SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 17, 1999
Interactive Flight Technologies, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-25668 11-3197148
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(Commission File Number) (IRS Employer Identification No.)
4041 N. Central Avenue, Suite B 200, Phoenix, AZ 85012
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(Address of principal executive offices, including zip code)
(602) 200-8900
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(Registrant's telephone number)
Not Applicable
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(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets
On May 17, 1999, Interactive Flight Technologies, Inc. (the "Company")
acquired 1,055,745 shares of the common stock and 2,495,400 shares of the Series
D Convertible Preferred Stock of The Network Connection, Inc., a Georgia
corporation ("TNC"), pursuant to the terms of that certain Asset Purchase and
Sale Agreement (the "Agreement") by and between the Company and TNC dated April
29, 1999 (the "Transaction"). The common stock of TNC trades on the NASDAQ Small
Cap Market under the symbol "TNCX."
The consideration paid by the Company for all of such shares consisted of
certain assets relating to TNC's Interactive Entertainment Division, including
all fixed assets, inventory, intellectual property rights and other intangibles,
prepaid expenses and other property of IFT used in such Division, plus cash in
the amount of $4,250,000. The cash which comprised a portion of the assets
transferred to TNC was taken from the Company's working capital reserves. As
part of the Transaction TNC also assumed certain liabilities related to the IFT
assets transferred.
The TNC common shares acquired by the Company in the Transaction, when
combined with the number of TNC common shares into which the shares of Series D
Convertible Preferred Stock acquired by the Company in the Transaction can be
converted, equal 60% of all of the then outstanding common stock of TNC on a
fully diluted basis, as defined in the Agreement. However, TNC does not
currently have a sufficient number of common shares authorized to permit such a
conversion.
Each share of common stock of TNC is entitled to one vote. Each share of
Series D Convertible Preferred Stock of TNC is entitled to 6.05 votes; however,
notwithstanding the voting rights, the shares of Series D Convertible Preferred
Stock cannot be voted if the number of voting shares which would then be held by
TNC as a result of the Transaction would exceed 19.99% of the voting shares then
outstanding until the TNC shareholders have approved of the Transaction or until
July 15, 1999, whichever first occurs.
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In connection with the Transaction, TNC received the favorable opinion from
ValueMetrics, Inc. financial advisors retained by TNC for purposes of the
transaction, that consideration paid in connection with the Transaction was fair
to TNC and its shareholders from a financial point of view. ValueMetrics, Inc.
had no prior relationship to the Company or TNC prior to this engagement.
In the Agreement, IFT agreed for a three (3) year time period not to (i)
engage in any Competitive Business (as defined in the Agreement), (ii) solicit
or accept business for any Competitive Business from anyone who is or becomes an
active or prospective customer of TNC or its affiliates or who was an active or
prospective customer of the Business at or prior to the Closing Date of the
Transaction, (iii) solicit for employment or hire any employee of TNC or its
affiliates, or (iv) attempt to do any of the things or assist anyone else in
doing any of the things specified in (i), (ii), or (iii) above.
Prior to the Transaction, there was no relationship between the Company and
TNC except:
1. On May 11, 1999, the Company had acquired 1,500 shares of Series B 8%
Convertible Preferred Stock of TNC, Stated Value $1,000 per share, (the "Series
B Preferred Stock") from Shaar, and had simultaneously acquired directly from
TNC 800 shares of newly issued Series C 8% Convertible Preferred Stock, Stated
Value $1,000 per share (the "Series C Preferred Stock").
The Series B Preferred Stock is convertible into the Common Stock of TNC at
a conversion price equal to the lowest of (a) 75% of the Average Price (as
defined in the Articles of Amendment to the Articles of Incorporation of The
Network Connection, Inc., dated as of April 29, 1999) of TNC's Common Stock
calculated at the time of conversion; or (b) 75% of such Average Price
calculated as if April 29, 1999 were the conversion date.
The holders of Series B Preferred Stock have no voting power.
The Series C Preferred Stock is convertible into Common Stock of TNC at a
conversion price equal to the lowest of (a) $2.6875 per share; (b) 66.67% of the
Average Price per share of TNC Common Stock (as defined in the Articles of
Amendment to Articles of Incorporation of TNC dated April 30, 1999 re:
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Designations, Preferences and Rights of Series C Preferred Stock, filed May 5,
1999 (the "Series C Designations")); or (c) at a reduced price pursuant to
Section 6.5 of the Series C Designations. The Company also received $1,030,000
in cash from Shaar as part of the transaction. In consideration of the forgoing,
the Company issued to Shaar 3,000 shares of its Series A Convertible Preferred
Stock, and waived all defaults of TNC on and with respect to the Series B
Convertible Preferred Stock to and including May 10, 1999.
