and assigns), whether or
not for sale for its own account, it will each such time, give prompt written
notice at least twenty (20) days prior to the anticipated filing date of the
registration statement relating to such registration to the Investors, which
notice shall set forth such Investors' rights under this Section 2(c) and shall
offer the Investors the opportunity to include in such registration statement
such number of Registrable Securities owned by such Investors as the Investors
may request. Upon the written request of an Investor made within ten (10) days
after the receipt of notice from the Company (which request shall specify the
number of Registrable Securities intended to be disposed of by such Investor),
the Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities that the Company has been so
requested to register by the Investors, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered; provided,
however, that (A) if such registration involves an underwritten offering, the
Investors who elect to participate in such offering must sell their Registrable
Securities to the underwriters selected as provided in Section 2(c)(ii) hereof
on the same terms and conditions as apply to the Company and the other
prospective sellers (if any) and (B) if, at any time after giving written notice
of its intention to register any securities pursuant to this Section 2(c) and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register such securities, the Company shall give written notice to the Investors
and, thereupon, shall be relieved of its obligation to register any securities
in connection with such registration. The Company's obligations under this
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Section 2(c) shall terminate on the date that the registration statement to be
filed in accordance with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(c) involves an
underwritten offering and the managing underwriter thereof advises the Company
that, in its view, the number of warrants or other shares of Common Stock that
the Company and the Investors and all other prospective sellers holding
registration rights intend to include in such registration exceeds the largest
number of shares of Common Stock or warrants that can be sold without having an
adverse effect on such offering (the "Maximum Offering Size"), the Company will
include in such registration, only that number of shares of common stock or
warrants, as applicable, such that the number of Registrable Securities
registered does not exceed the Maximum Offering Size, with the difference
between the number of shares in the Maximum Offering Size and the number of
shares to be issued by the Company and by the Shaar Fund, Ltd. (if any) in the
aggregate to be allocated among the Investors and such other prospective sellers
(other than the Company and the Shaar Fund, Ltd.) pro rata on the basis of the
relative number of Registrable Securities to be offered for sale under such
registration by each of the Investors and such other prospective sellers (other
than the Company and the Shaar Fund, Ltd.).
If as a result of the proration provisions of this Section 2(c)(ii), any
Investor is not entitled to include all such Registrable Securities in such
registration, any such Investor may elect to withdraw its request to include any
Registrable Securities in such registration. With respect to registrations
pursuant to this Section 2(c), the number of securities required to satisfy any
underwriters' over-allotment option shall be allocated pro rata among the
Company, the Investors, the Shaar Fund, Ltd., and the other prospective sellers
on the basis of the relative number of securities otherwise to be included by
each of them in the registration with respect to which such over-allotment
option relates.
3. Obligations of the Company. In connection with any required registration
of the Registrable Securities under this Agreement, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two (2) years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, redeemed by
the Company, transferred pursuant to Rule 144 under the Securities Act or
otherwise transferred in a manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act (the "Registration
Period") and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and (B) the Prospectus forming part of the Registration
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Statement, and any amendment or supplement thereto, does not at any time during
the Registration Period include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing provisions of this Section 3(a),
the Company may, during the Registration Period, suspend the use of the
Prospectus for a period not to exceed 60 days (whether or not consecutive) in
any 12-month period if the Board of Directors of the Company determines in good
faith that because of valid business reasons, including pending mergers or other
business combination transactions, the planned acquisition or divestiture of
assets, pending material corporate developments and similar events, it is in the
best interests of the Company to suspend such use, and prior to or
contemporaneously with suspending such use the Company provides the Investors
with written notice of such suspension, which notice need not specify the nature
of the event giving rise to such suspension. At the end of any such suspension
period, the Company shall provide the Investors with written notice of the
termination of such suspension.
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to Registrable Securities covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the Investors as set forth in the Prospectus forming part of the Registration
Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not
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<PAGE>
otherwise be required to qualify but for this Section 3(d), (B) subject itself
to general taxation in any such jurisdiction or (C) file a general consent to
service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange or included
in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three (3) business days after a Registration Statement which includes
Registrable Securities is declared effective by the Commission, deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Investors of their Registrable Securities
in accordance with the intended methods therefor provided in the Prospectus
which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than eighteen (18) months after (i) the
effective date (as
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<PAGE>
defined in Rule 158(c) under the Securities Act) of the Registration Statement,
and (ii) the effective date of each post-effective amendment to the Registration
Statement, as the case may be, an earnings statement of the Company and its
subsidiaries complying with Section 11(a) of the Securities Act and the rules
and regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and (ii) cause the Company's
officers, directors and employees to supply all information reasonably requested
by such underwriter, attorney, accountant or agent in connection with the
Registration Statement, in each case, as is customary for similar due diligence
examinations; provided, however, that all records, information and documents
that are designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by such underwriter, attorney, accountant or agent (pursuant to an
appropriate confidentiality agreement in the case of any such holder or agent),
unless such disclosure is made pursuant to judicial process in a court
proceeding (after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the information sought to be
disclosed) or is required by law, or such records, information or documents
become available to the public generally or through a third party not in
violation of an accompanying obligation of confidentiality; and provided further
that, if the foregoing inspection and information gathering would otherwise
disrupt the Company's conduct of its business, such inspection and information
gathering shall, to the maximum extent possible, be coordinated by parties
entitled thereto by one firm of counsel designed by and on behalf of the
majority in interest of Investors and other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration
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<PAGE>
Statement and the Prospectus, including any documents incorporated by reference
therein, of an untrue statement of a material fact or the omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of the Prospectus, in light of the circumstances under which they
were made) not misleading, subject to customary limitations);
(p) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(r) In the event that any broker-dealer registered under the Exchange
Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least seven (7) days
prior to the first
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<PAGE>
anticipated filing date of the Registration Statement, the Company shall notify
each Investor of the information the Company requires from each such Investor
(the "Requested Information") if such Investor elects to have any of its
Registrable Securities included in the Registration Statement. If at least two
(2) business days prior to the anticipated filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor with respect to such
Registration Statement;
(b) Each Investor by its acceptance of the Registrable Securities agrees
to cooperate with the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its Registrable Securities
from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f) or of a notice pursuant to Section 3(a), it shall immediately discontinue
its disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(e) or of
receipt of notice from the Company pursuant to Section 3(a), as applicable, and,
if so directed by the Company, such Investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the Company a certificate
of destruction) all copies in such Investor's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 2, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company shall
be borne by the Company. The Investors shall be responsible for payment of their
share of any underwriting discounts or commissions and for expenses of their
counsel.
6. Indemnification and Contribution.
(a) Indemnification by Company. The Company shall indemnify and hold
harmless each Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities and each of their respective officers and
directors and each person who controls such Investor or underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being sometimes hereinafter referred to as an "Indemnified
Person") from and against any losses, claims, damages or liabilities, joint or
several, to which such Indemnified Person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, not misleading, or arise out of or are based upon an untrue statement
or alleged untrue statement of a
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<PAGE>
material fact contained in any Prospectus or an omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and the Company hereby agrees to reimburse such
Indemnified Person for all reasonable legal and other expenses incurred by them
in connection with investigating or defending any such action or claim as and
when such expenses are incurred; provided, however, that the Company shall not
be liable to any such Indemnified Person in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon (i) an
untrue statement or alleged untrue statement made in, or an omission or alleged
omission from, such Registration Statement or Prospectus in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Person expressly for use therein or (ii) in the case of the occurrence of an
event of the type specified in Section 3(e) or of the delivery of a notice
pursuant to Section 3(a) or 3(f), the use by the Indemnified Person of an
outdated or defective Prospectus after the Company has provided to such
Indemnified Person an updated Prospectus correcting the untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein, and (ii) reimburse the Company for any
legal or other expenses incurred by the Company in connection with investigating
or defending any such action or claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by
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reason of such failure. In connection with any Claim the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim at the reasonable cost and expense of the Indemnifying
Party if the Indemnified Party and the Indemnifying Party shall reasonably have
concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or the Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnifying Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnifying Party from all liabilities
with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6
is unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. 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. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be
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several in proportion to the percentage of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Limitations on Indemnification. Notwithstanding any other provision
of this Section 6, in no event shall any (i) Investor be required to undertake
liability to any person under this Section 6 for any amounts in excess of the
dollar amount of the proceeds to be received by such Investor from the sale of
such Investor's Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are to be registered under the Securities Act
and (ii) underwriter be required to undertake liability to any Person hereunder
for any amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter with respect to the Registrable
Securities underwritten by it and distributed pursuant to the Registration
Statement.
(f) Non-Exclusive Obligations. The obligations of the Company under this
Section 6 shall be in addition to any liability which the Company may otherwise
have to any Indemnified Person and the obligations of any Indemnified Person
under this Section 6 shall be in addition to any liability which such
Indemnified Person may otherwise have to the Company. The remedies provided in
this Section 6 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to an indemnified party at law or in equity.
7. Rule 144. With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("Rule 144"), the Company agrees
to use reasonable commercial efforts to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
8. Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to any permitted transferee of all or any portion of such Registrable
Securities only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment,
the securities so transferred or assigned to the transferee or assignee
constitute Restricted Securities, and (d) at or before the time the Company
received
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the written notice contemplated by clause (b) of this sentence, the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein.
9. Amendment and Waiver. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
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(1) if to the Company, to:
The address set forth on Page 1 of this Agreement
with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
38th Floor
Philadelphia, Pennsylvania 19103-7598
Attn: Steven B. King, Esquire
2) if to the Initial Investors, to:
XCEL Capital, LLC
5500 Interstate North Parkway
Suite 515
Atlanta, GA 30328
and
Elaine Martin
2274 E. Yunsoo
Big Canoe
Jasper, GA 30143
3) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company.
The Company, the Initial Investors or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania. Each of the parties consents
to the jurisdiction of the Federal courts whose districts encompass any part of
the City of Philadelphia, Pennsylvania or the state courts of the Commonwealth
of Pennsylvania sitting in the City of Philadelphia in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve
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the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. Without limiting the generality of the foregoing, without the
written consent of the Holders of a majority in interest of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are not otherwise in conflict or inconsistent with the provisions of
this Agreement. The restrictions on the Company's rights to grant registration
rights under this paragraph shall terminate on the date the Registration
Statement to be filed pursuant to Section 2(a) is declared effective by the
Commission.
(h) This Agreement and the Securities Purchase Agreement, between the
Company and the Initial Investors constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement and the Securities Purchase Agreement,
supersede all prior agreements and undertakings among the parties hereto with
respect to the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to perform
its obligations under Section 2, or any delay in such performance could result
in direct damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct damages caused by such failure or
delay.
(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same
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agreement. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
XCEL CAPITAL, LLC
By:
---------------------------------
Name:
Title: Managing Member
(SEAL)
--------------------------------
ELAINE MARTIN
16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is dated this 12th day of August, 1999
(this "Agreement"), between Interactive Flight Technologies, Inc., a Delaware
corporation, with principal offices located at 222 N. 44th Street, Phoenix,
Arizona 85034 (the "Company"), and the undersigned (the "Initial Investors").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of those certain
arrant Purchase Agreements each dated as of August 9, 1999, between each of the
Initial Investors and the Company (collectively, the "Warrant Purchase
Agreements"), the Company has agreed to issue to the Initial Investors in the
aggregate 10,000 shares of its Class A Common Stock (the "Common Stock"); and
WHEREAS, to induce each Initial Investor to execute and deliver his or her
respective Warrant Purchase Agreement, the Company has agreed to provide with
respect to the Common Stock issued certain registration rights under the
Securities Act (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following respective meanings:
(i) "Commission" means the Securities and Exchange Commission.
(ii) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(iii) "Investors" means the Initial Investors and any transferee or
assignee of Registrable Securities who agrees to become bound by all of the
terms and provisions of this Agreement in accordance with Section 8 hereof.
(iv) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
(v) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed pursuant
to Rule 424(b) under the Securities Act, including any prospectus that discloses
information
<PAGE>
previously omitted from a prospectus filed as part of an effective
registration statement in reliance on Rule 430A under the Securities Act)
included in the Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement and by all
other amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Company under the Exchange Act and incorporated
by reference therein.
(vi) "Registrable Securities" means the Common Stock issued or
issuable pursuant to the Warrant Purchase Agreements; provided, however, a share
of Common Stock shall cease to be a Registrable Security for purposes of this
Agreement when it no longer is a Restricted Security.
(vii) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Registrable Securities pursuant to Rule 415 under the Securities
Act, including the Prospectus contained therein and forming a part thereof, any
amendments to such registration statement and supplements to such Prospectus,
and all exhibits and other material incorporated by reference in such
registration statement and Prospectus.
(viii) "Restricted Security" means any share of Common Stock issued
or issuable pursuant to the Warrant Purchase Agreements except any such share
that (i) has been registered pursuant to an effective registration statement
under the Securities Act and sold in a manner contemplated by the Prospectus
included in the Registration Statement, (ii) has been transferred in compliance
with the resale provisions of Rule 144 under the Securities Act (or any
successor provision thereto) or is transferable pursuant to paragraph (k) of
Rule 144 under the Securities Act (or any successor provision thereto), or (iii)
otherwise has been transferred and a new share of Common Stock not subject to
transfer restrictions under the Securities Act has been delivered by or on
behalf of the Company.
(ix) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Warrant Purchase Agreements.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company
shall use its best efforts to prepare and file with the Commission not later
than December 31, 1999, a Registration Statement relating to the offer and sale
of the Registrable Securities, and shall use its best efforts to cause the
Commission to declare such Registration
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Statement effective under the Securities Act as promptly as practicable after
filing. The Company shall notify the Initial Investors by written notice that
such Registration Statement has been declared effective by the Commission
promptly after such declaration by the Commission.
(b) Eligibility for Use of Form S-3. The Company agrees that at such
time after December 31, 1999 as it meets all the requirements for the use of
Securities Act Registration Statement on Form S-3 it shall file all reports and
information required to be filed by it with the Commission in a timely manner
and take all such other action so as to maintain such eligibility for the use of
such form.
(c) Piggyback Obligation. (i) If the Company, after the date of this
Agreement, proposes to register any of its warrants or any other shares of
common stock of the Company under the Securities Act (other than a registration
(A) on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common
Shares or any other shares of common stock of the Company issuable upon exercise
of employee share options or in connection with any employee benefit or similar
plan of the Company, or (C) in connection with a direct or indirect acquisition
by the Company of another Person or any transaction with respect to which Rule
145 (or any successor provision) under the Securities Act applies), whether or
not for sale for its own account, it will each such time, give prompt written
notice at least twenty (20) days prior to the anticipated filing date of the
registration statement relating to such registration to the Investors, which
notice shall set forth such Investors' rights under this Section 2(c) and shall
offer the Investors the opportunity to include in such registration statement
such number of Registrable Securities owned by such Investors as the Investors
may request. Upon the written request of an Investor made within ten (10) days
after the receipt of notice from the Company (which request shall specify the
number of Registrable Securities intended to be disposed of by such Investor),
the Company will use its best efforts to effect the registration under the
Securities Laws of all Registrable Securities that the Company has been so
requested to register by the Investors, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered; provided,
however, that (A) if such registration involves an underwritten offering, the
Investors who elect to participate in such offering must sell its Registrable
Securities to the underwriters selected as provided in Section 2(c)(ii) hereof
on the same terms and conditions as apply to the Company and the other
prospective sellers (if any) (B) if, at any time after giving written notice of
its intention to register any securities pursuant to this Section 2(c) and prior
to the effective date of the registration statement filed in connection with
such registration, the Company shall determine for any reason not to register
such securities, the Company shall give written notice to the Investors and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. The Company's obligations under
this Section 2(c) shall terminate on the date that the registration statement to
be filed in accordance with Section 2(a) is declared effective by the
Commission.
(ii) If a registration pursuant to this Section 2(c) involves an
underwritten offering and the managing underwriter thereof advises the Company
that, in its view, the number of warrants or other shares of Common Stock that
the Company and the Investors and all other prospective sellers holding
registration rights intend to include in such registration exceeds the largest
number of shares of Common Stock or warrants that can be sold without having an
adverse effect on such offering (the "Maximum Offering Size"), the Company
3
<PAGE>
will include in such registration, only that number of shares of common stock or
warrants, as applicable, such that the number of Registrable Securities
registered does not exceed the Maximum Offering Size, with the difference
between the number of shares in the Maximum Offering Size and the number of
shares to be issued by the Company and by the Shaar Fund, Ltd. (if any) in the
aggregate to be allocated among the Investors and such other prospective sellers
(other than the Company and the Shaar Fund, Ltd.) pro rata on the basis of the
relative number of Registrable Securities offered for sale under such
registration by each of the Investors and such other prospective sellers (other
than the Company and the Shaar Fund, Ltd.).
If as a result of the proration provisions of this Section 2(c)(ii), any
Investor is not entitled to include all such Registrable Securities in such
registration, such Investor may elect to withdraw its request to include any
Registrable Securities in such registration. With respect to registrations
pursuant to this Section 2(c), the number of securities required to satisfy any
underwriters' over-allotment option shall be allocated pro rata among the
Company, the Shaar Fund, Ltd., the Investors and the other prospective sellers
on the basis of the relative number of securities otherwise to be included by
each of them in the registration with respect to which such over-allotment
option relates.
3. Obligations of the Company. In connection with any required registration
of the Registrable Securities under this Agreement, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two (2) years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, redeemed by
the Company, transferred pursuant to Rule 144 under the Securities Act or
otherwise transferred in a manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act (the "Registration
Period") and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and (B) the Prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the Registration
Period include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing provisions of this Section 3(a), the
Company may, during the Registration Period, suspend the use of the Prospectus
for a period not to exceed 60 days (whether or not consecutive) in any 12-month
period if the Board of Directors of the Company determines in good faith that
because of valid business reasons, including pending mergers or other business
combination transactions, the planned acquisition or divestiture of assets,
pending material corporate developments and
4
<PAGE>
similar events, it is in the best interests of the Company to suspend such use,
and prior to or contemporaneously with suspending such use the Company provides
the Investors with written notice of such suspension, which notice need not
specify the nature of the event giving rise to such suspension. At the end of
any such suspension period, the Company shall provide the Investors with written
notice of the termination of such suspension.
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to Registrable Securities covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the Investors as set forth in the Prospectus forming part of the Registration
Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct
5
<PAGE>
such untrue statement or omission, and deliver a number of copies of such
supplement and amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange or included
in an inter-dealer quotation system of a registered national securities
association on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three (3) business days after a Registration Statement which includes
Registrable Securities is declared effective by the Commission, deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Investors of their Registrable Securities
in accordance with the intended methods therefor provided in the Prospectus
which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than eighteen (18) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to
6
<PAGE>
which the Company does not reasonably object and make all required filings of
such Prospectus supplement or post-effective amendment as soon as practicable
after it is notified of the matters to be included or incorporated in such
Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and (ii) cause the Company's
officers, directors and employees to supply all information reasonably requested
by such underwriter, attorney, accountant or agent in connection with the
Registration Statement, in each case, as is customary for similar due diligence
examinations; provided, however, that all records, information and documents
that are designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be kept
confidential by such underwriter, attorney, accountant or agent (pursuant to an
appropriate confidentiality agreement in the case of any such holder or agent),
unless such disclosure is made pursuant to judicial process in a court
proceeding (after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the information sought to be
disclosed) or is required by law, or such records, information or documents
become available to the public generally or through a third party not in
violation of an accompanying obligation of confidentiality; and provided further
that, if the foregoing inspection and information gathering would otherwise
disrupt the Company's conduct of its business, such inspection and information
gathering shall, to the maximum extent possible, be coordinated by parties
entitled thereto by one firm of counsel designed by and on behalf of the
majority in interest of Investors and other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and
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<PAGE>
financial data are, or are required to be, included in the Registration
Statement), addressed to each underwriter participating in such underwritten
offering (if such underwriter has provided such letter, representations or
documentation, if any, required for such cold comfort letter to be so
addressed), in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with secondary underwritten
offerings;
(q) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(r) In the event that any broker-dealer registered under the Exchange
Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by him or her, and the intended method of disposition of the Registrable
Securities held by him or her, as shall be reasonably required to effect the
registration of such Registrable Securities, and shall execute such documents in
connection with such registration as the Company may reasonably request. As
least seven (7) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of its Registrable Securities
included in the Registration Statement. If at least two (2) business days prior
to the anticipated filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor and have no further obligations to the Non-Responsive
Investor with respect to such Registration Statement;
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(b) Each Investor by its acceptance of the Registrable Securities agrees
to cooperate with the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its Registrable Securities
from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f) or of a notice pursuant to Section 3(a), it shall immediately discontinue
its disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(e) or of
receipt of notice from the Company pursuant to Section 3(a), as applicable, and,
if so directed by the Company, such Investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the Company a certificate
of destruction) all copies in such Investor's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 2, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company shall
be borne by the Company. The Investors shall be responsible for payment of their
share of any underwriting discounts or commissions and for expenses of their
counsel.