The holders of Series C Preferred Stock have no voting power, except that
in the event that on or before July 15, 1999, TNC's Articles of Incorporation
have not been amended to increase the number of authorized shares of Common
Stock sufficiently to permit TNC to issue to the Company, upon the exercise of
all options and warrants and the conversion of all convertible securities held
by the Company, that number of shares of Common Stock necessary to satisfy TNC's
obligations under all such securities, then the shares of Series C Preferred
Stock, in combination with the shares of Series B Preferred Stock, shall entitle
the holders thereof to cast that number of votes at any duly called meeting of
the stockholders of TNC which, when added to the shares of Common Stock held by
any of the holders of the Series B Preferred Stock and Series C Preferred Stock
on the record date for such stockholder meeting, shall be necessary to equal a
majority of the number of votes entitled to be cast at such stockholder meeting
by the holders of all voting shares of TNC.
2. Prior to the Transaction, TNC was indebted to the Company in the
approximate principal amount of $750,000. On May 10, 1999, TNC executed a Fourth
Allonge to the Secured Promissory Note evidencing such loan. Pursuant to such
Fourth Allonge the balance due from TNC to the Company became convertible into
shares of the Series C Preferred Stock at a conversion price of $1,000 per
share. The Series C Preferred Stock, in turn, is convertible to Common Stock of
TNC as described above and in the Series C Designations.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The financial statements, pro forma financial information and Exhibits
filed as part of this report are set forth below:
(a) Financial statements of businesses acquired:
(i) Financial statements of TNC for the two fiscal years ended
December 31, 1997 and December 31, 1998.
(ii) Financial statements of TNC for the three month period ended
March 31, 1999.
(b) Pro forma financial information: To be filed by amendment.
(c) Exhibits
2.1 Asset Purchase and Sale Agreement dated as of April 29, 1999 by
and between Interactive Flight Technologies, Inc. and The
Network Connection, Inc.
2.2 First Amendment to Asset Purchase and Sale Agreement dated as of
May 14, 1999 by and between Interactive Flight Technologies,
Inc. and The Network Connection, Inc.
23.1 Consent of ValueMetrics, Inc. (contained in Opinion of
ValueMetrics, Inc. addressed to TNC dated May 14, 1999, below)
99.1 Certificate of Designations of Series B Convertible Preferred
Stock of TNC dated October 23, 1998
99.2 Amendment dated as of April 29, 1999 to Certificate of
Designations of Series B Convertible Preferred Stock of TNC
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99.3 Certificate of Designations of Series C Convertible Preferred
Stock of TNC dated as of April 30, 1999
99.4 Certificate of Designations of Series D Convertible Preferred
Stock of TNC dated as of May 5, 1999
99.5 Secured Promissory Note Dated January 26, 1999 made by TNC and
payable to the order of the Company
99.6 Allonge to Secured Promissory Note Dated January 29, 1999
99.7 Second Allonge to Secured Promissory Note Dated March 19, 1999
99.8 Third Allonge to Secured Promissory Note Dated March 24, 1999
99.9 Fourth Allonge to Secured Promissory Note Dated May 10, 1999
99.10 Opinion of ValueMetrics, Inc. addressed to TNC dated May 14,
1999
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
Registrant
By: /s/ Irwin L. Gross
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Irwin L. Gross, Chief Executive Officer
Date: May 28, 1999
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement"), is entered into
effective as of April 29, 1999, among INTERACTIVE FLIGHT TECHNOLOGIES, INC., a
Delaware corporation ("IFT") and THE NETWORK CONNECTION, INC., a Georgia
corporation ("TNCI").
R E C I T A L S :
WHEREAS, IFT is engaged primarily in the interactive entertainment
devices business (the "Business");
WHEREAS, TNCI desires to purchase, and IFT desires to sell all of its
right, title and interest in and to all or substantially all of the tangible and
intangible assets relating to the Business as now conducted (the "Assets") and
specific liabilities relating to the Business ("Liabilities," with the Assets
"Net Assets") in exchange for restricted stock of TNCI.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, IFT and TNCI hereby agree as follows:
C O V E N A N T S :
1. Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement, on the Closing Date, as defined in Paragraph 4 (the "Closing
Date") IFT shall sell, convey, transfer and assign to TNCI, and TNCI shall
purchase from IFT, all of IFT's right, title and interest in and to the Assets
described in Schedule 1.1.1 (the "Assets"). TNCI shall pay the consideration set
forth in Paragraph 3, "Purchase Price," to purchase the Assets. All of the
Exhibits and Schedules referred to in this Agreement are made a part of the
Agreement by this reference.
2. Assumption of Liabilities. Subject to the terms and conditions of
this Agreement, TNCI shall assume the Liabilities of IFT as set forth in
Schedule 2.1 (the "Assumed Liabilities"), which shall specifically include any
and all liabilities relating to any potential claims arising out of IFT's
relationship with Swissair all as set forth in more detail on Schedule 2.1.
Except as set forth in Schedule 2.1, TNCI shall not assume any other liabilities
or obligations in connection with its purchase of the Assets.
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3. Purchase Price and Payment for Assets.
3.1 TNCI will acquire the Assets in consideration for:
3.1.1 its issuance to IFT of the greater of 1,055,745 restricted
shares of its voting common stock, $.001 par value ("Common Stock"), or the
maximum number of authorized but unissued shares of Common Stock of TNCI
not otherwise reserved for issuance as of the Closing Date provided TNCI
has received the approval of the Nasdaq Stock Market, Inc. to issue such
maximum number of shares as contemplated in Paragraph 9.2;
3.1.2 its issuance to IFT of that number of shares of its Series D
Preferred Stock (the terms and conditions of which are set forth on
Schedule 3.1.1-A) such that the total of the number of shares of Common
Stock into which the Series D Preferred Stock is convertible plus the
number of shares of Common Stock issued to IFT under Paragraph 3.1.1 is
equal to sixty percent (60%) of the outstanding shares of capital stock of
TNCI immediately following the Closing Date, taking into account the
issuance of such Common Stock to IFT under Paragraph 3.1.1 and the
conversion of Series D Preferred Stock into Common Stock, and treating all
convertible securities, options, warrants or other rights to acquire
securities of TNCI as if converted or exercised as of the close of business
on the date immediately preceding the Closing Date (whether or not actually
converted or exercised as of the Closing Date) into Common Stock. The
shares of Common Stock and Series D Preferred Stock to be issued to IFT as
consideration for the transaction contemplated by this Agreement are
collectively referred to in this Agreement as the "TNCI Shares." Schedule
3.1.1-B attached hereto sets forth the computation of the TNCI Shares to be
issued to IFT; and
3.1.3 The assumption by TNCI of the Liabilities.
3.2 The purchase price ("Purchase Price") shall be allocated among the
Assets according to Schedule 3.2.
3.3 TNCI and IFT will determine, as of the Closing Date, the number of
TNCI Shares to be issued to IFT pursuant to this Paragraph 3, and TNCI shall
deliver a certificate at closing, signed by the chief financial officer of TNCI,
certifying the accuracy of such number.
3.4 IFT will transfer title to the Assets and make the Corporate
Records of IFT available for copying to TNCI on the Closing Date. The term
"Corporate Records" shall mean any and all records kept by IFT regarding the
Assets and Assumed Liabilities identified on Schedule 3.4.
4. Closing Date.
4.1 The closing under this Agreement shall take place at the offices of
Streich Lang, P.A., Renaissance One, Two North Central, Phoenix, Arizona
85004-2391 on a date ("Closing Date") as soon as practicable after:
4.1.1 Execution of this Agreement;
4.1.2 Completion of the due diligence investigation contemplated under
Paragraph 8, "Due Diligence Inspection of Premises and Confidential
Information";
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4.1.3 Satisfaction of all conditions to closing set forth in Paragraph
9, "Conditions Precedent to Obligations of TNCI," and Paragraph 10,
"Conditions Precedent to the Obligations of IFT";
4.1.4 Receipt of any required approvals under Arizona and Georgia
corporate law and any other required regulatory approvals and all consents
or waivers from other parties to licenses, indentures, agreements and other
instruments that are required (except where the failure to obtain such
would not have a material adverse effect on either party): (i) in
connection with the sale, transfer, assignment or conveyance of the Assets
and assignment of Assumed Liabilities or the consummation of the
transactions contemplated by this Agreement or (ii) for preventing the
acceleration or termination, or creating the existence of a right to
terminate or accelerate upon consummation of this transaction, of any
right, privilege, license, franchise, permit or agreement of either IFT or
TNCI, which consents or waivers shall have been obtained at the expense of
IFT or TNCI, as relevant; and
4.1.5 Receipt of a "fairness opinion" by TNCI, which fairness opinion
is satisfactory in form and scope to the board of directors of TNCI.
4.2 The Closing Date shall be no later than May 15, 1999, provided that
IFT may extend the Closing Date for up to an additional thirty (30) days.
5. Representations and Warranties of IFT. IFT represents and warrants
to TNCI that:
5.1 Organization and Good Standing. IFT is a corporation duly organized
and existing in good standing under the laws of the State of Delaware. IFT has
full corporate power and authority to carry on the Business as now conducted and
to own or lease and operate the Assets. IFT is duly qualified to transact
business in the State of Delaware, the State of Arizona, and in all states and
jurisdictions in which the Business or ownership of the Assets makes it
necessary so to qualify, and the failure to so qualify could have a material
adverse effect on the Assets or the Business of IFT.