6. Indemnification and Contribution.
(a) Indemnification by Company. The Company shall indemnify and hold
harmless each Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities and each of their respective officers and
directors and each person who controls such Investor or underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being sometimes hereinafter referred to as an "Indemnified
Person") from and against any losses, claims, damages or liabilities, joint or
several, to which such Indemnified Person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, not misleading, or arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Prospectus or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company hereby
agrees to reimburse such Indemnified Person for all reasonable legal and other
expenses incurred by them in connection with investigating or defending any such
action or claim as and when such expenses are incurred; provided, however, that
the Company shall not be liable to any such Indemnified Person in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon
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and in conformity with written information furnished to the Company by such
Indemnified Person expressly for use therein or (ii) in the case of the
occurrence of an event of the type specified in Section 3(e) or of the delivery
of a notice pursuant to Section 3(a) or 3(f), the use by the Indemnified Person
of an outdated or defective Prospectus after the Company has provided to such
Indemnified Person an updated Prospectus correcting the untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein, and (ii) reimburse the Company for any
legal or other expenses incurred by the Company in connection with investigating
or defending any such action or claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim the Indemnifying Party shall be entitled to assume the
defense thereof. Notwithstanding the assumption of the defense of any Claim by
the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel and to participate in the defense of such Claim at the
reasonable cost and expense of the Indemnifying Party if the Indemnified Party
and the Indemnifying Party shall reasonably have concluded that representation
of the Indemnified Party and the Indemnifying Party by the same legal counsel
would not be appropriate due to actual or, as reasonably determined by legal
counsel to the Indemnified Party, potentially differing interests between such
parties in the conduct of the defense of such Claim, or if there may be legal
defenses available to the
10
<PAGE>
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or the Indemnifying Party shall have failed to employ
legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. Except
as provided above, the Indemnifying Party shall not, in connection with any
Claim in the same jurisdiction, be liable for the fees and expenses of more than
one firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6
is unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. 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. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Limitations on Indemnification. Notwithstanding any other provision
of this Section 6, in no event shall any (i) Investor be required to undertake
liability to any person under this Section 6 for any amounts in excess of the
dollar amount of the proceeds to be received by such Investor from the sale of
such Investor's Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are to be registered under the Securities Act
and (ii) underwriter be required to undertake liability to any Person hereunder
for any amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter
11
<PAGE>
with respect to the Registrable Securities underwritten by it and distributed
pursuant to the Registration Statement.
(f) Non-Exclusive Obligations. The obligations of the Company under this
Section 6 shall be in addition to any liability which the Company may otherwise
have to any Indemnified Person and the obligations of any Indemnified Person
under this Section 6 shall be in addition to any liability which such
Indemnified Person may otherwise have to the Company. The remedies provided in
this Section 6 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to an indemnified party at law or in equity.
7. Rule 144. With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("Rule 144"), the Company agrees
to use reasonable commercial efforts to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
8. Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to any permitted transferee of all or any portion of such Registrable
Securities only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment,
the securities so transferred or assigned to the transferee or assignee
constitute Restricted Securities, and (d) at or before the time the Company
received the written notice contemplated by clause (b) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein.
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<PAGE>
9. Amendment and Waiver. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
(1) if to the Company, to:
The address set forth on the first page of this Agreement
with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
38th Floor
Philadelphia, Pennsylvania 19103-7598
Attn: Steven B. King, Esquire
(2) to the Initial Investors, to:
Robert E. Benninger, Jr. and
Sara Anne Benninger
375 Champions View Drive
Alpharetta, GA 30004
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<PAGE>
and
Will Brantley
510 Champion Hill Drive
Alpharetta, GA 30004
and
Elaine Martin
2274 E. Yunsoo
Big Canoe
Jasper, GA 30143
(3) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company.
The Company, the Initial Investors or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of Philadelphia, Pennsylvania or the state courts of the Commonwealth
of Pennsylvania sitting in the City of Philadelphia in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities in
14
<PAGE>
this Agreement or otherwise conflicts with the provisions hereof. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority in interest of the Registrable Securities, the Company
shall not grant to any person the right to request it to register any of its
securities under the Securities Act unless the rights so granted are subject in
all respect to the prior rights of the holders of Registrable Securities set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement. The restrictions on the Company's rights to grant
registration rights under this paragraph shall terminate on the date the
Registration Statement to be filed pursuant to Section 2(a) is declared
effective by the Commission.
(h) This Agreement and the Warrant Purchase Agreements between the
Company and the respective Initial Investors constitute the entire agreement
among the parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement and the Warrant Purchase Agreements
supersede all prior agreements and undertakings among the parties hereto with
respect to the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to perform
its obligations under Section 2, or any delay in such performance could result
in direct damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct damages caused by such failure or
delay.
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<PAGE>
(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
(SEAL)
-------------------------------
Robert E. Benninger, Jr.
(SEAL)
-------------------------------
Sara Anne Benninger
(SEAL)
-------------------------------
Will Brantley
(SEAL)
-------------------------------
Elaine Martin
16
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT is made this 12th day of August 1999 by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company")
and Elaine Martin ("Holder").
W I T N E S S E T H:
WHEREAS, Holder is the owner of the number of shares of the Class A Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement;
WHEREAS, Company desires to grant to Holder the option to put the Shares to
the Company at a price of $3.75 per Share at any time in the ten day period
ending January 10, 2000; and
WHEREAS, Holder desires to grant to Company the option to call the Shares
at a price of $4.50 per Share at any time in the ten day period ending January
10, 2000.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, each intending
to be legally bound hereby, agree as follows:
1. Put/Call Options.
(a) The Company hereby grants to Holder the right and option to require
Company to purchase any or all of the Shares on the terms and subject to the
conditions hereinafter set forth in this Agreement (the "Put Option").
(b) Holder hereby grants to Company the right and option to purchase all
or any of the Shares held by Holder, on the terms and subject to the conditions
hereinafter set forth in this Agreement (the "Call Option").
2. Price.
(a) The purchase price to be paid, if the Put Option is exercised, shall
be Three Dollars and Seventy-Five Cents ($3.75) per Share (the "Put Option
Price"), which shall be paid at the Closing (as hereinafter defined) in the
manner provided in this Agreement.
(b) The purchase price to be paid, if the Call Option is exercised,
shall be Four Dollars and Fifty Cents ($4.50) per Share (the "Call Option
Price"), which shall be paid at the Closing in the manner provided in this
Agreement.
<PAGE>
3. Exercise of Put Option. The following provisions shall apply to exercise
of the Put Option:
(a) Holder shall exercise the Put Option by sending a notice of election
(the "Put Notice of Election") to the Company in the form attached hereto and
incorporated herein by reference. The Put Notice of Election shall be in
writing, shall be sent to the Company at the address and in the manner set forth
in subparagraph 10(c) hereof (or to such other address as shall then be
applicable if such address has been changed in the manner set forth in such
subparagraph), and shall contain the information about the Closing set forth in
subparagraph 9(a) hereof.
(b) If exercised, the Put Option may be exercised as to some or all of
the Shares.
(c) The Put Option may be exercised only during the period between 12:01
a.m. E.S.T. January 1, 2000 and 5:00 p.m. E.S.T. January 10, 2000 (the
"Effective Period"). The date and time of the exercise of the Put Option shall
be that date and time when the Put Notice of Election is actually received by
the Company.
(d) Payment for Shares shall be made by certified check payable to the
order of Holder, or at the option of Holder, by wire transfer of immediately
available funds to the bank account set forth on the Put Notice of Election.
4. Exercise of Call Option. The following provisions shall apply to
exercise of the Call Option:
(a) The Company shall exercise the Call Option by sending a notice of
election (the "Call Notice of Election") to the Holder in the form attached
hereto and incorporated herein by reference. The Call Notice of Election shall
be in writing, shall be sent to the Holder at the address and in the manner set
forth in subparagraph 10(c) hereof (or to such other address as shall then be
applicable if such address has been changed in the manner set forth in such
subparagraph), and shall contain the information about the Closing set forth in
subparagraph 9(a) hereof.
(b) If exercised, the Call Option may be exercised as to some or all of
the Shares.
(c) The Call Option may be exercised only during the Effective Period.
The date and time of the exercise of the Call Option shall be that date and time
when the Call Notice of Election is actually received by the Holder.
(d) Payment for Shares shall be made by certified or bank cashier's
check payable to the order of Holder.
(e) In the event that Holder exercises the Put Option and the Company
exercises the Call Option, then the Call Option exercise shall be void ab initio
and Closing shall be held pursuant to the Put Option.
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<PAGE>
5. Term. Except for any obligations arising under this Agreement as a
result of the proper exercise of the Call Option or the Put Option (which
obligations shall survive termination of this Agreement), this Agreement shall
terminate at the end of the Effective Period.
6. Change or Exchange of Capital Stock.
(a) In the event that the outstanding shares of Class A Common Stock of
the Company shall be changed into or exchanged for a different number or kind of
shares of capital stock of the Company or shall be changed into or exchanged for
a different number or kind of shares of capital stock or other securities of the
Company or of another company (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, or otherwise), then there shall be
substituted for each remaining Share not acquired by exercise of either the Put
Option or the Call Option prior to the record date for such merger,
consolidation, recapitalization, reclassification, split-up, or otherwise, the
number and kind of shares of capital stock or other securities into which each
outstanding share of Class A Common Stock of the Company shall be so changed or
for which each such share of capital stock shall be so exchanged. In the event
that there shall be any such change or exchange, then (i) Holder shall be
entitled to sell to the Company pursuant to the Put Option all of such capital
stock and other securities into which each Share shall have been changed or for
which it shall have been exchanged for the Put Option Price which would have
been required to be paid for such Share assuming there had been no such change
or exchange, and otherwise in accordance with the terms of this Agreement; and
(ii) the Company shall be entitled to purchase from the Holder pursuant to the
Call Option all of such capital stock and other securities into which each Share
shall have been changed or for which it shall have been exchanged for the Call
Option Price which would have been required to be paid for such Share assuming
there had been no such change or exchange, and otherwise in accordance with the
terms of this Agreement.
(b) In the event that the outstanding Shares shall be subdivided into a
greater or combined into a lesser number of such shares, whether by stock
dividend, stock split or combination of shares, the Put Option Price and the
Call Option Price shall be proportionately decreased or increased, as the case
may be, and the number of remaining Shares (those not acquired by exercise of
either the Put or Call Option prior to the record date of such stock dividend,
stock split, or combination of shares) subject to the Put or Call Option shall
be proportionately increased or decreased as the case may be, so as
appropriately to reflect such subdivision or combination, effective immediately
upon the effectiveness of such subdivision or combination.
(c) No such adjustment shall be made, however, by reason of the issuance
of shares of common stock of the Company for cash, property, or services; by way
of stock options, stock warrants, subscription rights; or otherwise.
7. Representations and Warranties of Company. The Company hereby represents
and warrants that this Agreement constitutes the valid and binding obligation of
the Company, and is enforceable against it in accordance with its terms, except
to the extent that the enforcement thereof is limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or orders
affecting the enforcement of creditors' rights generally, or by equitable
principles.
3
<PAGE>
8. Transfers. The Put Option is not transferable by Holder (otherwise than
(if Holder is an individual) by will or pursuant to the laws of descent and
distribution in the event of Holder`s death, in which event the Put Option may
be exercised by the heirs or legal representatives of Holder). Any attempt at
assignment, transfer, pledge or disposition of the Put Option contrary to the
provisions hereof or the levy of any execution, attachment or similar process
upon the Put Option shall be null and void and without force or effect. Any
exercise of the Put Option by a person other than Holder shall be accompanied by
appropriate proofs, satisfactory in form and substance to the Company, of the
right of each person to exercise the Put Option.
9. Closing.
(a) The Closing shall be held at a date and time to be selected by
Holder or by the Company in the Put Notice of Election or Call Notice of
Election, respectively; provided, however, that the date specified in the Put
Notice of Election or Call Notice of Election shall not be less than fourteen
(14) nor more than sixty (60) days after the date of such Put Notice of Election
or Call Notice of Election, as the case may be.
(b) Closing shall be held at the chief executive offices of the Company,
or such other place as shall be agreed upon by the parties.
(c) At Closing, the Company shall deliver or cause to be delivered to
Holder the Put Option Price per Share or Call Option Price per Share, as
applicable, for all of the Shares to be purchased by Company pursuant to the Put
Notice of Election or Call Notice of Election and Holder shall deliver to the
Company all of the Shares (or other securities) being purchased duly endorsed
for transfer or with an executed stock power attached, in either such case with
signature guaranteed by a member of the Stock Transfer Agents' Medallion
Program.
(d) If the Company defaults in the payment of any sums required to be
paid pursuant to a valid exercise of the Put Option or of the Call Option, then
all overdue amounts shall bear interest until paid from the date of closing as
specified in the Put Notice of Election or Call Notice of Election, as the case
may be, at a rate equal to the lower of (i) (2%) two percent per month (prorated
for any partial month) or (ii) the maximum rate allowable by applicable law.
10. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning
4
<PAGE>
limitations of actions), shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania, notwithstanding any
conflict-of-laws doctrines of such jurisdiction to the contrary, and without the
aid of any canon, custom or rule of law requiring construction against the
draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when personally delivered or
when deposited in the United States mails, registered or certified mail, postage
prepaid, return receipt requested, addressed as set forth below:
(i) If to Holder:
2274 E. Yunsoo
690 Big Canoe
Jasper, GA 30143-5114
(ii) If to Company:
Interactive Flight Technologies, Inc.
222 N 44th Street
Phoenix, AZ 85034
Attn: Mr. Morris C. Aaron
with a copy, given in the manner prescribed above, to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103
Attn: Steven B. King, Esquire
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph (c) for the
giving of notice.
(d) Binding Nature of Agreement; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, except that neither
party may assign or transfer its rights nor delegate its obligations under this
Agreement without the prior written consent of the other party hereto.
(e) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
5
<PAGE>
(f) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
(g) Paragraph Headings. The Paragraph and subparagraph headings in this
Agreement have been inserted for convenience of reference only; they form no
part of this Agreement and shall not affect its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and Holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or Holiday, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or Holiday. For purposes of this subparagraph (i), the
term "Holiday" shall mean a day, other than a Saturday or Sunday, on which
national banks with branches in the Commonwealth of Pennsylvania are or may
elect to be closed.
6
<PAGE>
(j) Currency. All monetary amounts referred to in this Agreement shall
be and be deemed to be references to lawful currency of the United States of
America.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
ATTEST: INTERACTIVE FLIGHT TECHNOLOGIES, INC.
- ----------------------------- -------------------------------------
Secretary Name:
Title:
WITNESS: ELAINE MARTIN
- ----------------------------- -------------------------------------
Shares of Class A Common Stock of the Company 32,857
7
<PAGE>
PUT NOTICE OF ELECTION
The undersigned and Interactive Flight Technologies, Inc. (the "Company") are
parties to that certain Put/Call Agreement dated August 12, 1999. Pursuant to
the terms thereof, the undersigned hereby exercises his, her or its option to
require the Company to purchase the number of shares of the Class A common stock
of the Company, (the "Shares") set forth below. Closing hereunder shall be held
at the chief executive offices of the Company at _____ _.m. local time, on
__________ ___, 2000. The undersigned elects to have the purchase price paid by
wire transfer of immediately available funds to the following bank account:
Bank Name: ________________________________
Branch (if applicable): ___________________
Bank Location: ____________________________
Bank Routing Number: _____________________
For Credit to Account No. _________________
Name of Account: __________________________
(If the foregoing bank information is not included in this Notice of Election,
the undersigned agrees to accept payment by delivery of a certified or bank
cashier's check payable to the order of the undersigned.)
The undersigned represents and acknowledges that (i) the undersigned knows, or
has had the opportunity to acquire, all information concerning the business,
affairs, financial condition and prospects of the Company which the undersigned
deems relevant to making a fully informed decision regarding the consummation of
the transactions contemplated hereby and (ii) he, she, or it has been supplied
with copies of the Company's latest Annual Report on Form 10-K (or 10-KSB, as
the case may be), the Company's latest quarterly report on Form 10-Q (or 10-QSB,
as the case may be), Company's latest proxy statement, and Company's latest
Annual Report to Stockholders.
Date:
------------------------------ -----------------------------------
Name:
Address:
Number of Shares:
--------------------------
8
<PAGE>
CALL NOTICE OF ELECTION
Interactive Flight Technologies, Inc. (the "Company") and _________________
("Holder") are parties to that certain Put/Call Agreement dated August 12, 1999.
Pursuant to the terms thereof, the Company hereby exercises its option to
purchase ____________ shares of the Class A common stock of the Company (the
"Shares") owned by Holder. Closing hereunder shall be held at the chief
executive offices of the Company at _____ _.m. local time, on __________ ___,
2000.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Date: BY:
----------------------- ---------------------------------
9
EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective January 1, 1999, between INTERACTIVE FLIGHT
TECHNOLOGIES, INC. ("Company") and James W. Fox ("Executive").
W I T N E S S E T H:
Company wishes to employ Executive and Executive wishes to enter into the
employ of Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Executive agree as follows:
1. Employment. Company hereby employs Executive and Executive hereby
accepts employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. Office and Duties.
(a) The Executive is engaged hereunder as the Company's President and
Chief Operating Officer and agrees to perform the duties and services incident
to that position, and such other duties and services as may reasonably be
requested of him by the Chief Executive Officer or the Chairman of the Board of
Company. The Executive will report directly to the Chief Executive Officer and
shall report to the Board of Directors of Company on a regular basis.
(b) Throughout the term of this Agreement, Executive shall devote his
entire working time, energy, skill and best efforts to the performance of his
duties hereunder in a manner which will faithfully and diligently further the
business and interests of Company. The foregoing shall not be construed,
however, as preventing the Executive from investing his assets in such form or
manner as will not require services on the part of the Executive in the
operations of the business in which such investment is made and provided such
business is not in competition with the company or, if in competition, such
business has a class of securities registered under the Securities Exchange Act
of 1934 and the interest of Executive therein is solely that of an investor
owning not more than 5% of any class of the outstanding equity securities of
such business.
3. Term. This Agreement shall be for a term of twenty-four (24) months,
commencing on January 1, 1999, and ending on December 31, 2000, unless sooner
terminated as hereinafter provided. This Agreement shall terminate at the end of
the original term, provided, however, that the parties hereto shall, at least
sixty (60) days prior to the end of the term hereof, use their best efforts to
determine whether the Agreement will be renewed or negotiated.
<PAGE>
4. Compensation.
(a) For all services to be rendered by Executive to Company, Executive
shall receive an annual base salary of Two Hundred and Twenty-Five Dollars
($225,000), payable in accordance with Company's regular payroll practices in
effect from time to time.
(b) In addition to Executive's base salary, Company shall pay to
Executive, on July 31 and January 31 for the preceding six-month periods ending
on June 30 and December 31 of each year during the term of this Agreement, such
bonuses or other additional compensation as the Board of Directors may determine
based upon the achievement of the goals assigned to Executive as set forth in a
Board-approved Business Plan or as may otherwise be determined or agreed to by
the Board. Subject to the achievement of the assigned goals, the total and
aggregate bonuses to be paid to Executive in any year during the term of this
Agreement should not be less than twenty percent (20%) of Executive's annual
salary.
(c) Throughout the term of this Agreement and as long as they are kept
in force by Company, Executive shall be entitled to participate in and receive
the benefits of any profit sharing or retirement plans and any health, life,
accident or disability insurance plans or programs made available to other
similarly situated executives of Company. Specifically, Executive shall be
provided family medical and dental coverage at Company's expense. Executive
shall be entitled to four (4) weeks paid vacation during each year of the term
of this Agreement. Company shall pay Executive for any unused vacation at
December 31st of each year.
(d) Company will provide Executive with an automobile allowance of $450
per month and Company will reimburse Executive for all reasonable expenses
incurred by Executive in connection with the performance of Executive's duties
hereunder, including car phone, cellular phone, and club memberships, upon
receipt of vouchers therefor and in accordance with Company's regular
reimbursement procedures and practices in effect from time to time.
(e) In addition to the stock options granted to Executive in November,
1998 in accordance with the terms of Executive's appointment as a Director of
the Company, pursuant to the Company's 1997 Plan, the Company shall grant to
Executive seventy thousand (70,000) options under the Interactive Flight
Technologies, Inc. Stock Option Plan. Such options shall vest as follows:
fourteen thousand (14,000) on January 1, 1999; fourteen thousand (14,000) on
January 1, 2000; fourteen thousand (14,000) on December 31, 2000; fourteen
thousand (14,000) on January 1, 2002; and fourteen thousand (14,000) on December
31, 2002. The options shall be for a term of ten (10) years from the date of the
grant of such options. If Company does not renew this Agreement or terminates
this Agreement without Cause, fifty percent (50%) of all options granted
hereunder will vest and become exercisable (to the extent not already vested and
exercisable). If Executive leaves Company or is terminated for Cause, Executive
shall be entitled to exercise such options that have vested as of the date of
such event, but no additional options shall vest or be exercisable. Upon a
Change of Control, or if Executive leaves the Company for Good Reason , as
hereinafter defined, all options granted hereunder shall vest as of immediately
prior to such Change of Control. In the event of Executive's disability or
death, Executive's estate shall be entitled to exercise such options that have
vested as of the date of disability or death.