5.2 Finders. No agent, broker, person or firm acting on behalf of IFT
is, or will be, entitled to any commission or broker's or finder's fees from any
of the parties to this Agreement, or from any person controlling, controlled by
or under common control with any of the parties to this Agreement, in connection
with any of the transactions contemplated in this Agreement.
5.3 Authority. IFT has the requisite power and authority to own and
transfer the Assets, to enter into this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by IFT has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon IFT, and is enforceable against IFT in
accordance with its terms, subject to bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
5.4 Validity of Agreement. Neither the execution nor the delivery of
this Agreement by IFT, nor the performance by IFT of any of the respective
covenants or obligations to be performed by IFT hereunder, will result in any
violation of any order, decree or judgment of any court or other governmental
body, or statute or law applicable to IFT, or in any breach of any terms or
provisions of either the Certificate of Incorporation or Bylaws of IFT, or
constitute a default under any indenture,
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mortgage, deed of trust or other material contract to which IFT is a party or by
which IFT or the Assets are bound.
5.5 Absence of Undisclosed Liabilities and Obligations. IFT has no
liability of any nature (whether accrued, absolute, contingent or otherwise)
related to the Business or the Assets, except to the extent set forth in
Schedule 5.5, and as reflected on IFT's financial statements, delivered to TNCI
pursuant to paragraph 5.6 hereof.
5.6 Financial Statements and Public Reports. The audited consolidated
financial statements of IFT for the fiscal year ended October 31, 1998, with
accompanying notes, as contained in IFT's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1998, and the unaudited financial statements of
IFT for the fiscal quarter ended January 31, 1999, with accompanying notes, as
contained in IFT's Quarterly Report on Form 10-QSB for the fiscal quarter ended
January 31, 1999 delivered to TNCI, fairly and accurately present, in all
material respects, the financial condition, the assets and liabilities of IFT at
such dates, and the results of its operation and changes in its financial
position for the periods and years ended on such dates, in conformity with
generally accepted accounting principles consistently applied. Such financial
statements (the "Financial Statements") have been prepared from the books and
records of IFT in accordance with GAAP, on a consistent basis, and contain and
reflect all necessary adjustments for a fair and accurate presentation of IFT's
financial condition as of the dates of such statements and for the year and
period, respectively, ended on such dates.
5.7 Absence of Certain Changes. During the period from January 31, 1999
through and including the Closing Date, IFT has not, with respect to the
Business and the Assets:
5.7.1 Suffered any material adverse change affecting the Assets,
Liabilities, or Business;
5.7.2 Sold or transferred any of the Assets or canceled any
indebtedness or claims owing to it which constitute part of the Business,
except in the ordinary course of business and consistent with its past
practices;
5.7.3 Sold, assigned or transferred any formulas, trade secrets,
inventions, patents, patent applications, trademarks, trade names,
copyrights, copyright applications, licenses, computer programs or
software, know-how or other intangible assets, which constitute part of the
Assets;
5.7.4 Amended or terminated any contract, agreement or license
constituting part of the Business to which it is a party otherwise than in
the ordinary course of business or as may be necessary for the consummation
of the transactions described herein;
5.7.5 Borrowed any money or incurred, directly or indirectly (as a
guarantor or otherwise), any single instrument of indebtedness which
constitutes part of the Assumed Liabilities, in excess of $25,000, or
incurred aggregate additional indebtedness which constitutes part of the
Assumed Liabilities in excess of $50,000, except in the ordinary course of
business and consistent with its past practices;
5.7.6 Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the Assets, except in the ordinary course of business
and consistent with its past practices; or
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5.7.7 Entered into or committed to any other material transaction as
part of the Business other than in the ordinary course of business,
consistent with past practices.
5.8 Taxes. IFT (and any predecessor corporation or partnership as to
which IFT is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with procedures required by
law; has not deducted any expenses or charges or claimed any credits which are
not allowable; and except as set forth in Schedule 5.8, has paid, or accrued and
reserved for, all taxes, penalties and interest shown to be due or required to
be paid pursuant to the returns as filed, or as adjusted pursuant to amendment
or correction. IFT has also provided copies of all federal and state income and
sales tax returns filed, FICA and state income taxes withholding returns filed
and evidence of payment of such taxes as listed in Schedule 5.8 hereto. IFT has
(i) paid or will pay by the Closing Date any property taxes owed with respect to
the Assets that are due and payable through the Closing Date; and (ii) no
knowledge of any deficiency or assertion of any deficiency relating to property
taxes on the Assets. No examination, audit, or inquiry of any tax return,
federal, state or otherwise of IFT is currently in progress and IFT has not been
advised by any taxing authority of any intent to commence any inquiry, audit or
examination of any tax return from any taxing authority or of any issue or
questions relating to any return, report or declaration that would result in the
assertion of any deficiency for any federal state, local, or other tax or
interest or penalties in connection therewith. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return of IFT.
5.9 Title to the Assets. IFT has good and marketable title to all of
the Assets, free and clear of all security interests, liens, encumbrances,
mortgages or charges of any nature whatsoever other than those liabilities set
forth in the Financial Statements. Any security interests, liens, encumbrances,
mortgages or charges on the Assets not set forth in IFT's Financial Statements
shall be discharged in full on or before the Closing Date and evidenced by UCC
Releases delivered by IFT on the Closing Date. The tangible personal property
(other than inventory) of IFT is in good working order, normal wear and tear
excepted.
5.10 Leases. Schedule 5.10 sets forth a list of each lease or
occupancy, possessory or similar agreement, as the same may have been amended or
modified under which IFT is lessee of, or holds or operates, any real property
owned by a third party and which is used in the Business (the "Leased Real
Property"). IFT has delivered a true and correct copy of each such agreement to
TNCI. IFT does not own any real property.
5.11 Accounts Receivable. No amount included in the accounts receivable
of IFT as of January 31, 1999, has been released or settled for an amount less
than the value at which it was included in the financial statements as of that
date. Except as to the Swissair accounts receivable, there are no facts or
circumstances (other than general economic conditions) which would result in any
material increase in the uncollectibility of such accounts receivable over
historical collection rates.
5.12 Material Documents. Set forth in Schedule 5.12 is a complete list
of all material documents with respect to the Assets or the Business to which
IFT is a party (the "Scheduled
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Agreements"). All such documents listed on and attached to Schedule 5.12 are
legal, valid, enforceable and accurate and complete copies of such material
documents (or, with the consent of TNCI, forms thereof) as have been requested
by TNCI have been provided to TNCI. As used herein, material documents shall
mean agreements, covenants and any other instrument that relates to an assets
that is material to the Business, or which otherwise involves an expenditure or
liability of IFT in excess of $30,000 in the aggregate. Except as set forth in
Schedule 5.12, consummation of the transactions contemplated hereby will not
cause a breach of or constitute a default (with or without the giving of notice
or the lapse of time or both) under any of the Scheduled Agreements, result in
the forfeiture or impairment of any rights thereunder, require the consent,
approval or act of, or the making of any filing with, any other Person pursuant
to the terms thereof (to the extent the absence of such consent or approval
would constitute a breach or default, or require or result in the payment of any
assignment or related fees or costs). Except as set forth in Schedule 5.12, IFT
has fulfilled and performed its material obligations under each of the Scheduled
Agreements and is not in breach or default under, nor, to IFT's knowledge, is
there any basis for termination of any of the Scheduled Agreements, and no other
party to any of such Scheduled Agreements has, to IFT's knowledge, breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice, or both,
would constitute such a default or breach by IFT or, by any such other party.
Except as set forth on Schedule 5.12, IFT is not currently renegotiating any of
the Scheduled Agreements or paying liquidated damages in lieu of performance
thereunder. Complete and correct copies of each of the written Scheduled
Agreements (including without limitations all amendments, supplements or other
modifications thereto or waivers of right thereunder) have heretofore been
delivered to TNCI. A complete and correct description of each oral Scheduled
Agreement appears in Schedule 5.12 in which such Scheduled Agreement is listed.
5.13 Intellectual Property.
5.13.1 Schedule 5.13.1 contains a list and brief description of:
5.13.1.1 all United States and foreign patents and patent
applications, all United States, state and foreign trademarks and
trademark applications, service marks, trade names and copyrights and
copyright applications for which registrations have been issued or
applied for, and all other United States, state and foreign
trademarks, service marks, trade names and copyrights (other than for
software) owned or used by IFT;
5.13.1.2 all agreements, contracts, or licenses, relating or
pertaining to any asset, property or right of the character described
in the preceding clause (i) to which IFT is a party;
5.13.1.3 all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures or uses of ideas to
which IFT is a party; and
5.13.1.4 all registered, assumed or fictitious names under which
IFT is conducting activities related to the Business or has within the
previous five years conducted activities related to the Business.