5. Disability. If Executive becomes unable to perform his duties hereunder
due to partial or total disability or incapacity resulting from a mental or
physical illness, injury or any other cause, Company will continue the payment
of Executive's base salary at its then current rate for a
2
<PAGE>
period of twelve (12) weeks following the date Executive is first unable to
perform his duties due to such disability or incapacity. Thereafter, Company
shall have no obligation for base salary or other compensation payments to
Executive during the continuance of such disability or incapacity, except as
provided in the Company's disability policy, if any.
6. Death. If Executive dies, all payments hereunder shall cease at the end
of the month in which Executive's death shall occur and Company shall have no
further obligations or liabilities hereunder to Executive's estate or legal
representative or otherwise.
7. Termination of Company's Business. If (i) Company shall discontinue the
business operation in which Executive is employed, Company may immediately
terminate Executive's employment upon written notice, or (ii) there is a change
of control ("Change in Control", as defined herein), and as a result of such
Change in Control, the Executive is terminated without Cause (as defined in
Paragraph 8 below), then, on the occurrence of either event, Company shall have
no further obligations or liabilities hereunder to Executive, except Company
shall (i) pay Executive an amount equal to two times the remaining base salary
due the Executive for the then current term, but in no event shall Executive
receive less than his base salary for one year, to be paid in accordance with
the regular payroll practices of Company; and (ii) continue to provide Executive
with family medical and dental coverage for a period of 12 months.
(a) Change in Control. The term "Change in Control" shall mean a change
in control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A issued under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") as in effect as of the date hereof, or
if Item 6(e) is no longer in effect, any subsequent regulation issued under the
Exchange Act for a similar purpose, whether or not the Company is subject to
such reporting requirements; provided, that without limitation, such a change in
control shall be deemed to have occurred if:
(i) any "person" is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power of the Company's
then outstanding securities.
(ii) during any period of two consecutive years (not including any
period prior to the date of the Agreement), individuals who at the beginning of
such period constitute the Board of Directors, and any new director, whose
election by the Board or nomination or election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for elections was previously approved, cease for any
reason to constitute a majority of the Board; or
(iii) the business of the Company is disposed of by the Company
pursuant to a liquidation, sale of assets of the Company, or otherwise.
(b) Good Reason. "Good Reason" shall mean the occurrence after a Change
in Control of any of the following events without the Executive's express
written consent:
(i) any change in the Executive's title, authorities,
responsibilities (including reporting responsibilities), which represent a
demotion from his status, title, position or
3
<PAGE>
responsibilities (including reporting responsibilities) as in effect immediately
prior to the Change in Control; the assignment to him of any duty or work
responsibilities which, in his reasonable judgment, are inconsistent with such
status, title, position or work responsibilities; or any removal of the
Executive from or failure to appoint or reelect him to any of such positions,
except in connection with the termination of his employment for Disability,
Retirement or Cause as a result of the Executive's death or by him other than
for Good Reason;
(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;
(iii) the failure of the Company to obtain a satisfactory agreement
from any successor or assign of the Company to assume and agree to perform this
Agreement.
8. Termination For Cause. Company may discharge the Executive and thereby
terminate his employment hereunder for the following reasons (for "Cause"):
(a) habitual intoxication;
(b) habitual illegal drug use or drug addition;
(c) conviction of a felony, materially adversely affecting Company where
such conviction significantly impairs the Executive's ability to perform his
duties hereunder;
(d) while acting in his capacity as Executive of Company, knowingly
engaging in any unlawful activity which could materially adversely affect the
Company;
(e) gross insubordination, gross negligence, or willful and knowing
violation of any expressed direction or regulation established by Company which
is materially injurious to the business or reputation of Company;
(f) misappropriation of corporate funds or other acts of dishonesty;
(g) the Executive's material breach of this Agreement in any other
respect.
In the event that Company discharges the executive for Cause, Company
shall pay to Executive the portion, if any, of the Executive's base salary for
the period up to the date of termination which remains unpaid. The Company shall
have no further obligation or liability under this Agreement.
9. Termination Without Cause. In the event Company terminates this
Agreement without Cause at any time, the Company's sole liability for
compensation to Executive shall be to pay the Executive two times the remaining
balance of the base salary due the Executive for the remainder of the then
current term to be paid in accordance with the regular payroll practices of
Company and provide Executive with family medical and dental coverage for the
same period.
4
<PAGE>
10. Company Property. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, budgets, business plans, strategic plans, financing
applications, reports, memoranda, correspondence, financial statements, and any
other materials or data of any kind furnished to Executive by Company or
developed by Executive on behalf of Company or at Company's direction or for
Company's use or otherwise in connection with Executive's employment hereunder,
are and shall remain the sole and confidential property of Company; if Company
requests the return of any such materials at any time during or at or after the
termination of Executive's employment, Executive shall immediately deliver the
same to Company.
11. Noncompetition, Trade Secrets, Etc.
(a) During the term of this Agreement and for a period of one (1) year
after the termination of his employment with Company for any reason whatsoever,
Executive shall not directly or indirectly induce or attempt to influence any
executive of Company to terminate his or her employment with Company and shall
not engage in (as a principal, partner, director, officer, agent, executive,
consultant or otherwise) or be financially interested in any business operating
within the geographical area described in Exhibit "A", attached hereto, which is
involved in business activities which are the same as, similar to, or in
competition with business activities carried on by Company, or being definitely
planned by Company, at the time of the termination of Executive's employment.
However, nothing contained in this Paragraph 13 shall prevent Executive from
holding for investment no more than five percent (5%) of any class of equity
securities of a company whose securities are traded on a national securities
exchange or on the NASDAQ System.
(b) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Paragraph 10 above or any information regarding the business methods, business
policies, procedures, techniques, research or development projects or results,
trade secrets, or other knowledge or processes of or developed by the Company or
any names and addresses of customers or clients, any data on or relating to
past, present or prospective customers or clients, or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive while in
the employ of Company.
(c) Any and all reports, plans, budgets, writings, inventions,
improvements, processes, procedures and/or techniques which Executive may make,
conceive, discover or develop, either solely or jointly with any other person or
persons, at any time during the term of this Agreement, whether during working
hours or at any other time and whether at the request or upon the suggestion of
the Company or otherwise, which relate to or are useful in connection with any
business now or hereafter carried on or contemplated by the Company, including
developments or expansions of its present fields of operations, shall be the
sole and exclusive property of Company. Executive shall make full disclosure to
Company of all such reports, plans, budgets, writings, inventions, improvements,
processes, procedures and techniques, and shall do everything reasonably
necessary or desirable to vest the absolute title thereto in Company. Executive
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so that Company can prepare and
5
<PAGE>
present applications for copyright or Letters Patent therefor and can secure
such copyright or Letters Patent wherever possible, as well as reissues,
renewals, and extensions thereof, and can obtain the record title to such
copyright or patents so that Company shall be the sole and absolute owner
thereof in all countries in which it may desire to have copyright or patent
protection. Executive shall not be entitled to any additional or special
compensation or reimbursement regarding any and all such writings, inventions,
improvements, processes, procedures and techniques.
(d) Executive acknowledges that the restrictions contained in the
foregoing subparagraphs (a), (b) and (c), in view of the nature of the business
in which Company is engaged, are reasonable and necessary in order to protect
the legitimate interests of Company, and that any violation thereof would result
in irreparable injuries to Company, and Executive therefore acknowledges that,
in the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
(e) If the period of time or the area specified in subparagraph (a)
above should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in such subparagraph (a),
the restrictive period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation shall be
cured by Executive to the satisfaction of Company.
12. Prior Agreements. Executive represents to Company (a) that there are no
restrictions, agreements or understandings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
his employment hereunder, (b) that his execution of this Agreement and his
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which he is a party or by which he is bound
and (c) that he is free and able to execute this Agreement and to enter into
employment by Company.
13. Indemnification. Company shall maintain a Directors and Officers Errors
and Omission Policy with a minimum coverage of Fifteen Million Dollars
($15,000,000). Any deductible and all other costs and expenses which may be
incurred by Executive as a result of his acting in his capacity as an Officer of
the Company shall be paid by Company.
14. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver
6
<PAGE>
shall be effective unless it is in writing and is signed by the party asserted
to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
notwithstanding any conflict-of-laws doctrines of any jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such FedEx or by other messenger) against
receipt or upon actual receipt of registered or certified mail, postage prepaid,
return receipt requested, addressed as set forth below:
(i) If to Company:
Irwin L. Gross, Chairman and CEO
Interactive Flight Technologies, Inc.
1811 Chestnut Street
Suite 120
Philadelphia, PA 19103
with a copy, given in the manner prescribed above, to:
Richard P. Jaffe, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street - 38th Floor
Philadelphia, PA 19103-7598
(ii) If to Executive:
James W. Fox
70 Bickford Lane
New Canaan, CT 06840
with a copy, given in the manner prescribed above, to:
Stephen Marcovich, Esquire
Cummings & Lockwood
Four Stamford Plaza
P.O. Box 120
Stamford, CT 06904-0120
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice
7
<PAGE>
of such change of address in conformity with the provisions of this subparagraph
for the giving of notice.
(d) Exhibits. All Exhibits attached hereto are hereby incorporated by
reference into, and made a part of, this Agreement.
(e) Binding Nature of Agreement; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, except that no party
may assign or transfer its rights nor delegate its obligations under this
Agreement without the prior written consent of the other parties hereto.
(f) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(g) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(h) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
(i) Paragraph Headings. The Paragraph and subparagraph headings in this
Agreement have been inserted for convenience of reference only; they form no
part of this Agreement and shall not affect its interpretation.
(j) Gender, Etc. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
(k) Number of Days. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and Holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or Holiday, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or Holiday. For purposes of this Agreement, the term
"Holiday" shall mean a day, other than a Saturday or Sunday, on which national
banks with branches in the Commonwealth of Pennsylvania are or may elect to be
closed.
8
<PAGE>
(l) Expenses of the Parties. Company shall be responsible for up to
$4,000 in legal expenses incurred in the negotiation and preparation of this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered in Philadelphia, Pennsylvania, as of the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
IRWIN L. GROSS, Chairman and CEO
EXECUTIVE:
-------------------------------------
JAMES W. FOX
9
<PAGE>
EXHIBIT "A"
Under Paragraph 11, Noncompetition, Trade Secrets, Etc., the geographic
area shall be as follows:
Continental United States
10
EXHIBIT 21
SUBSIDIARIES OF INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Exclusive of immaterial subsidiaries and companies in which Registrant hold
a majority interest, Registrant as of October 15, 1999 had the following
subsidiaries:
Place of
Name Incorporation
---- -------------
The Network Connection, Inc.
Georgia
IFT Holdings Limited England
IFT Management Limited England
IFT Leasing Limited England
IFT Lottoco, Inc. Delaware
IFT Subco, Inc. Delaware
Interactive Flight Technologies (Gibraltar) Ltd. Gibraltar
INDEPENDENT AUDITORS' CONSENT
The Stockholders and Board of Directors
Global Technologies, Ltd. and subsidiaries:
We consent to incorporation by reference in the registration statements (Nos.
333-15767 and 333-49319) on Forms S-8 and (No. 333-14013) on Form S-3 of Global
Technologies, Ltd. and subsidiaries of our report dated October 22, 1999,
relating to the consolidated balance sheets of Global Technologies, Ltd. and
subsidiaries as of June 30, 1999 and October 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and
comprehensive income and cash flows for the Transition Period ended June 30,
1999 and each of the years in the two year period ended October 31, 1998, which
report appears in the June 30, 1999, annual report on Form 10-KSB of Global
Technologies, Ltd. and subsidiaries.
KPMG LLP
Phoenix, Arizona
October 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Consolidated Financial Statements as of June 30, 1999 and is qualified in
its entirety by reference to such Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 15,521,275
<SECURITIES> 4,594,751
<RECEIVABLES> 3,919,712
<ALLOWANCES> 3,791,223
<INVENTORY> 1,400,000
<CURRENT-ASSETS> 25,034,356
<PP&E> 2,285,293
<DEPRECIATION> 915,901
<TOTAL-ASSETS> 39,412,621
<CURRENT-LIABILITIES> 5,282,362
<BONDS> 0
0
30
<COMMON> 54,606
<OTHER-SE> 27,599,730
<TOTAL-LIABILITY-AND-EQUITY> 39,412,621
<SALES> 875,957
<TOTAL-REVENUES> 1,582,461
<CGS> 1,517,323
<TOTAL-COSTS> 1,962,908
<OTHER-EXPENSES> 2,573,080
<LOSS-PROVISION> 30,092
<INTEREST-EXPENSE> 74,684
<INCOME-PRETAX> (2,375,835)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,375,835)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,375,835)
<EPS-BASIC> (.44)
<EPS-DILUTED> (.44)
</TABLE>
DATED 1999
CROWN LEISURE SALES LIMITED
and
IFT HOLDINGS LIMITED
AGREEMENT FOR THE SALE AND PURCHASE OF SHARES
IN INTER LOTTO (UK) LIMITED
Chaffe Street
Brook House
77 Fountain Street
Manchester
M2 2EE
Draft : 23 April 1999
<PAGE>
THIS AGREEMENT is made the day of 1999
BETWEEN:-
(1) CROWN LEISURE SALES LIMITED a company registered in England and Wales
under number 02724379 whose registered office is at 139 Brookfield
Place, Walton Summit Centre, Bamber Bridge, Preston PR5 8BF
(hereinafter called "the Seller"); and
(2) IFT HOLDINGS LIMITED a company registered in England under number
3721699 whose registered office is at Brook House, 77 Fountain Street,
Manchester M2 2EE (hereinafter called "the Buyer")
1. INTERPRETATION
In this Agreement and in the Schedules below where the context so admits the
expression:
"associated company" means in respect of any body corporate, a body corporate
which is its subsidiary or holding company or a company which is a subsidiary of
that holding company and each such company;
"the Company" means Inter Lotto (UK) Limited a company registered in England
under number 3036866 and incorporated on 2nd March 1995 as a private company
limited by shares under the Companies Act 1985;
"the Loan Agreement" means a loan agreement between the Seller and the Company
dated 29th April 1999 relating to the repayment by the Company to the Seller of
a loan of (pound)400,000;
"Sale Shares" means the 3,793 Ordinary Shares of 1p each in the capital of the
Company and the 6,207 Deferred Shares of 1p each in the capital of the Company
in each case registered in the name of the Seller;
"Warranties" means the warranties and representations set out in the Schedule.
<PAGE>
2. SALE OF SHARES
(1) Subject to the terms of this Agreement the Seller shall sell with full
title guarantee and the Buyer shall purchase free from all liens,
charges, incumbrances and together with all benefits and rights now or
hereafter attaching thereto the Sale Shares.
(2) The Buyer shall not be obliged to complete the purchase of any of the
Sale Shares unless the purchase of all the Sale Shares is completed
simultaneously.
3. CONSIDERATION
The total consideration for the Sale Shares shall be the sum of (pound)1 receipt
of which the Seller hereby acknowledges.
4. COMPLETION
(1) Completion of the sale and purchase of the Sale Shares is conditional
upon:-
(A) the execution of the Loan Agreement;
(B) the execution of a Deed of Termination in a form and substance
acceptable to the Seller between (1) the Seller, (2)-(7) The
Right Hon. Lord Mancroft and others and (8) the Company,
relating to the termination of a shareholders agreement
between such parties; and
(C) the written waiver of each of the shareholders of the Company
of any pre-emption rights in respect of the Sale Shares.
(2) Subject to Clause 4(1) above completion of the sale and purchase of the
Sale Shares shall take place on 29th April 1999 whereupon the Seller
shall:
(i) deliver to the Buyer duly executed transfers of the Sale Shares
by the registered holders thereof in favour of the Buyer or its
nominees together with the relative share certificates or an
indemnity in respect of lost share certificates in the
<PAGE>
agreed form;
(ii) forthwith cause Paul Roden and Michael Gemson to retire from
their respective offices as directors of the Company each
delivering to the Buyer a letter in the agreed form executed as
a deed made out in favour of the Company acknowledging that the
person so retiring has no claim outstanding for compensation or
otherwise and without any payment under the Employment Rights
Act 1996.
5. WARRANTIES
(1) The Seller hereby warrants and represents to the Buyer in the terms of
the Warranties and acknowledges and accepts that the Buyer is entering
into this Agreement in reliance upon each of the Warranties.
(2) The aggregate liability of the Seller for all claims in respect of
liability for breach of this Agreement shall be limited
to(pound)400,000.
(3) The Seller will be under no liability in respect of any claim for breach
of this Agreement, unless written particulars of this claim (giving
reasonable details of the specific matter in respect of which such claim
is made) shall have been given to the Seller within a period of two
years from the date of this Agreement.
6. RESTRICTION OF SELLER
The Seller undertakes with the Buyer (as trustee for itself and the Company) and
its successors in title that it will not and that it will procure that no
associated company of the Seller shall for the period of one year after this
Agreement either on its own account or in conjunction with or on behalf of any
person, firm or company carry on or be engaged, concerned or interested
(directly or indirectly and whether as principal, shareholder, director,
employee, agent,
<PAGE>
consultant, partner or otherwise) in carrying on any daily lottery or the
management of any daily lottery in Great Britain (other than as a holder of less
than 5 per cent of any class of shares or debentures listed on the London Stock
Exchange or any other recognised stock exchange).
7. JURISDICTION
The validity performance and extent of this Agreement shall be construed in
accordance with English law and the parties hereto submit to the non-exclusive
jurisdiction of the English Courts.
IN WITNESS whereof these presents have been executed the day and year first
above written.
<PAGE>
THE SCHEDULE
The Warranties
1. The Sale Shares comprise the whole of the Seller's legal and/or
beneficial interest in the issued and allotted share capital of the
Company. The Sale Shares are fully paid and are beneficially owned by
the Seller free from any encumbrances.
2. The Seller does not have the right (whether exercisable now or in the
future and whether contingent or not) to call for the allotment, issue,
sale, transfer or conversion of any share or loan capital in the Company
under any option or other agreement (including conversion rights and
rights of pre-emption).
3. The Seller has full power and authority to enter into and perform this
Agreement, may execute and deliver this Agreement and perform its
obligations under this Agreement and this Agreement constitutes valid
and binding obligations on the Seller in accordance with its terms.
<PAGE>
EXECUTED AND DELIVERED as a Deed )
by THE SELLER acting by:- )
Director
Director/Secretary
EXECUTED AND DELIVERED as a Deed )
by THE BUYER acting by:- )
Director
Director/Secretary
DATED
- --------------------------------------------------------------------------------
NORMAN FEINSTEIN & OTHERS
and
IFT HOLDINGS LIMITED
and
INTER LOTTO (UK) LIMITED
- --------------------------------------------------------------------------------
SHAREHOLDERS AGREEMENT
in respect of
INTER LOTTO (UK) LIMITED
- --------------------------------------------------------------------------------
Nabarro Nathanson
50 Stratton Street
London W1X 6NX
Tel: 0171 493 9933
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Subject matter Page
- ------ -------------- ----
<S> <C> <C>
1. DEFINITIONS.....................................................................................2
2. PURCHASE OF SHARES BY IFT.......................................................................6
3. APPOINTMENT OF DIRECTORS........................................................................7
4. SHARE TRANSFERS.................................................................................9
5. APPLICATION OF PROFITS/DIVIDEND DISTRIBUTION....................................................9
6. WARRANTIES.....................................................................................10
7. BOARD MEETINGS AND INFORMATION.................................................................13
8. OPERATION OF THE COMPANY.......................................................................13
9. OPTION.........................................................................................14
10. COUNTERPARTS...................................................................................16
11. GENERAL........................................................................................16
12. TERMS OF THIS AGREEMENT TO PREVAIL.............................................................17
13. SEVERANCE......................................................................................17
14. EXERCISE OF POWERS.............................................................................17
15. UNLAWFUL FETTER ON THE POWERS OF THE COMPANY...................................................18
16. NO PARTNERSHIP.................................................................................18
17. NOTICES........................................................................................19
18. COMPLIANCE WITH THE TERMS OF THE SETTLEMENT AGREEMENT..........................................19
19. FURTHER ASSURANCE..............................................................................20
20. DURATION.......................................................................................20
21. APPLICABLE LAW.................................................................................20
SCHEDULE 1 Current Shareholdings.....................................................21
Current Directors.........................................................21
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SCHEDULE 3 Part 1 - Matters Requiring Shareholders Consent...........................31
Part 2 - Matters Requiring Board Approval.................................33
SCHEDULE 4 The Property..............................................................35
SCHEDULE 5 Intellectual Property.....................................................36
</TABLE>
<PAGE>
SHAREHOLDERS AGREEMENT
DATE: 1999
PARTIES:
(1) NORMAN A. FEINSTEIN of 11 Aspen Drive, N. Caldwell Road, New Jersey 07013,
USA ("NF");
(2) THE RIGHT HON. THE LORD MANCROFT of 19 Tremadoc Road, London, SW4 7NF
("BM");
(3) GARY S. REDISH of 110 Rolling Hills Road, Clifton, New Jersey 07013, USA
("GR");
(4) SIR DAVID TRIPPIER of Dowry Head, Helmshore, Rossendale, Lancashire, BB4
5AE ("DT");
(5) VISCOUNT STRATHALLAN of The Tower House, 46 Tite Street, London SW3 ("ES");
(6) ROY FISHER of 503 Drake House, Dolphin Square, London SW1V 3NW ("RF");
(7) DOUGLAS SMITH of The Buckstone House, Staunton, Coleford GL16 8PD ("DS");
(8) HGI HOUSE & GENERAL INVESTMENT FOUNDATION, a Liechtenstein Foundation of
Post Office Box 154, 9490 Vaduz, Liechenstein ("HGI");
(9) IRWIN GROSS of 722 Pine Street, Philadelphia, Pennsylvania, USA, 19106;
(10) JAMES FOX of 70 Bickford Lane, New Canaan, Connecticut, USA 06840;
(11) CHARLES CONDY of 90 Century Drive, Mill Valley, California, USA 94941;
(12) IFT HOLDINGS LIMITED (Company Number 3721699) whose registered office is at
Brook House, 77 Fountain Street, Manchester M2 2EE ("IFT"); and
(13) INTER LOTTO (UK) LIMITED (Company Number 3036866) whose registered office
is at 50 Stratton Street, London W1X 6NX ("the Company").
RECITALS:
(A) The Company was incorporated on 23rd March 1995 and has at the date hereof
an authorised capital of (pound)1,000 divided into 100,000 Shares of 1p
each.
(B) HGI, BM, GR, DT, ES, RF and DS are, together with Crown Leisure Sales
Limited, the registered holders and beneficial owners of all of the issued
shares in the Company as set out in the First Schedule.
<PAGE>
(C) IFT wishes to become a holder of Shares on the terms and subject to the
provisions of this Agreement by purchasing from Crown Leisure Sales Limited
its entire holding of ordinary and deferred shares in the Company.
(D) The parties have agreed to enter into this Agreement to regulate their
rights in relation to the Company.
IT IS AGREED as follows:
1. DEFINITIONS
1.1 In this Agreement (including the Recitals and Schedules):
"A Directors"
means the directors of the Company from time to time appointed by the
A Shareholders and includes their alternates duly appointed in
accordance with the Articles;
"A Shares"
means the A Ordinary Shares of 1p each in the capital of the Company
from time to time;
"A Shareholders"
means HGI, BM, GR, DT, ES, RF and DS and any other holder for the time
being of the A Shares;
"the Accounts"
means the audited balance sheet of the Company made up as at the
Balance Sheet Date and the audited profit and loss account of the
Company for the period of twelve months ended on the Balance Sheet
Date true copies of which are annexed hereto marked `A' and initialled
by or on behalf of the parties for the purposes of identification;
"agreed form"
means in relation to any document such document in the form agreed
between the parties and initialled by or on behalf of the parties for
the purpose of identification;
"Articles"
means the new Articles of Association of the Company in the agreed
form to be adopted pursuant to the resolutions set out in the Notice
of Meeting and as amended from time to time and any reference to an
"Article" shall be a reference to that article of the said Articles;
2
<PAGE>
"Associate"
means in relation to any person, a person (wherever situated)
connected with that person (and for this purpose the question whether
a person is so connected shall be determined in accordance with
Section 286 of the Taxation of Chargeable Gains Tax Act 1992);
"B Directors"
means the directors of the Company from time to time appointed by the
B Shareholder(s) and includes their alternates duly appointed in
accordance with the Articles;
"B Shares"
means the B Ordinary Shares of 1p each in the capital of the Company
from time to time;
"B Shareholders"
means IFT and any other holder for the time being of the B Shares;
"Balance Sheet Date"
means 31st August 1998;
"Board"
means the Directors for the time being of the Company present at a
duly convened quorate meeting or otherwise taking decisions and
passing resolutions in conformity with the provisions of this
Agreement and the Articles;
"Board Minutes"
means the minutes of a meeting of the Board in the agreed form;
"Business"
means the business of managing lotteries and such other business as
the Board (with the prior consent of IFT) may agree from time to time
should be carried on by the Company;
"Business Day"
means any day which is not a Saturday, Sunday or a bank or public
holiday in England and Wales;
"Business Plan Documents"
means the documentation annexed hereto marked 'B' and initialled by or
on behalf of the parties for the purpose of identification;
"C Shares"
means the C Ordinary Shares of 1p each in the capital of the Company
from time to time;
3
<PAGE>
"C Shareholders"
means MMK Europe Limited or MMK UK Limited and any other holder for
the time being of the C Shares;
"Deferred Shares"
means Deferred Shares of 1p each in the capital of the Company from
time to time;
"Deferred Shareholders"
means IFT and any other holder for the time being of the Deferred
Shares;
"Director"
means any director for the time being of the Company including where
applicable any alternate director;
"Disclosure Letter"
means the letter of disclosure of even date herewith from the
Warrantors to IFT;
"holding company"
shall have the meaning ascribed to such expression by Section 736 of
the Companies Act 1985;
"IFT Agreement"
means the agreement to be made between the Company and IFT Management
Limited in the agreed form;
"the Loan Agreement"
means the Loan Agreement between Crown Leisure Sales Limited and the
Company of even date herewith;
"the Management Accounts"
means the draft unaudited balance sheet of the Company made up as at
31st January 1999 and the draft unaudited profit and loss account of
the Company for the period from 1st September 1997 to 31st January
1999 true copies of which are annexed hereto marked "C" and initialled
by or on behalf of the parties for the purposes of identification;
"Notice of Meeting"
means the notice of extraordinary general meeting of the Company in
the agreed form;
"the Property"
means the property described in the Fourth Schedule;
4
<PAGE>
"Shareholder"
means the A Shareholders or the B Shareholders or the C Shareholders
or the Deferred Shareholders from time to time and the expression
"Shareholders" shall be construed accordingly;
"Shares"
means the A Shares, the B Shares, the C Shares and the Deferred
Shares;
"subsidiary"
shall have the meaning ascribed to such expression in Section 736 of
the Companies Act 1985;
"Subsidiary"
means a subsidiary of the Company;
"Taxation"
includes (without limitation) corporation tax, income tax, capital
gains tax, development land tax, value added tax, customs and other
import duties, inheritance tax, foreign taxation and any payment
whatsoever which the Company may be or become bound to make to any
person as a result of the operation of any enactment relating to
taxation and all penalties charges and interest relating to any claim
for taxation or resulting from a failure to comply with the provisions
of any enactment relating to taxation;
"Taxes Act"
means the Income and Corporation Taxes Act 1988;
"Warranties"
means the warranties contained in Clause 6 or the Second Schedule; and
"Warrantors"
means NF, BM, RF and DS.
1.2 The Schedules following the operative part of this Agreement shall be
deemed to be incorporated in this Agreement.
1.3 In this Agreement:
1.3.1 the Index and Clause headings are inserted for convenience only and
shall not affect the construction of this Agreement;
1.3.2 words denoting the singular shall include the plural and vice versa;
1.3.3 words denoting one gender shall include each gender and all genders;
1.3.4 references to persons shall be deemed to include references to natural
persons, to firms, to partnerships, to bodies corporate, to associations
and to trusts (in each case whether or not having separate legal
personality).
5
<PAGE>
1.4 References in this Agreement to "Clauses" and "Schedules" are references
to Clauses of this Agreement and Schedules to this Agreement; references
to Paragraphs are, unless otherwise expressly provided, references to
Paragraphs of the Schedule in which the references appear and references
to the "parties" or "party" are references to the parties or a party to
this Agreement.
1.5 Words and phrases defined for the purposes of or in connection with any
statutory provision shall, where the context so requires, be construed
as having the same respective meanings in this Agreement.
1.6 References in this Agreement to statutory provisions shall, where the
context so admits, and unless expressly provided otherwise, be construed
as references to those provisions as respectively amended, consolidated,
extended or re-enacted at the date hereof and shall, where the context
so admits or requires, be construed as references to the corresponding
provisions of any earlier legislation (whether repealed or not) directly
or indirectly amended consolidated extended or replaced thereby or
re-enacted and shall include where appropriate any orders, regulations,
instruments or other subordinate legislation made under the relevant
statute.
2. PURCHASE OF SHARES BY IFT
Upon the execution of this Agreement:
2.1 IFT shall purchase from Crown Leisure Sales Limited 3,793 Ordinary
Shares of 1p each in the Company which shall be re-designated as B
Shares pursuant to the special resolutions referred to in Clause 2.2 and
6,207 Deferred Shares.
2.2 The Shareholders shall procure that an extraordinary general meeting of
the Company shall be held on short notice at which the special
resolutions set out in the Notice of Meeting shall be passed.
2.3 The Shareholders shall procure that:
2.3.1 a board meeting of the Directors shall be held at which the business
referred to in the Board Minutes shall be transacted and the documents
and forms referred to therein shall be executed and signed; and
2.3.2 the register of members of the Company shall be written up to reflect
the transfers referred to in Clause 2.1 and share certificates in
respect of the B Shares and Deferred Shares referred to in Clause 2.1
shall be issued in favour of and delivered to the B Shareholder.
2.4 The Company and IFT Management Limited shall enter into the IFT
Agreement.
3. APPOINTMENT OF DIRECTORS
3.1 The appointment, dismissal and conduct of Directors shall be regulated
in accordance with this Agreement and the Articles.
6
<PAGE>
3.2 The number of Directors holding office at any time shall be seven unless
otherwise expressly agreed in writing by each of the Shareholders.
3.3 The A Shareholders shall be entitled to appoint three Directors and the
B Shareholders shall be entitled to appoint three Directors. NF, RF and
BM shall be the first A Directors and Irwin Gross, James Fox and Charles
Condy shall be the first B Directors. The A and B Shareholders
respectively shall at any time be entitled to require the removal or
substitution of any such Director so appointed by them pursuant to the
powers conferred on the relevant Shareholders by the Articles. Any
Director so appointed by the A Shareholders shall be designated as an A
Director and any Director so appointed by the B Shareholders shall be
designated as a B Director.
3.4 In addition, an independent Director shall be appointed by the A
Directors and the B Directors acting by a simple majority (which
majority must include all the B Directors). Peter Lynch shall be the
first such independent director.
3.5.1 In the case of an equality of votes at any meeting of the Board or the
Company, the Chairman of the meeting shall not be entitled to a second
vote.
3.5.2.1 Notwithstanding any provision to the contrary contained in this
Agreement or the Articles of Association of the Company from time to
time or the Articles or the IFT Agreement, if the Warrantors commit an
event of default, IFT (at any time thereafter) may serve a notice in
writing upon the Company specifying that with effect from the date of
such notice the B Directors shall have such number of votes in relation
to resolutions of the Board which exceed by one the number of votes in
aggregate of the other directors (including (if applicable) the vote of
any independent director or Chairman) whereupon this Agreement shall be
read and construed accordingly and the parties hereto shall forthwith
cause the Articles of Association of the Company to be amended
accordingly.
3.5.2.2 For the purposes of Clause 3.5.2.1 an event of default is committed by
the Warrantors if there shall be any material breach of any material
warranty included in the Warranties contained in the Second Schedule
arising in consequence of fraud or knowing non-disclosure by the
Warrantors or any of them and, in the case of a breach capable of
remedy, such breach is not remedied within 90 days of the Warrantors
being given written notice from IFT requiring them to do so and
referring to the consequences arising under Clause 3.5.2.1 of any
failure to do so.
3.6.1. On the execution of this Agreement BM, RF and DS shall each enter into
service agreements with the Company in the agreed form. Each of BM, RF
and DS hereby agrees and acknowledges that if he commits an event of
default then such event of default shall be deemed to be a breach by him
of his said service agreement entitling the Company to terminate that
service agreement summarily without liability to pay compensation or
damages to him and upon any such termination he shall forthwith resign
as a director of the Company and its subsidiaries.
3.6.2 For the purposes of Clause 3.6.1 an event of default is committed by BM,
RF or DS if there shall be any material breach by him in his capacity
as a Warrantor of any of any material warranty included in the
Warranties arising in consequence of his fraud
7
<PAGE>
or knowing non-disclosure and, in the case of a breach capable of
remedy, such breach is not remedied within 90 days of him being given
written notice from IFT requiring him to do so and referring to the
consequences arising under Clause 3.6.1 of any failure to do so.
3.6.3 Save pursuant to the agreements referred to in Clause 3.6.1 and as
hereinafter provided, no Director nor any of NF, BM, GR, DT, ES, RF or
DS shall receive any remuneration, emoluments or benefits or directors
fees from the Company PROVIDED that non-executive directors shall be
paid directors fees of an amount agreed by the Board.
3.6.4 The Directors (insofar as the same is not provided for in any contract
with the Company) shall be reimbursed for all reasonable expenses
properly incurred by them in connection with the business of the Company
subject to production of vouchers or other evidence of payment in
support and subject to agreement by the Board.
3.7 Each Director shall be entitled in accordance with the Articles to
appoint an alternate Director of his choice to represent his principal
in all respects.
3.8 Without prejudice to their rights hereunder it is agreed that the A
Shareholders proposing to appoint or remove an A Director under this
Clause and the Articles will consult with the B Shareholders before
giving notice under the Articles to do so and vice versa.
3.9 The A Shareholders and the B Shareholders undertake to each other that
at any one time there will be at least one Director appointed by them or
it pursuant to Clause 3.3 able and willing to act as such Director and
further undertake that they will procure that such Director (or his
alternate) shall not wilfully absent himself from any Board Meeting so
as to prevent the transaction of business thereat.
3.10 If all of the A Shareholders cease to be the registered holders of any A
Shares for whatever reason or all the B Shareholders cease to be the
registered holders of any B Shares for whatever reason, then upon them
or it so ceasing to be the holder(s) of such Shares, they or it shall
procure that the Director(s) nominated by them or it will resign
immediately without payment for compensation for loss of office or
otherwise.
3.11 IFT shall be entitled to bring any advisor and/or observer to any
meeting of the Directors of the Company (or any committee thereof) but
for the avoidance of doubt no such advisor or observer shall be entitled
to vote at any such meeting.
4. SHARE TRANSFERS
4.1 The transfer of Shares shall be regulated in accordance with the
Articles and each Shareholder shall exercise all voting rights and
powers available to it in relation to the Company so as to procure
registration of any transfer of shares permitted by the Articles.
8
<PAGE>
4.2 Save as expressly provided in the Articles, no Shareholder shall:
4.2.1 pledge, mortgage (whether by way of fixed or floating charge) or
otherwise encumber its legal or beneficial interest in its Shares; or
4.2.2 sell, transfer or otherwise dispose of any of such Shares (or any legal
or beneficial interest therein); or
4.2.3 enter into any agreement in respect of the votes or other rights
attached to Shares; or
4.2.4 agree, whether or not subject to any condition precedent or subsequent,
to do any of the foregoing.
4.3 In Clause 4.2 the expression "Shares" includes all Shares owned or to be
acquired by any Shareholder after the date of this Agreement under or
pursuant to this Agreement or by virtue of its shareholding in the
Company.
4.4 If any of the Shareholders shall purport to deal with any of its Shares
in contravention of the provisions of Clause 4.2 the Company shall not
register any transfer made in breach of Clause 4.2 and the Shares
comprised in any transfer so made shall carry no rights whatsoever
unless and until, in each case, the breach is rectified.
4.5 It shall be a condition precedent to any transfer or transmission of any
Shares by any party during the continuance in force of this Agreement
that the proposed transferee of such Shares shall have first agreed in
writing with the then parties to this Agreement (who shall be bound to
enter into such agreement) that upon the transfer or transmission of the
Shares concerned such transferee will observe and be bound by and have
the benefit of all provisions hereof so far as they affect the
transferor of such Shares as though the transferee were a party to this
Agreement and that such transferee shall procure an agreement on the
part of the transferee of any of the said Shares from him in similar
terms.
5. APPLICATION OF PROFITS/DIVIDEND DISTRIBUTION
Subject as hereinafter provided after making appropriate provisions for
Taxation, the Company's earnings available for distribution as
determined by the audited accounts of the Company for any financial year
or other accounting period shall be applied in making distributions to
the Shareholders by way of dividend, subject to such reasonable and
proper reserves being retained for working capital requirements or other
liabilities of the Company as the Board may consider appropriate
PROVIDED that no such distributions shall be made unless and until:
(a) any payments due in respect of the Continuing Loan (as defined
in the Loan Agreement) have been paid in full; and
(b) any loans, loan stock or preference shares (or any payments due
thereon) payable to the Shareholders or their Associates or
other indebtedness of the Company to the Shareholders or their
Associates (including without limitation any amount then
outstanding in respect of the loan of (pound)200,000 made to the
Company by IFT to
9
<PAGE>
enable the Company to repay part of its indebtedness to Crown
Leisure Sales Limited) have been paid in full.
6. WARRANTIES
6.1.1 The Warrantors hereby jointly and severally warrant to IFT in the terms
of the Second Schedule.
6.1.2 Each of the Warrantors hereby agrees and acknowledges that IFT will in
purchasing shares in the capital of the Company as referred to in Clause
2.1 and further investing in the Company be doing so in reliance on the
Warranties.
6.1.3 The Warranties shall continue in full force and effect notwithstanding
completion of this Agreement.
6.1.4 It is hereby expressly agreed and declared that where any statement
contained in any of the Warranties is qualified by the expression "so
far as the Warrantors are aware" or "to the best of the Warrantors
knowledge and belief" or any similar expression that statement shall in
any case be deemed to include an additional statement that it has been
made after due and careful enquiry.
6.2.1. If any fact or matter comes to the notice of any of the Warrantors which
may give grounds for a claim under the Warranties the Warrantors shall:
(1) as soon as reasonably practicable give written notice thereof to
IFT;
(2) not on behalf of the Company make any agreement or compromise
with any person body or authority in relation thereto without
prior consultation with or the prior agreement of IFT;
(3) (so far as they are able) give to IFT and its professional
advisers reasonable access to the premises and personnel of the
Company and the Subsidiaries as the case may be and to any
relevant chattels documents and records within the power
permission or control of the Company and the Subsidiaries to
enable IFT and its professional advisers to examine such
chattels accounts documents and records and to take copies or
photographs thereof at their own expense.
6.2.2 The Company shall at its own expense take all such action as IFT may
reasonably request to pursue any such claim as aforesaid (including
without prejudice to the generality of the foregoing the institution of
legal proceedings) but so that (for the avoidance of doubt) IFT shall
not be required to indemnify the Company as to any costs and expenses
which it may incur by reason of such action.
6.3 Each of NF, BM, RF and DS hereby severally warrants to IFT and each of
Irwin Gross, James Fox and Charles Condy severally warrants to the A
Shareholders that:
(a) he has never been a director shareholder partner or proprietor
or otherwise connected with any company firm or partnership
which has been the subject of an inspection by the Department of
Trade and Industry or an investigation by the
10
<PAGE>
police, the Inland Revenue, the Department of Health and Social
Security or the Customs and Excise or any professional body or
any other similar authority or professional body in any country
of the World;
(b) he has never been convicted of a criminal offence (other than
road traffic offences not involving personal injury or
dishonesty);
(c) he has not been a director or senior executive employee of any
company in respect of which a receiver has been appointed or
which has gone into liquidation whilst he was a director or
employee of such Company or within the period of 12 months
following his ceasing to be a director or employee of such
company.
6.4.1 The following sub-clauses of this Clause 6.4 shall operate to limit the
liability of the Warrantors for damages for breach of the Warranties
contained in the Second Schedule (which for the avoidance of doubt
exclude the warranties contained in Clause 6.3) but shall not apply
further or otherwise and in particular, but without prejudice to the
generality of the foregoing this Clause 6.4 shall not apply in relation
to, or prejudice or in any way affect the provisions of Clauses 3.5.2,
3.6.1, 3.6.2 or 9 of this Agreement. Accordingly, in this clause,
"Relevant Claim" means any claim for damages under the Warranties.
6.4.2 (a) The liability of the Warrantors in respect of all and any
Relevant Claims shall be limited so that NF shall not in any
circumstances be liable for more than 70% of any Relevant Claim,
BM shall not in any circumstances be liable for more than 11.5%
of any Relevant Claim, RF shall not be liable for more than
11.5% of any Relevant Claim and DS shall not be liable for more
than 7% of any Relevant Claim.