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5.13.2 Except as otherwise disclosed in Schedule 5.13.1.2, to IFT's
knowledge, all patents, trademarks and registered copyrights owned,
controlled or used by IFT are valid and in force and all patent
applications, trademark registrations and copyright registrations of IFT
listed therein are in good standing all, to the knowledge of IFT, without
challenge of any kind and except as otherwise disclosed in Schedule
5.13.1.2, IFT owns the entire rights, title and interests in and to such
patents and patent applications free and clear of all Encumbrances. To
IFT's knowledge, all of the registrations for trade names, trademarks,
service marks and registered copyrights listed in Schedule 5.13.1, as being
owned, or used by IFT are valid and in force and all applications for such
registrations are in good standing, all without challenge of any kind, and
to IFT's knowledge, the entire right, title and interest in and to each
such trade name, trademark, service mark and copyright so listed as well as
the registrations and application for registration therefor is owned by
IFT, free and clear of all encumbrances. Correct and complete copies of all
the patents and patent applications and of all of the trademarks, trade
names, service marks and copyrights and registrations, applications or
deposits therefor and all the licenses listed in Schedule 5.13.1, have
heretofore been delivered by IFT to TNCI.
5.13.3 To IFT's knowledge, IFT has good and marketable title to that
computer software described as "Owned Software" on Schedule 5.13.1.4 hereto
(the "Owned Software"), free of all claims, including claims or rights of
employees, agents, consultants or other parties involved in the development
or creation of such computer software, except as set forth on Schedule
5.13.1.4. Except as set forth on Schedule 5.13.1.4 hereto, IFT has the
right and license to use that software described as "Licensed Software" on
Schedule 5.13.1.4 hereto (the "Licensed Software") free and clear of any
limitations or encumbrances except as may be set forth in any license
agreements listed in Schedule 5.13.1.4. Except as disclosed on Schedule
5.13.1.4, IFT is in full compliance with all provisions of any license,
lease or other similar agreement pursuant to which it has rights to use the
Licensed Software. Except as disclosed on Schedule 5.13.1.4, none of the
Licensed Software has been incorporated into or made a part of any Owned
Software or any other Licensed Software and none of the Owned Software is
dependent on any Licensed Software in order to freely operate in the manner
in which it is intended. The Owned Software and Licensed Software
constitute all software used in the Business ("IFT's Software"). IFT has
not received notice that it is infringing any intellectual property rights
or any other person or entity with respect to IFT's Software, and to the
knowledge of IFT no other person or entity is infringing any intellectual
property rights of IFT with respect to IFT's Software which IFT leases or
licenses to it.
5.14 Governmental Permits.
5.14.1 IFT owns, holds or possesses all governmental licenses,
franchises, permits, privileges, immunities, approvals, registrations,
easements, rights and other authorizations which are necessary to entitle it to
own, lease, operate and use its assets and properties and to carry on and
conduct the Business as currently conducted (herein collectively called "IFT
Permits"). Schedule 5.14.1 sets forth a list and brief description of each such
IFT Permit held by IFT as of the date of this Agreement. Complete and correct
copies of all of the IFT Permits listed in Schedule 5.14.1 have heretofore been
delivered to TNCI by IFT.
5.14.2 IFT is in compliance in all material respects with each of the
IFT Permits owned, held or possessed by it, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any such IFT Permit.
No notice of cancellation, of default or of any dispute, appeal or inquiry
concerning any IFT
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Permit, or of any event, condition or state of facts set forth in the preceding
sentence, has been received by IFT. Except as set forth in Schedule 5.14.3, each
of the IFT Permits is valid subsisting and in full force and effect without
challenge of any kind.
5.15 Litigation. Except as set forth in Schedule 5.15, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body relating to the Assets or the
Business which may have an adverse effect on the Business, the Assets, or IFT's
financial condition. There is no action, suit, proceeding or investigation
pending or, to IFT's knowledge, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement or which seeks to
prevent or materially delay the transactions contemplated by this Agreement.
5.16 Employees. Schedule 5.16 sets forth the name and current monthly
salary and any accrued benefit for each employee of IFT set forth on the
attached Schedule who the parties agree shall be offered employment by TNCI
immediately after the Closing. There will be no changes in Schedule 5.16 through
the Closing Date, unless TNCI is advised of such changes in advance; provided
that to the exact TNCI reasonably disapproves of such change, TNCI shall have
the right to not offer employment to such person after the Closing.