(b) Except for Relevant Claims arising from fraud or knowing
non-disclosure, IFT's sole recourse and the Warrantors' sole
liability for Relevant Claims shall be against and from the
Warrantors' interest in the Company, whether as shares in the
Company or rights to distributions from the Company. HGI and NF
hereby undertake to take all action necessary to procure that
this Clause (b) can be enforced at all times and in all respects
as if NF were the holder of all the Shares held by HGI and
entitled to all the rights attached to those shares.
6.4.3. The Warrantors shall not be liable in respect of a Relevant Claim unless
the aggregate liability of the Warrantors in respect of all Relevant
Claims exceeds (pound)20,000 in which case the Warrantors shall be
liable for the whole amount and not merely the excess over
(pound)20,000.
6.4.4 The Warrantors shall have no liability in respect of any Relevant Claim
unless IFT shall have given notice in writing to the Warrantors of such
claim specifying (in reasonable detail) the matter which give rises rise
to the claim, the nature of the claim and the amount claimed in respect
thereof not later than:
(A) in the case of a Relevant Claim relating to Taxation, seven
years after the date of this Agreement; or
(B) in any other case, the date 18 months after the date of this
Agreement.
11
<PAGE>
6.4.5 The Warrantors shall have no liability in respect of any Relevant Claim:
(a) if and to the extent that such liability arises, occurs or
increases as a result of any retrospective legislation not in
force at the date hereof or as a result of any retrospective
change in law or published practice of a tax authority
hereafter;
(b) if and to the extent that such liability arises, occurs or
increases as a result of any change in the basis or method of
calculation of or any increase in the rate or rates of Taxation
in force at the date hereof or any change or new form of
Taxation made after the date hereof, in each case having
retrospective effect;
(c) if and to the extent that liability arises, occurs or increases
as a result of any voluntary act of the Company acting at the
express direction of IFT Management Limited pursuant to the IFT
Agreement or with the express prior written consent of IFT after
the date hereof otherwise than in the ordinary course or proper
course or business; or
(d) if and to the extent that allowance, provision (excluding the
deferred tax provision), reserve or note has been made in the
Accounts in respect of such liability or to the extent that the
existence or payment or discharge of such liability has been
taken into account in the Accounts.
6.4.6 IFT shall not be entitled to claim that any facts or circumstances
constitute or give rise to any liability in respect of any Relevant
Claim if such fact or circumstance has been fairly disclosed in the
Disclosure Letter.
6.4.7 IFT shall reimburse to the Warrantors an amount equal to any sum paid by
the Warrantors in respect of any Relevant Claim which is recovered by
IFT or the Company from any insurance company less the costs and
expenses of recovery to the extent that payment has been made by the
Warrantors or any of them to settle a claim pursuant to the Warranties
in respect of the same matter which has resulted in such recovery and if
the recovery is more than the amount paid by the Warrantors then IFT
shall only be liable to account for the said amount less the costs and
expenses of recovery.
6.4.8 The Warrantors shall have no liability in respect of any Relevant Claim
relating to a breach capable of remedy unless such breach is not
remedied within 90 days of the Warrantors being given written notice
from IFT requiring them to do so and referring to the consequences
arising under this Clause 6.4.8 of any failure to do so.
6.4.9 The Warrantors will (so far as they are able) procure that the Company
will use all reasonable efforts to obtain the approval of the Gaming
Board for Great Britain of the purchases and issues of Shares referred
to in Clauses 2.1 and 9 and the changes in directors and all other
constitutional changes relating to the Company provided for in this
Agreement or the Articles and confirmation from the Gaming Board for
Great Britain that it will regard the Company as a fit and proper person
to manage a lottery following such transfer, issues and changes.
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<PAGE>
7. BOARD MEETINGS AND INFORMATION
7.1 The Company hereby authorises IFT to consult fully with the bankers to
the Company as to its affairs and to exchange information whether oral
or written in such manner as IFT and the said bankers shall deem
necessary.
7.2 The parties agree to procure that:
(a) Board Meetings of the Company shall be held at not less than
three monthly intervals and at such other times as IFT may
reasonably require ("meeting" shall include video conferencing
or teleconferencing);
(b) the Company will enforce from time to time the terms of the
Service Agreements and the IFT Agreement;
(c) IFT shall have the right to attend at any time during normal
business hours at the premises of the Company for the purposes
of inspecting books and records and (at times mutually
convenient to the parties) consultation with the directors and
employees of the Company and otherwise as it may require;
(d) (Without prejudice to any rights of IFT or the B Directors):
(i) IFT shall be entitled to receive at least five working
days' prior written notice of any meeting of the
directors of the Company giving full particulars of the
subject matter to be considered (other than in an
emergency when as much notice and as many particulars as
are reasonably practicable shall be given); and
(ii) the Company shall thereafter provide to IFT copies of
all documents, papers and reports that are given to the
directors of the Company or otherwise considered at any
Board meeting of the Company and at the same time as
such documents, papers and reports are given to the
Directors.
8. OPERATION OF THE COMPANY
8.1 Notwithstanding any other provision hereof or contained in the Articles
of Association of the Company from time to time or the Articles or the
IFT Agreement during the continuance of this Agreement the Company shall
not without first obtaining the prior consent in writing of at least
three A Shareholders together holding not less than 75% of the issued A
Shares and the holder(s) of more than half of the issued B Shares allow
or permit to occur any of the events referred to in Part 1 of the Third
Schedule in relation to the Company or any Subsidiary.
8.2 Notwithstanding any other provision hereof or contained in the Articles
of Association of the Company from time to time or the Articles or the
IFT Agreement during the continuance of this Agreement the Company shall
not without the prior approval of the Board allow or permit to occur any
of the events referred to in Part 2 of the Third Schedule in relation to
the Company or any Subsidiary.
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<PAGE>
8.3 Notwithstanding any provision to the contrary contained in the Articles
of Association of the Company from time to time or the Articles or the
IFT Agreement the parties hereby mutually agree and undertake and shall
use their respective powers to procure that:
(a) the business of the Company consists exclusively of the
Business;
(b) all cheques or other bankers payment instructions (or series of
related cheques or other bankers payment instructions) drawn by
the Company or any of the Subsidiaries in excess of
(pound)15,000 are signed by at least one A Director and one B
Director PROVIDED that this sub-clause (b) shall not apply in
respect of any payments to any of the following: the Inland
Revenue, H.M. Customs & Excise, any Society Trust Account or
Prize Fund Trust Account maintained by the Company, IFT, IFT
Management Limited or the principal service provider or to the
payment of regular monthly salaries via the Company's pay-roll
system;
(c) the board of directors of the Company determines the general
policy of the Company (including all strategies, budgets and
guidelines) (subject to the express provisions of this
Agreement), including the scope of its respective activities and
operations.
8.4.1. Where this Agreement provides that any particular transaction or matter
requires the consent, approval or agreement of IFT or the A Shareholders
or the B Shareholders (or any of them) such consent approval or
agreement may be given subject to such terms and conditions as IFT or
such A Shareholders or B Shareholders may impose and any breach of such
terms and conditions by any person subject thereto shall ipso facto be
deemed to be a breach of the terms of this Agreement.
8.4.2 If the consent approval or agreement of IFT or any A Shareholders or B
Shareholders is required under more than one provision of this Agreement
for any one transaction or matter then any consent approval or agreement
given in relation to that transaction or matter by IFT or any A
Shareholders or B Shareholders shall be deemed to cover all consents
approvals or agreements required for that transaction or matter unless
otherwise specified by IFT or such A Shareholders or B Shareholders.
8.4.3 Where this Agreement provides that any transaction or matter is required
to be done at the discretion of IFT or the A Shareholders or B
Shareholders (or any of them) then such discretion may be exercised by
IFT or such A Shareholders or B Shareholders or on its or their behalf
in an absolute and unfettered manner (subject as herein expressly
stated).
9. OPTION
9.1 Notwithstanding any provision to the contrary contained in this
Agreement or the Articles if any A or B Shareholder commits or suffers
an event of default, the other A and B Shareholders shall be entitled,
within 60 days of becoming aware of the occurrence of the event of
default, to require the defaulting Shareholder to sell all (but not some
only) of the Shares held or beneficially owned by the defaulting
Shareholder or its Associates to the other A and B Shareholders for the
prescribed price. The option shall be exercised by the other A and B
Shareholders or any of them delivering written
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<PAGE>
notice to the defaulting Shareholder stating that the option is
exercised. As between the said other Shareholders the option shall be
exercisable and the shares held or beneficially owned by the defaulting
shareholders shall be allocated (so near as may be) in accordance with
the provisions of paragraph 6 of the Articles to the extent that such
provisions are consistent with this clause and excluding the C
Shareholders from any entitlement.
9.2 If the option is exercised, the defaulting Shareholder shall deliver to
the other A and B Shareholders, within 14 days of the date of the
prescribed price being agreed or determined under Clause 9.3(c) (a) duly
executed transfer(s) of all the Shares held or beneficially owned by it
or its Associates in favour of the other A and B Shareholders upon full
payment to it in sterling in London of the prescribed price. The Shares
which are transferred shall be deemed to be sold by the transferor as
beneficial owner with effect from the date of the transfer, free from
any lien, charge or encumbrance and with all rights attaching to them as
at the date of exercise of the option.
9.3 For the purpose of this Clause:
(a) an event of default is committed or suffered by an A or B
Shareholder if:
(i) he commits a material breach of his obligations under
this Agreement (including without limitation any
material breach of any material warranty included in the
Warranties) and, in the case of a breach capable of
remedy, such breach is not remedied within 90 days of
him being given written notice from all or any of the
other shareholders requiring him to do so and referring
to the consequences arising under this clause of any
failure to do so; or
(ii) a distress, execution, sequestration or other process is
levied or enforced upon or sued out against his property
which is not discharged within 10 days or he shall be
adjudged bankrupt or enter into a formal voluntary
arrangement with his creditors;
(b) any event of default committed or suffered by Norman Feinstein
shall be deemed to be an event of default committed or suffered
by HGI;
(c) "the prescribed price" means such sum in respect of the Shares
forming the subject matter of the option as may be agreed
between the Shareholders within 21 days of the date of the
notice exercising the option or (in default of agreement between
them) such sum as the specified experts certify to be, in their
opinion, the fair value of those Shares as between a willing
buyer and a willing seller contracting on arm's length terms,
having regard to the fair value of the Business as a going
concern as at the date of the notice exercising the option, but
without taking into account (if it is the case) that the
relevant Shares represent a minority interest in the Company;
(d) "the specified experts" means such firm of accountants as, on a
request by any Shareholder the making of which is promptly
notified to the other, is nominated by the President of the
Institute of Chartered Accountants in England and Wales.
9.4 The specified experts shall be instructed to determine which of the
Shareholders should bear, or in what proportions they should share, the
specified experts' costs of certifying the prescribed price. In making
their determination, the specified experts shall have
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<PAGE>
regard to the efforts made by each of the Shareholders to agree the
prescribed price under this Clause 9.
10. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which when either delivered personally or transmitted by facsimile shall
be deemed to be an original, and which together shall constitute one and
the same Agreement. Unless otherwise provided in this Agreement, this
Agreement shall become effective and be dated (and each counterpart
shall be dated) on the date on which this Agreement (or a counterpart of
this Agreement) is signed by the last of the parties to execute this
Agreement or, as the case may be, a counterpart thereof.
11. GENERAL
11.1 None of the Shareholders shall assign or transfer or purport to assign
or transfer any of its rights or obligations under this Agreement
without the prior written consent of the other Shareholders.
11.2 This Agreement shall be binding on and shall enure for the benefit of
the respective successors in title of each party to this Agreement.
11.3 The rights of any party hereto shall not be prejudiced or restricted by
any indulgence or forbearance extended to any other party and no waiver
by any party in respect of any breach shall operate as a waiver in
respect of any subsequent breach.
11.4.1. This Agreement together with the agreements referred to herein
supersedes any previous agreement between the parties in relation to the
matters dealt with herein and represents the entire understanding
between the parties in relation thereto.
11.4.2 Save as otherwise expressly provided, no modifications, amendments or
waiver of any of the provisions of the Agreement shall be effective
unless made in writing specifically referring to this Agreement and duly
signed by the parties hereto.
11.5 Notwithstanding the terms of the IFT Agreement all fees of Chaffe Street
and Mesirov Gelman and any finders fee payable to Henry Kauftheil in
connection with the transactions contemplated by this Agreement shall be
payable by the IFT Group (as defined in the IFT Agreement) in the first
instance and all fees of Nabarro Nathanson in connection with the
transactions contemplated by this Agreement shall be payable by the
Warrantors (in proportion to their shareholdings) in the first instance
and such fees shall be reimbursed as provided in the IFT Agreement save
that such reimbursement shall only be made by payment by the Company of
lawful dividends or in such other manner as shall not constitute
unlawful financial assistance within the meaning of Section 151 of the
Companies Act 1985.
To the extent that any payments are made by way of dividend, the parties
shall take all steps as shall be necessary in relation to the dividend
payments to put all parties in the
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<PAGE>
same position (as near as may be) as if such reimbursement by way of
dividend had been a payment of Inter Lotto Revenue Share pursuant to
Clause 7.1 of the IFT Agreement.
12. TERMS OF THIS AGREEMENT TO PREVAIL
12.1 As between the parties (other than the Company) in the event of any
ambiguity or conflict arising between the terms of this Agreement and
those of the Company's Memorandum and Articles of Association from time
to time, to the extent of any such ambiguity or conflict the terms of
this Agreement shall prevail and the Shareholders shall cause the
Memorandum of Association and Articles of Association of the Company to
be amended accordingly.
12.2 As between the parties in the event of any ambiguity or conflict arising
between the terms of this Agreement and those of the IFT Agreement, to
the extent of any such ambiguity or conflict the terms of this Agreement
shall prevail, save in relation to Clause 5 in relation to which the
terms of the IFT Agreement shall prevail.
13. SEVERANCE
13.1 Each provision of this Agreement shall be enforceable independently of
all other provisions and its validity, legality or enforceability shall
not be affected if any other provision becomes invalid, illegal or
unenforceable in any respect under any law.
13.2 If at any time any provision of this Agreement becomes invalid, illegal
or unenforceable in any respect by reason that the Company is a party to
that provision and that provision purports lawfully to fetter the
Company's statutory powers, the provisions of Clause 15 (Unlawful Fetter
on the Powers of the Company) shall determine what action shall be taken
by the parties to this Agreement (other than the Company).
13.3 In respect of all provisions of this Agreement (but in those cases where
the provisions of Clause 14.2 must be complied with, following
compliance therewith) if at any time any provision of this Agreement is
or becomes invalid, illegal or unenforceable in any respect under any
law but would be or become valid, legal or enforceable if some part of
the provision were deleted or amended, the provision in question shall
remain in force with such deletion or with such amendment as may be
necessary to make the provision valid, legal and enforceable.
14. EXERCISE OF POWERS
14.1 Where the parties to this Agreement (other than the Company) are
required under this Agreement to exercise their powers in relation to
the Company to procure a particular matter or thing, such obligation
shall be deemed to include the obligation to exercise their powers both
as shareholders and as Directors (where applicable) of the Company to
procure such matter or thing.
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<PAGE>
14.2 In order to discharge their obligations under Clause 14.1 each of the
said parties to this Agreement shall join with the other said parties to
convene meetings, propose resolutions and vote for resolutions and
procure that any Director appointed by it (whether alone or jointly with
any other person) shall exercise its votes as a Director to procure such
matter or thing referred to in Clause 14.1.
14.3 The parties hereto shall procure as far as each is lawfully able to do
so that there shall be a quorum for any general meeting or board meeting
of the Company by whomsoever called.
15. UNLAWFUL FETTER ON THE POWERS OF THE COMPANY
15.1 If and to the extent that any provision of this Agreement to which the
Company is a party shall purport unlawfully to fetter the Company's
statutory powers the parties to this Agreement (other than the Company)
agree that such provision shall be read and construed as though the
Company is not a party thereto and that no obligation is imposed upon
the Company.
15.2 If any other party or parties to this Agreement other than the Company
is a party to such a clause containing such provision, such clause shall
continue in full force and effect to the fullest extent possible (but so
that such provision shall not bind the Company) and shall in all other
respects remain binding upon the said party or parties and the said
party or parties in accordance with the provisions of Clause 14 shall
procure the Company to do and perform all the obligations imposed on it
and which it had undertaken to do or perform.
15.3 If the only party to such a clause containing such a provision is the
Company the other party or parties to this Agreement (other than the
Company) in accordance with the provisions of Clause 14 shall procure
the Company to do and perform all the obligations imposed on it and
which it had undertaken to do or perform.
16. NO PARTNERSHIP
16.1 Nothing in this Agreement shall be deemed to constitute a partnership
between the parties nor constitute any party the agent of any other
party for any purpose.
16.2 No party shall (save as expressly provided herein) have any authority to
bind any other party in any way.
16.3 The Shareholders will account separately to the relevant taxation
authorities for the taxation of their respective proportions of the
dividends of and/or payments by the Company and will bear no liability
whatsoever for taxation in respect of the portion of the dividends of
and/or payments by the Company attributable to the other Shareholders.
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<PAGE>
17. NOTICES
17.1 Any notice given under this Agreement shall either be delivered
personally or sent by first class recorded delivery post (air mail if
overseas) or telex, facsimile transmission or comparable means of
communication. The address for service of each party shall be (in the
case of an individual) the address set out at the head of this Agreement
or at such other address within the United Kingdom for service
previously notified to the other parties or (in the case of IFT)
Interactive Flight Technologies, Inc., Office of the Chairman, 1811
Chestnut Street, Suite 120, Philadelphia, PA 19103, USA or such other
address for service previously notified to the other parties or (in the
case of any other company) its registered office for the time being. A
notice shall be deemed to have been served as follows:
17.1.1 if personally delivered, at the time of delivery;
17.1.2 if posted, at the expiration of 48 hours or (in the case of air mail)
seven days after the envelope containing the same was delivered into the
custody of the postal authorities; and
17.1.3 if sent by facsimile transmission or comparable means of communication,
at the time of transmission (if the notice is sent before 5.00 p.m. on a
Business Day) otherwise at 9.00 a.m. on the next following Business Day.
17.2 In proving such service (without prejudice to any other means of proof)
it shall be sufficient to prove that personal delivery was made, or that
the envelope containing such notice was properly addressed and delivered
into the custody of the postal authority of the country of despatch as a
prepaid first class recorded delivery or air mail letter (as
appropriate) or that in relation to a facsimile transmission or other
comparable means of communication, that a confirming copy thereof was
personally delivered or sent by first class recorded delivery or air
mail letter (as appropriate) within 24 hours after transmission.
17.3 The address for service of any notice to be served on the Directors from
time to time pursuant to this Agreement shall be the address stated in
the Companies form notifying their appointment as Directors, or such
other address notified in writing by the Directors to the Company.
18. compliance with the terms of the settlement agreement
Notwithstanding any other provision of this Agreement the Shareholders
shall cause such amendments (if any) to be made to the terms of this
Agreement and/or the Memorandum and/or Articles of Association of the
Company from time to time as IFT shall determine to be necessary to
ensure that the Company is not in breach of the terms of the Settlement
Agreement and IFT is irrevocably authorised to appoint any person in the
name of any Shareholders and on his/its behalf to sign any document and
to do all other things requisite to give effect to such amendments.
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19. FURTHER ASSURANCE
Each of the parties shall co-operate with the others and execute and
deliver to the other such other instruments or documents and take such
other actions as may be reasonably requested from time to time in order
to carry out, evidence and confirm their rights and intended purpose of
this Agreement.
20. DURATION
This Agreement shall continue in full force and effect until the first
to occur of the following dates:
(a) the date on which the Shareholders cease to be beneficially
entitled in aggregate to 51 per cent or more of the equity share
capital of the Company or otherwise cease between them to
control (as defined by Section 839/840 of the Taxes Act) the
affairs of the Company; or
(b) the date of commencement of the Company's winding-up;
Provided that the terms of this Agreement shall nevertheless continue to
bind the parties hereto thereafter to such extent and for so long as may
be necessary to give effect to the rights and obligations embodied
herein.
21. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
English law and each of the parties submits to the non-exclusive
jurisdiction of the Supreme Court of Judicature of England in relation
to any claim, dispute or difference which may arise in relation to the
Agreement.
IN WITNESS whereof this Deed has been duly executed and delivered the day and
year first above written.
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SCHEDULE 1
Current Shareholdings
<TABLE>
<CAPTION>
Name of Shareholder Number of Ordinary Shares Number of Deferred Shares
- ------------------- ------------------------- -------------------------
<S> <C> <C>
HGI 6,695
The Right Hon. Lord Mancroft 1,103
Gary S. Redish 276
Sir David Trippier 66
Viscount Strathallan 66
Roy Fisher 1,103
Douglas Smith 691
Crown Leisure Sales Limited 3,793 6,207
======== ======
13,793 6,207
======== ======
</TABLE>
Current Directors
Lord Mancroft
Norman A. Feinstein (alternate G. Redish)
Roy Fisher
Michael Gemson
Paul Roden
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SCHEDULE 2
Warranties
(1) The Company
(a) The Company:
(i) has no subsidiaries;
(ii) has not passed any elective resolution (within the
meaning of Section 379A of the Companies Act 1985);
(iii) is validly incorporated under the laws of England and
entitled to do business wherever necessary.
(b) The persons listed as such in the First Schedule are the only
directors and the only shareholders of the Company and their
shareholdings are as set out in the First Schedule all of which
shares are fully paid up.
(c) There are no options or agreements outstanding which call for
the issue of or accord to any person or company the right to
call for the issue of any shares in the capital of the Company
and the authorised share capital of the Company immediately
following completion of this Agreement will be (pound)1,000.
(d) The entering into this Agreement by the Company has been decided
on by the directors of the Company.
(e) There is annexed to this Agreement a true copy of the Memorandum
and Articles of Association of the Company together with a copy
of every such resolution or agreement as is referred to in
Section 380 of the Companies Act 1985.
(f) No administrator, administrative receiver, receiver, manager or
receiver and manager has been appointed of the whole or any part
of the assets or undertaking of the Company and no such
appointment has been threatened.
(g) No order has been made or petition presented or threatened or
resolution passed for the winding up of the Company or for an
administrator to be appointed in respect of the Company.
(h) All returns, particulars and other documents required to be
filed with the Registrar of Companies in respect of the Company
have been properly filed.
(2) Information
All written information furnished by the Warrantors (or any of them) to
IFT or its Associates or their respective advisers (or any of them) in
connection with the negotiation of the investment by and involvement of
IFT or its Associates (or any of them) in the Company and in particular
but without limitation each of the Business Plan Documents:
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<PAGE>
(i) insofar as it constitutes statements of facts was when given
and remains true and accurate in all material respects; and
(ii) insofar as it constitutes forecasts opinions and estimates was
when given and remains bona fide and based on reasonable and
proper bases and assumptions;
and there is no information known to the Warrantors which has not been
disclosed to IFT in writing which would make any such information or any
of the Business Plan Documents untrue inaccurate or misleading.
(3) Share Capital and Company Information
The facts and information contained in the First Schedule and the
Recitals to this Agreement in relation to the Company are true and
accurate in all respects; and none of the share capital of the Company
is under mortgage or charge and no dividends or other rights or benefits
have been declared made or paid or agreed to be declared made or paid.
(4) Accounts and Management Accounts
(a) The Accounts give a true and fair view of the state of affairs
of the Company as at the Balance Sheet Date and of the profits
of the Company for the period of twelve months ended on the
Balance Sheet Date.
(b) The Management Accounts give a true and fair view of the state
of affairs of the Company as at 31st January 1999 and of the
profits of the Company for the period from 1st September 1997 to
31st January 1999.
(5) The Accounts comply with all relevant statutory requirements and with
all statements of standard accounting practice and generally accepted
accounting principles current at the Balance Sheet Date.
(6) To the best of the Warrantors' knowledge the assets of the Company at
the Balance Sheet Date are not overstated nor are any liabilities
understated in the Accounts.
(7) To the best of the Warrantors' knowledge full disclosure has been made
in the Accounts of all known or foreseeable liabilities of the Company
whether actual or contingent including provisions and reserves for
taxation on profits earned up to the Balance Sheet Date and of all
encumbrances and onerous commitments in existence or contemplation.
(8) The Accounts were prepared on a basis consistent with that on which
accounts were prepared for the Company in respect of the two previous
financial periods save as stated in the notes to the Accounts.
(9) The assets of the Company referred to in the Accounts and any additions
made since the Balance Sheet Date and all other assets used or employed
by the Company are the absolute property of the Company free from any
mortgage charge lien equity or other encumbrance whatsoever and all such
assets are in the possession or under the control of the Company.
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<PAGE>
(10) Position since the Balance Sheet Date
Since the Balance Sheet Date
(a) the business of the Company has been continued in a proper
manner in the ordinary course and there has been no adverse
change in the financial or trading position or in the prospects
of the Company;
(b) there has been no material reduction in the value of the net
assets of the Company on the basis of the valuations adopted in
the Accounts;
(c) no dividend or other distribution (within the meaning of Section
233 or 234 of ICTA 1970) has been declared paid or made by the
Company;
(d) the Company has not entered into any arrangement which is
outside the ordinary and normal course of its business;
(e) there has been no extraordinary profit or loss.
(11) Intellectual Property
Except for the trade marks and other matter listed in the Fifth Schedule
the Company does not own use or require to use any trade marks,
copyright, letters patent, registered designs, confidential know how or
business names in connection with the carrying on of the Business.
(12) Immediately prior to the execution of this Agreement the Company had all
licences authorisations and consents required for the carrying on of the
Business (including without limitation a full and valid certificate to
manage a society's lottery or a local lottery issued in pursuance of the
Lotteries and Amusements Act 1976 (as amended) ("the Lottery Manager's
Certificate")) and to the best of the Warrantors' knowledge there are no
factors which might in any way prejudice the continuance or renewal
thereof.
(13) Insurance
(a) Immediately following the date hereof there will be valid
insurances in respect of the assets of the Company of an
insurable nature and the business of the Company to the full
replacement value thereof against all risks normally insured
against by other companies with similar assets or carrying on
similar business and nothing has been done or omitted to be done
which would or might make such insurances void or voidable.
(b) The Schedule of Insurance enclosed with the Disclosure Letter is
true and accurate and gives details of all current insurances.
(14) Confidential Information
The Warrantors have not at any time disclosed or undertaken to disclose
to any party other than IFT and its advisers any secret or confidential
information relating to the Business which could adversely affect the
Company or its prospects.
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<PAGE>
(15) There are no agreements or arrangements in existence which restrict the
activities of the Company in any part of the world or which have or
should have been registered or notified under or which infringe the
Restrictive Trade Practices Act 1976, the Monopolies and Mergers Acts
1965, the Fair Trading Act 1973, the Competition Act 1980, Articles 85
or 86 of the Treaty of Rome or any other anti-trust or anti-cartel
legislation.
(16) Litigation
No litigation arbitration prosecution or other proceedings are
outstanding or are pending or threatened in respect of the Company or of
its assets and no governmental or official investigation or inquiry
concerning the Company is in progress or pending and there are no
circumstances likely to give rise to any such proceedings investigations
or inquiry.
(17) Employees
(a) The Disclosure Letter contains accurate and complete details of
the identities, dates of appointment to office or commencement
of continuous employment, emoluments, notice periods and other
terms of employment of each officer and employee of the Company
including, without limitation, share option, share incentive,
profit sharing, commission and discretionary bonus arrangements
and other benefits provided by custom or practice of all
employees of the Company whose employment cannot be terminated
by three months notice or less without giving rise to any claim
for damages or compensation (other than a statutory redundancy
payment or compensation for unfair or constructive dismissal).
(b) The Company has in relation to each of its employees paid all
income tax due and payable under the PAYE System and payments
due and payable in respect of national insurance contributions
(including employer's contributions).
(18) Material Commitments Liabilities and Trading Practices
(a) The Company does not have outstanding:
(i) any contract transaction commitment (whether in respect
of capital expenditure or otherwise) liability or
obligation of whatsoever nature which is either long
term (that is to say not capable of complete performance
within six months from the date hereof) or involves or
is likely to involve an obligation of an onerous or
material nature or magnitude including a capital
commitment (that is to say involving a capital
commitment in excess of (pound)50,000 in aggregate);
(ii) any agreement or arrangement of a material nature or
magnitude with any other party which will or may be
terminated or materially affected as a result of making
this Agreement;
(iii) any sale or purchase option or similar agreement or
arrangements affecting any assets owned or used by the
Company.
25
<PAGE>
(b) There is no default under any legally binding agreement to which
Company is a party which will have a material adverse effect on
the financial or trading position or prospects of the Company.
(c) There are no authorities by which any person may enter into any
commitment to do any act on behalf of the Company other than
authorities to officers and employees to enter into routine
contracts in the normal course of their duties.
(d) All agreements or arrangements between the Company on the one
hand and any of its directors or shareholders or any person or
company connected with any of them on the other hand have been
disclosed in writing to IFT.
(19) Properties
(A) Title to the Property
The particulars of the Property shown in the Fourth Schedule
hereto are true and correct and the Company has good and
marketable title to and exclusive occupation of the Property
free from any lien, charge or encumbrance, sub-lease, tenancy or
right of occupation, reservation, easement, quasi-easement,
covenant, condition, agreement, declaration or privilege in
favour of any third party which is or is likely to be
detrimental to the carrying on of the Business of the Company in
its usual and normal course and there are appurtenant to the
Property all rights and easement necessary for its use and
enjoyment and the Company has no other interest in land and does
not own or occupy any other property.
(B) Matters affecting the Property
(a) The Property is not affected by any of the following
matters nor is the Property likely to become so
affected:
(i) any outstanding dispute, notice or complaint or
any exception, reservation, right, covenant,
restriction or condition which is of an unusual
nature or which affects or might in the future
affect the use of the Property for the purpose
for which it is now used or which affects or
might in the future affect the value of the
Property; or
(ii) any notice, order, demand, requirement or
proposal made or issued by or on behalf of any
government or statutory authority, department or
body for acquisition, clearance, demolition or
closing, the carrying out of any work upon any
building, the modification of any planning
permission, or the continuance of any use or the
imposition of any building or improvement line;
or
(iii) any compensation received as a result of any
refusal of any application for planning consent
or the imposition of any restrictions in
relation to any planning consent; or
(iv) any commutation or agreement for the commutation
of rent or payment of rent in advance of the due
dates of payment thereof;
26
<PAGE>
(b) There are no development works, redevelopment works or
fitting out works outstanding in respect of the
Property.
(c) All restrictions conditions and covenants (including any
imposed by or pursuant to any lease) affecting the
Property have been observed and performed and no notice
of any breach of any of the same has been received or is
likely to be received.
(d) The use and occupation of the Property and all machinery
and equipment therein and the conduct of any business
therein complies in all respects with all relevant
statutes and regulations including without prejudice to
the generality of the foregoing the Factories Act 1961,
the Office Shops and Railway Premises Act 1963, the Fire
Precautions Act 1971, the Health and Safety at Work etc,
Act 1974 and with all rules regulations and delegated
legislation thereunder and all; necessary licences and
consents required thereunder have been obtained.
(e) There are no restrictive covenants or provisions,
legislation or orders, charges, restrictions,
agreements, conditions or other matters which preclude
the use of the Property for the purposes for which the
Property is now used and such user is the permitted user
under the provisions of the Town & Country Planning Acts
1971 to 1974 and regulations made thereunder and is in
accordance with the requirements of the Local Authority
and all restrictions, conditions and covenants imposed
by or pursuant to the Town & Country Planning Acts have
been observed and performed and no agreements have been
entered into under s.52 of the Town and Country Planning
Act 1971 in respect of the Property.
(C) Properties previously owned
The Company has no existing or contingent liabilities in respect
of any properties previously occupied by it or in which it owned
or held any interest, including, without limitation, leasehold
premises assigned or otherwise disposed of.
(20) Conduct of Business
To the best of the Warrantors' knowledge, the Company has conducted its
business in accordance with all applicable laws and regulations
(including without limitation the Lotteries and Amusements Act 1976 (as
amended) and all other laws and regulations relating to betting, gaming,
lotteries or amusements) and all necessary licences consents and permits
have been obtained to enable the Company to carry on its business. No
written notices have been received by the Company to the contrary.
(21) VAT
All amounts due to be paid to H.M. Customs & Excise by the Company prior
to the date hereof will have been paid and at the date hereof no dispute
exists between the Company and H.M. Customs & Excise.
27
<PAGE>
(22) Taxation
(a) All Taxation for which the Company is liable as a result of any
act or omission by the Company prior to the date hereof will if
and so far as such Taxation ought to be paid prior to the date
hereof have been paid at or before the date hereof and the
Company is under no liability to pay any fine penalty surcharge
or interest in connection with any claim for Taxation.
(b) No provision or reserve has or ought to have been made in the
Accounts for Taxation liable to be assessed on the Company or
for which it is accountable in respect of income, profits or
gains earned, accrued or received on or before the Balance Sheet
Date or any act, omission, transaction or event on or before the
Balance Sheet Date including distributions made down to the
Balance Sheet Date or provided for in the Accounts and no
provision has or ought to have been made in the Accounts for
deferred Taxation in accordance with generally accepted
accounting principles.
(c) The Company has properly and punctually made all returns and
provided all information required for Taxation purposes and none
of such returns is disputed by the Inland Revenue or any other
authority concerned (in the United Kingdom or elsewhere).
(d) All payments by the Company to any person which ought to have
been made under deduction of tax have been so made and the
Company has (if required by law to do so) accounted to the
Inland Revenue for the tax so deducted.
(e) To the best of the Warrantors' knowledge, the Company is not
(otherwise than in the ordinary and proper course of the
Company's business) liable to Taxation in respect of any
transaction effected by the Company since the Balance Sheet
Date.
(23) Pensions
No agreement or arrangement exists for the provision by the Company of
any relevant benefits (as defined in s.612(1) of the Taxes Act with the
omission of the exception in that definition) for any officer or
employee or former officer or employee of the Company or for any
dependent of any such person.
(24) Debts
(a) Any debts owed to the Company at the Balance Sheet Date will
realise their full face value and be good and collectable in the
ordinary course of business and no amount included in the
Accounts as owing to the Company at the Balance Sheet Date has
been released for an amount less than the value at which it was
included in the Accounts or is now regarded by the Warrantors as
irrecoverable in whole or in part.
(b) The Company has not factored or discounted its debts or agreed
to do so.
(c) All debts owed to the Company at completion are good and
collectable in the ordinary course of business.
28
<PAGE>
(25) Liabilities
(a) Other than as contained in the Accounts or the Management
Accounts or as disclosed in the Disclosure Letter the Company
does not have any known or foreseeable liability whatsoever
whether actual or contingent to all or any of MMK, MMKUK, MMK
Guernsey Limited, Greene King Brewing & Retailing Limited,
Mansfield Breweries, The Wolverhampton & Dudley Breweries plc,
Pubmaster Limited, Corporate Catering Company Limited, On Line
Broadcasting Limited, Freud Communications Limited, Luther
Pendragon and Nabarro Nathanson.
(b) Without prejudice to sub-paragraph 25(a), the aggregate amount
of all known or foreseeable liabilities of the Company
whatsoever whether actual or contingent does not exceed a total
of (pound)850,000.
(26) Ownership and Condition of Assets
(a) All assets included in the Accounts (save for real property) and
all assets acquired since the Balance Sheet Date (except for
current assets subsequently disposed of or applied in the
ordinary and normal course of business):
(i) are legally and beneficially owned by the Company; and
(ii) have been in the possession of or under the control of
it at all material times.
(b) None of the undertaking or assets of any of the Company are the
subject of any mortgage, charge, pledge, lien, option,
pre-emption right, encumbrance, equity or other third party
claim or right or of any outstanding agreement or commitment to
give or create any of the foregoing.
(c) None of the assets of any of the Company have been acquired on
terms that property in it is not to pass until full payment is
made or other indebtedness discharged except for retention of
title clauses arising in the ordinary course of business.
(d) No circumstance has arisen in relation to any asset held under
any hire purchase agreement or a similar agreement whereby the
amounts payable by the Company under the hire purchase agreement
have been or are likely to be increased.
(e) Each material item of plant, machinery vehicles and other
equipment used by the Company is:
(i) in good repair and condition and has been properly
serviced and maintained in all material respects;
(ii) capable of doing the work for which it was designed or
acquired during the period in which it is written down
to nil in the accounts of the Company;
in each case having regard to its age, the use to which it is
put, and fair wear and tear excepted.
(f) all of the plant, machinery, vehicles and other equipment used
by the Company materially complies with appropriate safety
regulations.
29
<PAGE>
(27) Judgments and Court Orders
There is no unfulfilled or unsatisfied judgment or court order
outstanding against the Company.
(28) The Warrantors have disclosed in writing to IFT all material information
relating to the terms and conditions of any former or existing
employment of the directors of the Company (other than the B Directors)
and any resignation or proposed resignation of any such directors of the
Company from any such employment has been or shall be conducted in
strict compliance with the provisions of any contract of employment or
agreement regulating such employment and there are no claims which may
arise from such earlier employment.
(29) None of the Warrantors has wrongfully made use of or exploited or
proposes to make use of or exploit in the business of the Company any
trade secret or other intellectual property which an existing or former
employer of any of the Directors is legally entitled to protect and none
of the Warrantors has engaged in any business or activity or proposes to
engage in any business or activity in competition with the business of
any such employer which such employer was legally entitled to protect.
(30) The Disclosure Letter is true and accurate in all material respects and
fairly presented and nothing is omitted therefrom which renders the same
misleading.
(31) There are no companies or other businesses in which the Warrantors or
any of them have any interest of any nature whether directly or
indirectly.
30
<PAGE>
SCHEDULE 3
Part 1
Matters Requiring Shareholders Consent
(1) The entering into of any guarantee or indemnity or standing surety for
any obligations of any third party.
(2) The acquisition of or making any investment in another company or
business or incorporating or acquiring or forming any subsidiary or
entering into any partnership, joint venture or other risk sharing
arrangement.
(3) The sale transfer or other disposal of or cessation in any way to
exercise control over (whether by one transaction or a series of
transactions and whether at one time or over a period of time) the whole
or any material part of its undertaking or assets.
(4) The making of any alterations to the nature of its business as would
constitute an alteration to the business of the Company and its
subsidiaries taken as a whole being carried on at the time of such
alteration.
(5) The payment of any remuneration or expenses to any person other than as
proper remuneration for work or services provided or as proper
reimbursement for expenses incurred in connection with its business.
(6) The sale transfer assignment or other disposal of or cessation in any
way to exercise direct control over any part of its interest in any
share capital mortgage charge debt or other obligation of any subsidiary
except to or in favour of another subsidiary.
(7) The alteration of the Memorandum or Articles of Association of the
Company or any of its subsidiaries and in particular but without
limitation any variation to the authorised or issued share capital of
the Company or any Subsidiary.
(8) The offer or grant of any option over or the sale of the whole or any
part of the share capital of the Company or any Subsidiary whether
issued or unissued.
(9) The forming, entering into, termination or withdrawal from any
partnership consortium or any other unincorporated association carrying
on a trade or business or any other similar arrangement whether or not
with a view to profit.
(10) The creation allotment or issue of any shares or securities of the
Company or any Subsidiary or the grant of any right to require the
allotment or issue of any such shares or securities (other than the
creation allotment or issue or the grant of any right to require the
allotment or issue of any shares or securities pursuant to this
Agreement or the Settlement Agreement made on 15th January 1999 between
the Company, MMK Europe Limited and MMK UK Limited).
(11) Any increase, reduction, repayment, redemption, sub-division,
consolidation or other variation of the authorised or issued share
capital of the Company or any Subsidiary (including early redemption of
any of the preference share capital of the Company or any
31
<PAGE>
Subsidiary) or the rights attaching thereto or any reduction in the
amount, if any, standing to the credit of the share premium account or
capital redemption reserve.
(12) The evolution, expansion or development of the business of the Company
or any Subsidiary (whether conducted as part of or in connection with
the business of the Company or any Subsidiary or ancillary to it)
otherwise than through the Company or a wholly-owned subsidiary of the
Company.
(13) The creation of any fixed or floating charge, lien (other than a lien
arising by operation of law) or other encumbrance over the whole or any
part of the undertaking, property or assets of the Company or any
Subsidiary, except for the purpose of securing indebtedness to its
bankers for sums borrowed in the ordinary and proper course of the
Business.
32
<PAGE>
Part 2
Matters Requiring Board Approval
(1) The incurring of any liability of a capital nature over any capital
expenditure plan approved from time to time by IFT (and so that for the
purposes of this paragraph (1) the expression "liability of a capital
nature" shall include the capital value of all items purchased or leased
on hire purchase, lease purchase, lease agreements and any other form of
credit sale or asset financing agreement).
(2) The entering into of any transaction or contract otherwise than on arm's
length terms and in the ordinary course of business of the Company and
its subsidiaries.
(3) The entering into or varying of any transaction or agreement with or for
the benefit of any director from time to time of the Company or any of
its subsidiaries or any Associate of such a director save as
contemplated by this Agreement.
(4) The commencement by the Company or any Subsidiary of any legal or
arbitration proceedings save for legal proceedings for the recovery of
debts.
(5) The loan of any money to any person (otherwise than by way of deposit
with a bank or other institution the normal business of which includes
the acceptance of deposits) or the granting of any credit to any person
other than in the ordinary course of business.
(6) The making of any change in the appointment of its auditors from BDO
Stoy Hayward or changing the accounting reference date of the Company or
any subsidiary from 31st August.