5.17 Compliance With Laws. Except as set forth in Schedule 5.17, IFT
has conducted and is continuing to conduct the Business in compliance in all
material respects with, and is in compliance in all material respects with, all
applicable statutes, orders, rules and regulations promulgated by governmental
authorities relating in any material respect to the conduct of the Business or
use of properties, including, without limitation, any applicable statute, order,
rule or regulation relating to (i) wages, hours, hiring, nondiscrimination,
retirement, benefits, pensions, working conditions, and worker safety and
health; (ii) air, water, toxic substances, noise, or solid, gaseous or liquid
waste generation, handling, storage, disposal or transportation of
environmentally hazardous materials ("Environmental Laws"); (iii) zoning and
building codes; (iv) the production, storage, processing, advertising, sale,
distribution, transportation, disposal, use and warranty of products; or (v)
trade and antitrust regulations. The execution, delivery and performance of this
Agreement by IFT and the consummation by IFT of the transactions contemplated by
this Agreement will not violate, contravene or constitute a default under any
applicable statutes, orders, rules and regulations promulgated by governmental
authorities or cause a lien on any property used, owned or leased by IFT to be
created thereunder, except to the extent it would not cause a material adverse
effect on the Assets or the Business. IFT has not taken any action that requires
notification of the employees of IFT pursuant to the provisions of the WARN Act
or that would cause IFT to have any liability thereunder. There are no
injunctions, orders, awards, decrees of any governmental body or political
subdivision currently in effect against IFT.
5.18 Filings. IFT has made all filings and reports required under all
local, state and federal laws and regulations with respect to the Business and
the Assets, except where the failure to make such filings and reports would not
have a material adverse effect on the Business or the Assets.
5.19 Insurance Coverage. The policies of fire, liability or other forms
of insurance of IFT relating to the Business and Assets are described in
Schedule 5.19.
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5.20 Charter and By-Laws. IFT has heretofore delivered to TNCI true,
accurate and complete copies of the Certificate of Incorporation and By-Laws of
IFT, together with all amendments to each of the same as of the date hereof.
5.21 Corporate Minutes. The minute books of IFT previously made
available to TNCI are the correct and only such minute books and do and will
contain complete and accurate records of any and all proceedings and actions at
all meetings, including written consents executed in lieu of meetings of its
stockholders, Board of Directors and committees thereof through the Closing
Date. The stock records of IFT previously delivered to TNCI at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of IFT.
5.22 Default on Indebtedness. IFT is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money, which is secured by a lien on the Assets.
5.23 Governmental Approvals. No consent, approval or authorization of,
or notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by IFT, except for any filings required to be
made after the Closing Date, which are identified on Schedule 5.23.
5.24 Investment Intent.
5.24.1 Investigation; Investment Representation. IFT (i) possesses such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment hereunder; (ii) has been
afforded the opportunity to ask questions of, and receive answers from, TNCI
concerning the terms and conditions of its investment, the transactions
contemplated hereby and the business and affairs of TNCI; (iii) has examined, to
the extent it deems appropriate, all of the agreements and documents referred to
herein or in the schedules hereto and such other documents that it has
requested, and has been provided copies of and has reviewed (x) all of TNCI's
public filings made pursuant to the Securities Exchange Act of 1934, as amended,
which have been filed by TNCI since December 31, 1998, and (y) the Risk Factors
set forth on Schedule 5.24.1; and (iv) understands that the TNCI Shares are not
being registered under the 1933 Act, on the grounds that the issuance thereof is
exempt from registration under Paragraph 4(2) of the 1933 Act, as a transaction
by an issuer not involving a public offering, and TNCI's reliance on this
exemption is predicated in part on IFT's representations and warranties
contained in this Paragraph 5.24.1. IFT is acquiring the TNCI's Shares for its
own account, for investment purposes only and not with a view to the
distribution or resale thereof. IFT acknowledges that the certificates
evidencing the TNCI Shares shall bear restrictive securities legends and shall
not be transferable in the absence of the distribution thereof being registered
under the 1933 Act or any applicable state securities laws, or the applicability
of exemptions therefrom based upon an opinion of counsel acceptable to TNCI. IFT
is an "accredited investor," as that term is defined in Regulation D, as
promulgated under the 1933 Act.
5.24.2 Stop Transfer Instructions and Legend. IFT acknowledges that
TNCI may cause its transfer agent to establish appropriate stop transfer
instructions with respect to the TNCI Shares, and shall cause to be set forth on
the certificates representing any TNCI Shares, a legend substantially in the
following form:
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"The securities represented by this certificate have not been
registered under the United States Securities Act of 1933, as amended,
or under any applicable state securities laws. No transfer of such
securities shall be valid or effective except in accordance with the
applicable requirements of the Securities Act of 1933, as amended, or
applicable state securities laws. In the absence of registration under
the Securities Act of 1933 and applicable state securities laws, no
transfer of such securities shall be made in the absence of an
exemption therefrom."
5.25 Product Liability Claims; Product Warranties. Schedule 5.25 sets
forth all product liability claims pending or, to the knowledge of IFT,
threatened against IFT and all product liability claims paid by or on behalf of
IFT for the three (3) year period prior to the date of this Agreement. Except as
set forth on Schedule 5.25, IFT has not given or offered any warranty covering
any products sold or distributed by it, and IFT has not extended to its
customers any indemnification or guarantees.