(7) The entering into or varying of any contract or arrangement (whether
legally binding or not) with any director from time to time of the
Company or any of its subsidiaries or with any Associate of any such
director.
(8) The entering into of any lease licence tenancy or similar obligation
relating to land or buildings.
(9) The employment of any person (whether under a contract of service or for
services) or the grant of any increase in the remuneration of any
employee whereby such person's aggregate emoluments (including without
limitation all salaries, bonuses and benefits in kind (the cost of which
shall be calculated by reference to the actual annual cost thereof to
the Company and/or its subsidiaries as the case may be but disregarding
any corresponding reduction to liability to Taxation which arises to the
Company or any Subsidiary in relation thereto)) and pension benefits
will or may exceed the sum of (pound)30,000 in any year or whereby any
budgeted expenditure approved from time to time by IFT may be exceeded.
(10) The employment by the Company or any Subsidiary of any person who is a
relative or an Associate of any Director of the Company or any
Subsidiary or the increase in the remuneration of any such person.
33
<PAGE>
(11) The granting by the Company or any Subsidiary of an increase in the
remuneration of any director or the payment of any fee or bonus or
commission to any director or any Associate of any director.
(12) The making of any change in the appointment of the bankers of the
Company or any Subsidiary.
(13) Any variation to or amendment of or any time or indulgence granted by
the Company under the IFT Agreement.
34
<PAGE>
SCHEDULE 4
The Property
First floor premises at Chichester House, Kennington Park, London SW9 comprised
in a Lease dated 19 April 1995 made between Brixton Estate Plc (1) and Inter
Lotto (UK) Limited (3036871).
35
<PAGE>
SCHEDULE 5
Intellectual Property
TRADE MARK REGISTRATIONS IN THE NAME OF INTER LOTTO (UK) LIMITED
19TH APRIL 1999
<TABLE>
<CAPTION>
Application
Country Mark Classes Filing Date Number
- ------- ---- ------- ----------- ------------
<S> <C> <C> <C> <C>
UK Pronto! 16, 18, 20, 21, 11.7.1997 2138823 A
26, 28, 36
Pronto
UK Pronto! 16, 18, 20, 21, 23.10.1997 2148852
25, 26, 28, 36,
The Lively Lottery (& 38, 41 and 42
Shooting Stars Device)
</TABLE>
<TABLE>
<CAPTION>
Registration Registration
Country Date Number Status
- ------- ------------- ------------ ------
<S> <C> <C> <C> <C>
UK 11.7.1997 2138823 A Registered - renewal due
11.7.2007
UK 11.9.1998 2148852 Registered - renewal due
23.10.2007
</TABLE>
36
<PAGE>
IN THE AGREED FORM
1. Notice of Meeting.
2. Board Minutes.
3. Articles of Association.
4. IFT Agreement.
5. Service Agreements.
37
<PAGE>
EXECUTED AND DELIVERED as a Deed )
by NORMAN A. FEINSTEIN in the )
presence of: )
EXECUTED AND DELIVERED as a Deed )
by THE RIGHT HON. THE LORD )
MANCROFT in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by GARY S. REDISH )
in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by SIR DAVID TRIPPIER )
in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by VISCOUNT STRATHALLAN )
in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by ROY FISHER )
in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by DOUGLAS SMITH )
in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by IRWIN GROSS )
in the presence of: )
38
<PAGE>
EXECUTED AND DELIVERED as a Deed )
by JAMES FOX )
in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by CHARLES CONDY )
in the presence of: )
EXECUTED AND DELIVERED as a Deed )
by HGI HOUSE & GENERAL INVESTMENT )
FOUNDATION acting by: )
EXECUTED AND DELIVERED as a Deed )
by IFT HOLDINGS LIMITED )
acting by: )
EXECUTED AND DELIVERED as a Deed )
by INTER LOTTO (UK) LIMITED )
acting by: )
39
DATED APRIL 27, 1999
--------------
INTER LOTTO (UK) LIMITED
and
IFT MANAGEMENT LIMITED
---------------------------------------------------------
OPERATING AGREEMENT
---------------------------------------------------------
<PAGE>
CONTENTS
Clause Subject Matter Page
- ------ -------------- ----
1. DEFINITIONS AND INTERPRETATION......................................... 1
2. APPOINTMENT............................................................ 4
3. OPERATING AUTHORITY.................................................... 5
4. SERVICES............................................................... 6
5. EXCLUDED AUTHORITY AND CONTROL OF SERVICES............................. 6
6. FINANCIAL TERMS AND MANAGEMENT FEE..................................... 7
7. INTER LOTTO REVENUE SHARE.............................................. 8
8. NON-DISCLOSURE OF INFORMATION.......................................... 8
9. TERM................................................................... 8
10. LAUNCH................................................................. 8
11. TERMINATION............................................................ 9
12. INTER LOTTO ACTIONS AND DETERMINATIONS................................. 9
13. ACCOUNTING CALCULATIONS................................................ 9
14. SHAREHOLDERS' AGREEMENT................................................ 10
15. COUNTERPARTS........................................................... 10
16. ASSIGNMENT............................................................. 10
17. SUCCESSORS............................................................. 10
<PAGE>
18. WAIVER AND FORBEARANCE................................................. 11
19. NO THIRD PARTY BENEFICIARIES........................................... 11
20. ENTIRE AGREEMENT AND VARIATION......................................... 11
21. SEVERANCE.............................................................. 11
22. NO PARTNERSHIP......................................................... 12
23. NOTICES................................................................ 12
24. APPLICABLE LAW AND SUBMISSION TO JURISDICTION.......................... 12
<PAGE>
OPERATING AGREEMENT
DATE April 27, 1999
PARTIES
(1) INTER LOTTO (UK) LIMITED (Company number 303 6866) whose registered office
is at 50 Stratton Street, London WIX 6NX ("Inter Lotto")
(2) IFT MANAGEMENT LIMITED (Company number 3721405) whose registered office is
at Brook House, 77 Fountain Street, Manchester M2 2EE ("the Operating
Company")
RECITALS
(A) Inter Lotto manages Lotteries in the United Kingdom pursuant to a
Certificate issued by the Gaming Board.
(B) Inter Lotto desires to engage the Operating Company to participate in the
conduct and administration of the operation of the Business subject to
Applicable Requirements and to the authority and control of Inter Lotto.
(C) The Operating Company has agreed to such engagement and to provide the
Services described in this Agreement on the terms and subject to the
conditions of this Agreement.
IT IS AGREED AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement (including the Recitals) the following words and
expressions shall have the following meanings:
"Accountants"
The chartered accounting firm of BDO Stoy Hayward, or such other firm
of chartered accountants as may be selected by the Board. "Act" The
Lotteries and Amusement Act 1976 (as amended);
"Applicable Requirements"
the Act, The Charities Act 1992 and all other legislation relating to
lotteries and all legal requirements of the Gaming Board from time to
time;
1
<PAGE>
"Articles"
the Articles of Association of Inter Lotto from time to time;
"Board"
the Directors for the time being of Inter Lotto acting at a duly
convened quorate meeting or otherwise taking decisions and passing
resolutions in conformity with the provisions of the Shareholders
Agreement and the Articles;
"Business"
the business of Inter Lotto of operating Lotteries using On-Line
Facilities and such other business as the Board may agree from time to
time should be carried on by Inter Lotto;
"Capital Participation"
all amounts paid by Inter Lotto, on the one hand, or by all or any of
the IFT Group, on the other hand, for overhead and expenses of Inter
Lotto for the period up to Launch, including standstill payments,
travel expenses, legal fees, audit and accounting expenses, taxes,
finders' fees, back pay payments, consultant fees, advertising and
marketing and development costs. In addition, Capital Participation
shall include advertising costs for the first 12 months after Launch.
The term "Percentage Capital Participation" shall mean the percentage
of the amount of capital participation at any time contributed and
paid by Inter Lotto or by the IFT Group;
"Certificate"
the Certificate to manage Society Lotteries dated 14 March 1997 and
issued by the Gaming Board to Inter Lotto and any amendments and
successors thereto;
"Charity Account"
the Account or Accounts maintained by Inter Lotto for monies due to
Charities from sales of Lottery tickets;
"Director"
any director of Inter Lotto including where applicable any alternate
director;
"First Party"
has the meaning given in Clause 11.1;
"Gaming Board"
the Gaming Board for Great Britain;
2
<PAGE>
"Gross Revenues"
the face value of all Lottery tickets sold in an applicable period
during the term of this Agreement (consisting of the total receipts to
all persons or entities from such sales), before any expenses or
payments.
"IFT Group"
the Operating Company, IFT Holdings Limited ("Holdings") and
Interactive Flight Technologies, Inc.;
"Inter Lotto Revenue Share"
has the meaning given in Clause 7;
"Launch"
has the meaning given in Clause 10.1;
"Lottery"
a Lottery managed by Inter Lotto pursuant to the terms of this
Agreement;
"On-Line Facilities"
facilities at Outlets which enable the Lotteries to be played on-line
and all equivalent or similar facilities, including the central system
for Lotteries;
"Outlet"
a location or facility at which tickets or other Lottery
participations are sold to the public;
"Party"
a party to this Agreement (and "Parties" shall be construed
accordingly);
"Prize Fund Account"
the Account maintained by Inter Lotto for all monies due on account of
prizes;
"Second Party"
has the meaning given in Clause 11.1;
"Services"
the services to be provided by the Operating Company under Clause 4
and other provisions of this Agreement;
3
<PAGE>
"Shareholders' Agreement"
the agreement dated April 27, 1999 and made between the Shareholders
and Inter Lotto and others;
1.2 In this Agreement:
1.2.1 the Index and Clause headings are inserted for convenience only and shall
not affect the construction of this Agreement;
1.2.2 words denoting the singular shall include the plural and vice versa;
1.2.3 words denoting one gender shall include each gender and all genders;
1.2.4 references to persons shall be deemed to include references to natural
persons, to firms, to partnerships, to bodies corporate, to associations,
and to trusts (in each case whether or not having separate legal
personality).
1.3 References in this Agreement to "Clauses" and "Paragraphs" are references
to Clauses and Paragraphs of this Agreement.
1.4 Words and phrases defined for the purposes of or in connection with any
statutory provision shall, where the context so requires, be construed as
having the same respective meanings in this Agreement.
1.5 Reference in this Agreement to statutory provisions shall, where the
context so admits, and unless expressly provided otherwise, be construed
as references to those provisions as respectively amended, consolidated,
extended or re-enacted at the date hereof and shall, where the context so
admits or requires, be construed as references to the corresponding
provisions of any earlier legislation (whether repealed or not) directly
or indirectly amended consolidated extended or replaced thereby or
re-enacted and shall include where appropriate any orders, regulations,
instruments or other subordinate legislation made under the relevant
statute.
2. APPOINTMENT
Inter Lotto hereby appoints and engages the Operating Company as Inter
Lotto's exclusive agent and designee throughout the term of this Agreement
to exercise such authority and perform such services as are provided in
this Agreement, subject to Applicable Requirements and the direction and
control of Inter Lotto, and the Operating Company accepts such appointment
and engagement.
4
<PAGE>
3. OPERATING AUTHORITY
3.1 Subject to the terms of this Agreement and Applicable Requirements, Inter
Lotto grants to the Operating Company the authority to participate as
Inter Lotto's agent and designee in the operation and conduct of all of
the business and affairs and operations of Inter Lotto, including without
limitation the operations and affairs of the Business, throughout the term
of this Agreement.
3.2 Subject to Clauses 3.4, 3.5 and 5 and all other provisions of this
Agreement, the Operating Company's authority under this Agreement shall
include, without limitation, all authority necessary or appropriate to
perform all of the Services provided for in Paragraph 4; authority to make
and implement all decisions and determinations with respect to the day to
day business and affairs of Inter Lotto, the operation of the Business and
all matters relating thereto; the authority to negotiate, execute and
deliver agreements, instruments (including instruments of indebtedness)
and other documents for and in the name of Inter Lotto, subject to such
restrictions as may be imposed by specific action by the Board under the
terms of this Agreement; the authority to receive, hold, invest and expend
the receipts and funds of Inter Lotto, subject to such limitations as may
be imposed by Applicable Requirements or the Board under this Agreement;
and the authority to take all actions that the Operating Company in good
faith believes necessary or appropriate for the conduct of the Business
and Inter Lotto's operations and affairs.
3.3 Subject to Clauses 3.4, 3.5 and 5 and all other provisions of this
Agreement, the Operating Company may exercise its authority and perform
Services through such employees and contractors as it deems appropriate,
and the Operating Company may delegate any portion of its authority under
this Agreement to such employees or contractors; provided that no such
delegation shall relieve the Operating Company of its responsibilities and
obligations to Inter Lotto under this Agreement. The Operating Company
shall notify Inter Lotto in advance of the delegation of any material
portion of its management authority and services under this Agreement to a
contractor who is not the Operating Company's employee.
3.4 The Operating Company shall at such intervals as the Board may determine
(but not less frequently than monthly) submit to the Board a written
summary report of the activities of the Operating Company under this
Agreement for the period to which the report applies. The report shall be
in such format and include such information in such detail as the Board
may from time to time require in writing but shall in any event include
summaries of actions taken by the Operating Company under this Agreement
with respect to the Business for the period to which the report applies
and substantial and material actions outside of the regular course of
business proposed or expected promptly after such period.
3.5 Throughout the term of this Agreement, the Board of Inter Lotto shall at
all times retain and have the authority provided for in Clause 5 and the
full authority to make and implement decisions with respect to the
policies of Inter Lotto in its operations and
5
<PAGE>
affairs, including general operating policies, management and operating
strategies, and annual and regular periodic budgets, and the authority and
Services of the Operating Company shall be subject to such authority of
the Board.
4. SERVICES
4.1 Throughout the term of this Agreement, the Operating Company shall perform
such services that it deems reasonably necessary or appropriate for the
operation of the Business and the operations and affairs of Inter Lotto
and all services that Inter Lotto directs the Operating Company to perform
in accordance with the terms of this Agreement and subject to the
authority of the Board (including authority under Clauses 3.5 and 5.2) and
all other restrictions herein, including without limitation the following:
4.1.1 Administrative services, including supervision of the administration
and conduct of the Business;
4.1.2 Bookkeeping and accounting services, including the maintenance,
custody and supervision of books of account and other books and
records;
4.1.3 Contract administration, including supervision of contracts and
other agreements for On-Line Facilities and all other aspects of the
Business;
4.1.4 Personnel, including supervision, hiring and firing of personnel
conducting the operations and affairs of the Business, subject to
the authority and responsibility of the Board as to personnel who
are employees of Inter Lotto;
4.1.5 Lottery operations, including supervision of all aspects of On-Line
Facilities and the conduct of the Business through and in connection
with such facilities, subject to Applicable Requirements;
4.1.6 Participation in procedures for receipt and disbursement of funds,
subject to and to the extent permitted by Applicable Requirements;
4.1.7 All other services as may be necessary or appropriate for the
conduct of the Business and all aspects of the operations and
affairs of Inter Lotto in accordance with Applicable Requirements
and the terms of this Agreement.
4.2 The Operating Company will perform all Services for and on behalf of Inter
Lotto diligently in accordance with good business practices and shall use
its best efforts to increase and enhance the business and good will of
Inter Lotto and its Business.
5. EXCLUDED AUTHORITY AND CONTROL OF SERVICES
5.1 Nothing in this Agreement does, or is intended to, grant to the Operating
Company any authority with respect to the Business or grant any right or
obligation to perform any
6
<PAGE>
services which, under the Act or any other Applicable Requirements, may
not be performed by the Operating Company. In the event that this
Agreement provides, or may be construed to provide, for the Operating
Company to have authority or to perform services which the Operating
Company may not exercise or perform in the manner and under the terms
provided in this Agreement under Applicable Requirements, the Parties
shall cooperate in such manner as may be necessary to cause the services
to be performed and the authority to be exercised in a manner consistent
with Applicable Requirements.
5.2 Inter Lotto shall at all times during the term of this Agreement have
final control over the activities and services of the Operating Company in
connection with the operation of the Business. Inter Lotto may at any
time, by written notice to the Operating Company reverse or "veto" any
action taken or proposed to be taken by the Operating Company with respect
to the operation of the Business; provided that such reversal or veto is
not contrary to Applicable Requirements and does not violate the
contractual or other proprietary rights of any third party. A reversal or
veto by Inter Lotto of any action or proposed action by the Operating
Company may be taken and implemented only by written notice to the
Operating Company expressly authorized by the Board, and no reversal or
veto shall be effective if taken or attempted to be taken orally, by
implication or estoppel or in any manner other than as expressly provided
in this Clause 5.2.
6. FINANCIAL TERMS AND MANAGEMENT FEE
6.1 The Operating Company shall submit to Inter Lotto reports of revenues and
disbursements at such intervals as the Parties may determine on an on-line
basis, and in hard copy at such times and for such periods as the parties
deem appropriate. The reports shall include a statement of Gross Revenues
and disbursements and such other financial information and data as the
Parties may determine to be reasonably appropriate. Within 60 days after
the end of each calendar year during the term of this Agreement, the
Operating Company shall submit to Inter Lotto annual reports of financial
information for each such calendar year, which annual reports shall
reconcile all information in the periodic reports.
6.2 The Operating Company shall pay and be responsible for, at such intervals
and in such manner as may be necessary or appropriate for the proper
operation of the Business and performance of Services, administrative,
overhead and other regular expenses of the Business and operation of Inter
Lotto arising from and after the date of this Agreement.
6.3 The Operating Company shall receive as a management fee the balance of
Gross Revenues for each applicable period, after the payments provided for
in this Paragraph. Inter Lotto hereby authorizes the Operating Company to
make whatever payments or transfers or disbursements of funds may be
necessary or appropriate for the payment of such management fee and shall
take such action and execute such documents, and otherwise cooperate with
the Operating Company in all respects in effecting the payment of the
management fee.
7
<PAGE>
7. INTER LOTTO REVENUE SHARE
The Inter Lotto Revenue Share for any period for which a determination or
calculation shall be necessary or appropriate shall be four percent of the
Gross Revenues of Inter Lotto for the period and shall be paid to Inter
Lotto or to Holdings, on behalf of the IFT Group, as follows:
7.1 From the date of Launch until the Capital Participation of Inter Lotto and
the IFT Group has been paid in full under the terms of this Paragraph, the
Inter Lotto Revenue Share shall be paid (i) one-half (equal to two percent
of Gross Revenues) to Inter Lotto, and (ii) one-half (equal to two percent
of Gross Revenues) to Inter Lotto and to Holdings (on behalf of the IFT
Group) in proportion to the Percentage Capital Participation of Inter
Lotto and the IFT Group at the time of the payment.
7.2 From and after such time as the payments under Clause 7.1 have repaid the
Capital Participations of Inter Lotto and of the IFT Group in full, the
entire Inter Lotto Revenue Share shall be paid to Inter Lotto.
8. NON-DISCLOSURE OF INFORMATION
Except to the extent necessary to comply with the law or any requirements
of The International Stock Exchange of the United Kingdom and the Republic
of Ireland Limited from time to time in force or any other regulatory
requirements in force from time to time affecting the Parties and save as
permitted pursuant to this Agreement, neither of the Parties shall divulge
or communicate to any person (other than those whose province it is to
know the same or with property authority) or use or exploit for any
purpose whatever any of the trade secrets or confidential knowledge or
information or any financial or trading information relating to the other
which the relevant Party may receive or obtain as a result of entering
into this Agreement, and shall use all reasonable endeavours to prevent
its holding company, subsidiaries or employees from so acting. This
restriction shall continue to apply after the expiration or sooner
termination of this Agreement without limit in point of time but shall
cease to apply to information or knowledge which may properly come into
the public domain through no fault of the Party so restricted.
9. TERM
The term of this Agreement shall begin on the date hereof and shall
continue until this Agreement is terminated pursuant to Paragraph 10 or
Paragraph 11.
10. LAUNCH
10.1 For purposes of this Agreement, the "Launch" of the Business as operated
by the Operating Company shall mean the management by Inter Lotto of a
Lottery in the United Kingdom with 1,000 On-Line Facilities, and the date
of Launch shall be deemed the first day of the first calendar month after
which Launch is complete.
8
<PAGE>
10.2 The Operating Company may terminate this Agreement by giving Inter Lotto
written notice of termination if Launch has not occurred before October
15, 1999, and Inter Lotto may terminate this Agreement by giving the
Operating Company written notice of termination if Launch has not
occurred by March 15, 2000. If Launch occurs at any time after March 15,
2000 but before either Party has exercised the right of termination
hereunder, the Operating Company may at any time after Launch by written
notice to Inter Lotto extinguish the right of termination under this
Paragraph 10.2, in which event this Agreement may be terminated only as
provided in Paragraph 11.
11. TERMINATION
11.1 Without prejudice to the provisions of Clause 10, this Agreement may be
terminated forthwith by either Party (the "First Party") giving to the
other (the "Second Party") notice in writing in the following
circumstances;
11.1.1 If, in respect of the Second Party, a petition is presented (other than a
petition which is frivolous or vexatious and which is withdrawn or stayed
within 20 Business Days) or a notice of resolution is given for the
winding up of the Second Party (except for the purpose of a solvent
amalgamation or reconstruction) or the Second Party has suffered the
appointment of a receiver, an administrator or administrative receiver to
manage its business affairs and property or if the Second Party has
ceased to be able to pay its debts as they fall due; or
11.1.2 Unless otherwise provided in this Agreement, if the Second Party has
committed a material breach of its obligations under this Agreement and
(where such breach can be remedied) has failed to remedy it within 28
days after service upon it of a written notice specifying the breach in
question and requiring it to be remedied.
12. INTER LOTTO ACTIONS AND DETERMINATIONS
In all instances in which this Agreement makes the authority or
activities of the Operating Company subject to the authority of Inter
Lotto or otherwise provides for or refers to authority of or actions or
determinations by Inter Lotto, such authority, actions and determinations
may be exercised and taken only by proper and duly authorized actions of
Inter Lotto's Board. No authority, action or determination by Inter Lotto
under this Agreement may be exercised or taken in any manner by any of
Inter Lotto's officers or any other person or entity acting or purporting
to act on behalf of Inter Lotto without the express and specific approval
and authorization by Inter Lotto's Board.
13. ACCOUNTING CALCULATIONS
In all instances in which this Agreement requires or permits accounting
calculations or determinations, in the event of a disagreement or
dispute, the calculations or determinations shall be made by the
Accountants and shall be reported in writing to all
9
<PAGE>
Parties. Unless manifestly arbitrary or unreasonable or made in bad
faith, all calculations or determinations by the Accountants shall be
final and binding on all Parties and not subject to reconsideration or
appeal.
14. SHAREHOLDERS' AGREEMENT
This Agreement is intended to be consistent with the Shareholders'
Agreement and rights and obligations thereunder, and this Agreement shall
be so construed to the extent reasonably practicable. To the extent that
the terms of this Agreement necessarily conflict with the terms of the
Shareholders' Agreement, the Shareholders' Agreement shall prevail.
15. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, and which together shall constitute
one and the same Agreement. Unless otherwise provided in this Agreement,
this Agreement shall become effective and be dated (and each counterpart
shall be dated) on the date on which this Agreement (or a counterpart of
this Agreement) is signed by the last of the Parties to execute this
Agreement or, as the case may be, a counterpart thereof.
16. ASSIGNMENT
Except as provided in Paragraph 3.3 with respect to subcontracting by the
Operating Company, neither of the Parties shall assign or transfer or
purport to assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the other Party.
17. SUCCESSORS
This Agreement shall be binding on and shall enure for the benefit of the
respective successors in title of each of the Parties.
10
<PAGE>
18. WAIVER AND FORBEARANCE
The rights of each of the Parties shall not be prejudiced or restricted
by any indulgence or forbearance extended to the other and no waiver by
either Party in respect of any breach shall operate as a waiver in
respect of any subsequent breach.
19. NO THIRD PARTY BENEFICIARIES
This Agreement does not confer any rights or remedies upon any person or
entity other than the parties hereto and their respective successors and
permitted assigns, and no person or entity other than the parties and
such successors and assigns shall have the right to enforce all or any
portion of this Agreement.
20. ENTIRE AGREEMENT AND VARIATION
20.1 This Agreement together with the agreements referred to herein supersedes
any previous agreement between the Parties in relation to the matters
dealt with herein and represents the entire understanding between the
Parties in relation thereto. Each of the Parties acknowledges that in
entering into this Agreement it has not relied on any warranty,
representation, agreement or statement not set out in this Agreement and
that (in the absence of fraud) it will not have any right or remedy
arising out of such warranty, representation, agreement or statement.
20.2 Save as otherwise expressly provided, no modifications, amendment or
waiver of any of the provisions of the Agreement shall be effective
unless made in writing specifically referring to this Agreement and duly
signed by each of the Parties.
21. SEVERANCE
21.1 Each provision of this Agreement shall be enforceable independently of
all other provisions and its validity, legality or enforceability shall
not be affected if any other provision becomes invalid, illegal or
unenforceable in any respect under any law.
21.2 In respect of all provisions of this Agreement if at any time any
provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect under any law but would be or become valid,
legal or enforceable if some part of the provision were deleted or
amended, the provision in question shall remain in force with such
deletion or with such amendment as may be necessary to make the provision
valid, legal and enforceable.
11
<PAGE>
22. NO PARTNERSHIP
22.1 Nothing in this Agreement shall be deemed to constitute a partnership
between the Parties nor constitute either Party the agent of the other
for any purpose.
22.2 Neither Party shall (save as expressly provided herein) have any
authority to bind the other in any way.
23. NOTICES
23.1 Any notice given under this Agreement shall either be delivered
personally or sent by first class recorded delivery post (air mail if
overseas) or telex, facsimile transmission or comparable means of
communication. The address for service of each Party shall be (in the
case of an individual) the address set out at the head of this Agreement
or at such other address within the United Kingdom for service previously
notified to the other parties or (in the case of a company) its
registered office for time being. A notice shall be deemed to have been
served as follows:
23.1.1 if personally delivered, at the time of delivery;
23.1.2 if posted, at the expiration of 48 hours or (in the case of air mail)
seven days after the envelope containing the same was delivered into the
custody of the postal authorities; and
23.1.3 if sent by facsimile transmission or comparable means of communication,
at the time of transmission (if the notice is sent before 5 pm on a
Business Day) otherwise at 9 am on the next following Business Day.
23.2 In proving such service (without prejudice to any other means of proof)
it shall be sufficient to prove that personal delivery was made or that
the envelope containing such notice was properly addressed and delivered
into the custody of the postal authority of the country of dispatch as a
prepaid first class recorded delivery or air mail letter (as appropriate)
or that in relation to a facsimile transmission or other comparable means
of communication, that a confirming copy thereof was personally delivered
or sent by first class recorded delivery or air mail letter (as
appropriate) within 24 hours after transmission.
24. APPLICABLE LAW AND SUBMISSION TO JURISDICTION
This Agreement shall be governed by and construed in accordance with
English law and
12
<PAGE>
each of the Parties submits the non-exclusive jurisdiction of the Supreme
Court of Judicature of England in relation to any claim, dispute or
difference which may arise in relation to the Agreement.
IN WITNESS of which this Agreement has been duly signed for and on behalf of
each of the Parties on the day and year first above written.
INTER LOTTO (UK) LIMITED
By:
-------------------------------
IFT MANAGEMENT LIMITED
By:
-------------------------------
13
FIFTH ALLONGE TO
SECURED PROMISSORY NOTE
ALLONGE, dated July 16, 1999, attached to and forming a part of the Secured
Promissory Note, dated January 26, 1999, as amended by the Allonge to Secured
Promissory Note dated January 29, 1999, the Second Allonge to Secured Promissory
Note dated March 19, 1999, the Third Allonge to Secured Promissory Note dated
March 24, 1999, and the Fourth Allonge to Secured Promissory Note dated May 10,
1999 (collectively, the "Note"), made by THE NETWORK CONNECTION, INC., a Georgia
corporation ("Maker"), payable to the order of Interactive Flight Technologies,
Inc., a Delaware corporation ("Payee") in the original principal amount of
$500,000 and in the current principal amount of $750,000.
1. In consideration of the cancellation of the notes referred to on Annex I
attached to this Allonge which were issued by Maker, have been acquired by
Payee, and are in the aggregate principal amount of One Million Two Hundred
Fifty Four Thousand and Eighty Two Dollars ($1,254,082), with interest,
redemption premiums, and other charges incurred but unpaid thereon to the date
hereof totaling Six Hundred Forty Thousand Nine Hundred Twenty Five Dollars
($640,925) (the "Series Notes"), the principal amount of the Note is hereby
increased to Two Million Six Hundred Forty-Five Thousand Seven Dollars
($2,645,007). Accordingly, the first paragraph of the Note is hereby amended as
follows:
FOR VALUE RECEIVED, the undersigned, The Network Connection,
Inc., a Georgia corporation (the "Maker"), hereby promises
to pay to the order of Interactive Flight Technologies,
Inc., a Delaware corporation, its successors and assigns
(the "Payee"), the principal sum of Two Million Six Hundred
Forty-Five Thousand Seven Dollars ($2,645,007), together
with interest on the outstanding principal balance thereof
accrued from the date hereof: (a) at the fixed rate of 9.5%
per annum in respect of all periods during which no Event of
Default (as such term is hereinafter defined) is continuing;
and (b) at the fixed rate of 12.5% in respect of all periods
during which any Event of Default is continuing. All
payments of principal and/or interest shall be paid in
lawful money of the United States of America in immediately
available funds to an account designated by Payee.
2. Any agreement to subordinate, or any subordination, of the indebtedness
represented by the Note to bank or finance company indebtedness, which may
heretofore have been given by Payee, is null and void and of no force or effect.
Maker represents and warrants to Payee that since execution of the Note, Payee
retains a first priority security interest in the Collateral granted by Maker to
Payee pursuant to that certain Security Agreement dated January 25, 1999 as
amended ("Security Agreement"). The Maker's obligations under the Note, as
amended here-by, shall be and be deemed to be secured by the Collateral and
subject to the terms of the Secur-ity Agreement, all of which are confirmed and
ratified as of the date hereof, including, but not
<PAGE>
limited to, all of the representations, warranties and covenants therein,
subject to the waivers provided by Payee contained in the Fourth Allonge.
3. In all other respects, the Note is confirmed, ratified, and approved
and, as amended by this Allonge, shall continue in full force and effect.
IN WITNESS WHEREOF, Maker and Payee have caused this Allonge to be executed
and delivered by their respective duly authorized officers as of the day and
year first above written.
THE NETWORK CONNECTION INC.
By:
---------------------------------
Accepted and agreed to:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
2
<PAGE>
Annex I
Principal
Date of Note Payee Amount
- ------------ ----- ----------
October 11, 1998 Sui Wan Chan $ 108,333
October 11, 1998 Peter Che Nan Chen $ 108,333
October 12, 1998 Correllus International, Ltd. $ 108,333
October 12, 1998 Galapaco Holdings, Ltd. $ 270,750
October 12, 1998 Keyway Holdings, Co. $ 108,333
November 17, 1998 Correllus International, Ltd. $ 100,000
November 19, 1998 Peter Che Nan Chen $ 100,000
November 24, 1998 Lufeng Investments, Ltd. $ 50,000
November 27, 1998 Keyway Holdings, Co. $ 100,000
December 11, 1998 Matterhorn, Ltd. $ 200,000
----------
TOTAL $1,254,082
==========
SIXTH ALLONGE TO
SECURED PROMISSORY NOTE
ALLONGE, dated August 9, 1999, attached to and forming a part of the
Secured Promissory Note, dated January 26, 1999, as amended by the Allonge to
Secured Promissory Note dated January 29, 1999, the Second Allonge to Secured
Promissory Note dated March 19, 1999, the Third Allonge to Secured Promissory
Note dated March 24, 1999, the Fourth Allonge to Secured Promissory Note dated
May 10, 1999, and the Fifth Allonge to Secured Promissory Note dated July 16,
1999 (collectively, the "Note"), made by THE NETWORK CONNECTION, INC., a Georgia
corporation ("Maker"), payable to the order of Interactive Flight Technologies,
Inc., a Delaware corporation ("Payee") in the original principal amount of
$500,000 and in the current principal amount of $2,645,007.
1. In consideration of the cancellation of the notes referred to on Annex I
attached to this Allonge which were issued by Maker, have been acquired by
Payee, and are in the aggregate principal amount of Three Hundred Fifty Thousand
Dollars ($350,000), with interest, redemption premiums, and other charges
incurred but unpaid thereon to the date hereof totaling One Hundred Twenty Seven
Thousand Seven Hundred Fifty Dollars ($127,750) (the "Series D Notes"), the
principal amount of the Note is hereby increased to Three Million One Hundred
and Twenty Two Thousand and Seven Hundred Fifty Seven Dollars ($3,122,757).
Accordingly, the first paragraph of the Note is hereby amended as follows:
FOR VALUE RECEIVED, the undersigned, The Network Connection,
Inc., a Georgia corporation (the "Maker"), hereby promises
to pay to the order of Interactive Flight Technologies,
Inc., a Delaware corporation, its successors and assigns
(the "Payee"), the principal sum of Three Million One
Hundred Twenty-Two Thousand Seven Hundred Fifty-Seven
Dollars ($3,122,757), together with interest on the
outstanding principal balance thereof accrued from the date
hereof: (a) at the fixed rate of 9.5% per annum in respect
of all periods during which no Event of Default (as such
term is hereinafter defined) is continuing; and (b) at the
fixed rate of 12.5% in respect of all periods during which
any Event of Default is continuing. All payments of
principal and/or interest shall be paid in lawful money of
the United States of America in immediately available funds
to an account designated by Payee.
2. Any agreement to subordinate, or any subordination, of the indebtedness
represented by the Note to bank or finance company indebtedness, which may
heretofore have been given by Payee, is null and void and of no force or effect.
Maker represents and warrants to Payee that since execution of the Note, Payee
retains a first priority security interest in the Collateral granted by Maker to
Payee pursuant to that certain Security Agreement dated January 25, 1999 as
amended, ("Security Agreement"). The Maker's obligations under the Note, as
amended hereby, shall be and be deemed to be secured by the Collateral and
subject to the terms of the Security Agreement, all of which are confirmed and
ratified as of the date hereof, including, but not limited to, all of the
representations, warranties and covenants therein.
<PAGE>
3. In all other respects, the Note is confirmed, ratified, and approved
and, as amended by this Fifth Allonge, shall continue in full force and effect,
subject to the waivers provided by Payee contained in the Fourth Allonge.
IN WITNESS WHEREOF, Maker and Payee have caused this Sixth Allonge to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
THE NETWORK CONNECTION INC.
By:
---------------------------------
Accepted and agreed to:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
2
<PAGE>
Annex I
Series D Notes of the Network Connection, Inc.
<TABLE>
<CAPTION>
Date of Note Original Payee Principal Amount Transferred to
- ------------ -------------- ---------------- --------------
<S> <C> <C> <C>
October 20, 1998 Robert E. Benninger, Jr. $100,000 XCEL Capital LLC on
and Sara Anne Benninger April 13, 1999
October 20, 1998 Will D. Brantley $150,000 XCEL Capital LLC
on April 23, 1999
October __, 1998 Elaine Martin $100,000 Not Transferred
--------
TOTAL $350,000
========
</TABLE>
3
SEVENTH ALLONGE TO
SECURED PROMISSORY NOTE
ALLONGE, dated August 24, 1999, attached to and forming a part of the
Secured Promissory Note, dated January 26, 1999, as amended by the Allonge to
Secured Promissory Note dated January 29, 1999, the Second Allonge to Secured
Promissory Note dated March 19, 1999, the Third Allonge to Secured Promissory
Note dated March 24, 1999, the Fourth Allonge to Secured Promissory Note dated
May 10, 1999, the Fifth Allonge to Secured Promissory Note dated July 16, 1999,
and the Sixth Allonge to Secured Promissory Note dated August 9, 1999
(collectively, the "Note"), made by THE NETWORK CONNECTION, INC., a Georgia
corporation ("Maker"), payable to the order of Interactive Flight Technologies,
Inc., a Delaware corporation ("Payee") in the original principal amount of
$500,000 and in the current principal amount of $3,122,757.
1. In consideration of the payment by Payee of certain obligations of
Maker, the principal amount of the Note is hereby increased by One Million Two
Hundred Thousand Dollars ($1,200,000) to Four Million Three Hundred Twenty-Two
Thousand Seven Hundred Fifty Seven Dollars ($4,322,757). Accordingly, the first
paragraph of the Note is hereby amended as follows:
FOR VALUE RECEIVED, the undersigned, The Network Connection,
Inc., a Georgia corporation (the "Maker"), hereby promises
to pay to the order of Interactive Flight Technologies,
Inc., a Delaware corporation, its successors and assigns
(the "Payee"), the principal sum of Four Million Three
Hundred Twenty-Two Thousand Seven Hundred Fifty-Seven
Dollars ($4,322,757), together with interest on the
outstanding principal balance thereof accrued from the date
hereof: (a) at the fixed rate of 9.5% per annum in respect
of all periods during which no Event of Default (as such
term is hereinafter defined) is continuing; and (b) at the
fixed rate of 12.5% in respect of all periods during which
any Event of Default is continuing. All payments of
principal and/or interest shall be paid in lawful money of
the United States of America in immediately available funds
to an account designated by Payee.
2. Paragraph 16 is hereby amended and restated in full to read as follows:
16. Conversion Rights. Payee shall be entitled, at any
time and from time to time and in its sole discretion, to
convert all or a portion of the principal amount and accrued
interest due under this Note into shares of the Maker's
Series C 8% Convertible Preferred Stock, $.01 par value,
Stated Value $1,000 per share (the "Preferred Stock") or, at
the option of Payee, into the Maker's Common Stock (the
"Common Stock"). Any such conversion into Preferred Stock
shall be effected at the rate of one share of Preferred
Stock for each $1,000 due hereunder which Payee has elected
to convert (the "Conversion Rate"). If Payee elects to
convert all or a portion of the principal amount and accrued
interest due under this Note directly into the Common Stock,
the number of shares to be issued shall be
<PAGE>
calculated as if such amount had first been converted to
Preferred Stock hereunder (calculated without regard to any
insufficiency of authorized shares of Preferred Stock) and
such resulting shares of Preferred Stock had, in turn,
immediately been converted to Common Stock at a conversion
price per share equal to the lowest of (a) $1.50, (b) 66.67%
of the Current Market Price (as hereafter defined), (c) the
price per share at which the Maker, after the date of this
Allonge, issues and sells any Common Stock, or (d) where
coupled with the right of the purchaser(s) thereof to demand
that the Corporation register under the Securities Act of
1933 any Common Shares (not theretofore registered) for
which any warrants or options may be exercised or any
convertible, exchangeable or exercisable securities may be
converted, exercised or exchanged, (i) the exercise price of
any such warrants or options issued by the Maker after the
date of this Allonge, or (ii) the conversion rate, exchange
rate or exercise price, respectively, of any such
convertible, exchangeable or exercisable security issued by
the Maker after the date of this Allonge, except for stock
option agreements or stock incentive agreements issued
pursuant to employee benefit plans. For purposes of this
Paragraph 16, the term "Current Market Price" means the
closing bid price as reported on the Nasdaq Stock Market (or
if not then traded on such market, on such exchange or
quotation system where such shares are then traded) for the
trading day immediately preceding the Conversion Date.
Payee may elect to convert by delivering to Maker, by
facsimile, telecopier or other expedient means of
transmission, a notice of conversion stating (i) the
principal amount and/or accrued interest to be converted,
(ii) the number of shares of Preferred Stock or Common Stock
to be issued as a result of such conversion; and (iii) the
person(s) in whose name the Preferred Stock or Common Stock
is to be issued. The conversion of any portion of this Note
and the resulting issuance of Preferred Stock or Common
Stock shall be effective upon the date that Maker receives
the corresponding notice of conversion, and Maker shall
deliver to Payee one or more certificates evidencing such
shares no later than five days following such effective
date. Upon a conversion of all amounts due hereunder, Payee
shall deliver the original Note (including all Allonges),
marked "PAID," to Maker no later than five days following
the delivery to Maker of the conversion notice. In the event
of a conversion of less than all amounts due hereunder, (A)
no principal amount under the Note shall be deemed converted
unless and until all accrued interest under the Note shall
be first converted; and (B) the portion of the amounts due
hereunder that are so converted shall be deemed repaid. The
parties shall mark on the grid attached to the Fourth
Allonge to Secured Promissory Note dated May 10, 1999 the
facts related to such partial conversion and shall confirm
the accuracy of the entry by signing next to each such
entry.
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<PAGE>
3. Any agreement to subordinate, or any subordination, of the indebtedness
represented by the Note to bank or finance company indebtedness, which may
heretofore have been given by Payee, is null and void and of no force or effect.
Maker represents and warrants to Payee that since execution of the Note, Payee
retains a first priority security interest in the Collateral granted by Maker to
Payee pursuant to that certain Security Agreement dated January 25, 1999 as
amended, ("Security Agreement"). The Maker's obligations under the Note, as
amended hereby, shall be and are deemed to be secured by the Collateral and
subject to the terms of the Security Agreement, all of which are confirmed and
ratified as of the date hereof, including, but not limited to, all of the
representations, warranties and covenants therein.
4. In all other respects, the Note is confirmed, ratified, and approved
and, as amended by this Seventh Allonge, shall continue in full force and
effect.
IN WITNESS WHEREOF, Maker and Payee have caused this Seventh Allonge to be
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
THE NETWORK CONNECTION INC.
By:
---------------------------------
Accepted and agreed to:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
---------------------------------
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