5.26 Environmental Protection.
5.26.1 Except as set forth on Schedule 5.26.1;
5.26.1.1 The operations of IFT comply in all material respects with
all applicable Environmental Laws and there are no substances or conditions
existing at any facility that may support a claim or cause of action
against IFT or TNCI under any Environmental Laws.
5.26.1.2 IFT has obtained, or has taken appropriate steps as required
by Environmental Laws to obtain, all environmental, health and safety
permits necessary for its operations, and all such permits are in good
standing and IFT is currently incompliance with all terms and conditions of
such permits; and
5.26.1.3 IFT's facilities and operations at the facilities are not
subject to any judicial or administrative proceeding, order, judgment,
decree or settlement, or to the knowledge of IFT, any investigation,
alleging or addressing (i) violation of any Environmental Laws, or (ii) any
remedial action; and IFT has not received any notice of any claims or
liabilities and costs arising from the release or threatened release of a
contaminant into the environment, or claims, complaints, notices or
requests for information with respect to any alleged violation of any
Environmental Laws or complaints or notices regarding potential liability
under any Environmental Laws.
5.27 Employment Relations. IFT is in compliance with all Federal, state
or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on IFT; no unfair labor practice complaint against
IFT is pending before the National Labor Relations Board; there is no labor
strike, dispute, slow down or stoppage actually pending or, to IFT's knowledge,
threatened against or involving IFT; no labor representation question exists
respecting the employees of IFT; no grievance which might have an adverse effect
upon IFT or the conduct of its business has been filed against IFT; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by IFT; and IFT has not experienced any
material labor difficulty during the last three (3) years.
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5.28 Completeness of Representations and Schedules. The Schedules
hereto, where applicable to IFT, completely and correctly present in all
material respects the information required by this Agreement. This Agreement,
the certificates to be delivered by IFT at the Closing, the Schedules and the
representations and warranties contained in this Paragraph 5, and the documents
and written information pertaining to IFT furnished to TNCI or its agents by or
on behalf of IFT, do not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make this Agreement, or such
certificates, schedules, documents or written information not misleading.
6. Representations and Warranties of TNCI. TNCI represents and warrants
to IFT that:
6.1 Organization and Good Standing.
6.1.1 TNCI is a corporation duly organized and existing in good
standing under the laws of the State of Georgia. TNCI has full corporate
power and authority to carry on its business as now conducted. TNCI is duly
qualified to transact business in the States of Arizona and Georgia and in
all states and jurisdictions in which the business or ownership of its
property makes it necessary so to qualify and the failure to so qualify
could have a material adverse effect on the business, assets, financial
condition, results of operations, or prospects of TNCI.
6.1.2 TNCI is a publicly held company and is a reporting company under
the Securities Exchange Act of 1934 as amended ("Exchange Act") and
satisfies the informational reporting requirements under Rule 144
promulgated under the Exchange Act. TNCI has filed all the material
required to be filed under the Exchange Act and such reports are true,
correct and complete in all material respects and comply as to for with the
applicable requirements of the Exchange Act and the rules and regulations
promulgated thereunder.
6.2 Finders. No agent, broker, person or firm acting on behalf of TNCI
is, or will be, entitled to any commission or broker's or finder's fees from any
of the parties to this Agreement, or from any person controlling, controlled by
or under common control with any of the parties to this Agreement, in connection
with any of the transactions contemplated in this Agreement.
6.3 Authority and Consent. The execution, delivery and performance of
this Agreement by TNCI has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon TNCI, and is enforceable against TNCI in
accordance with its terms, subject to bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
6.4 Validity of Agreement. Neither the execution nor the delivery of
this Agreement by TNCI, nor the performance by TNCI of any of the respective
covenants or obligations to be performed by TNCI hereunder, will result in any
violation of any order, decree or judgment of any court or other governmental
body, or statute or law applicable to TNCI, or in any breach of any terms or
provisions of either the Articles of Incorporation or Bylaws of TNCI, or
constitute a default under any indenture, mortgage, deed of trust or other
material contract to which TNCI is a party or by which TNCI or its assets or
properties are bound.
6.5 Capitalization. The authorized capital stock of TNCI consists
solely of 10,000,000 shares of Common Stock, $.001 par value per share, of which
5,278,737 shares are issued and
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outstanding and 2,500,000 shares of Preferred Stock, of which 1,500 shares of
Series B Preferred Stock are issued and outstanding ("TNCI Shares"). TNCI also
has outstanding indebtedness, options, warrants or other securities convertible
into capital stock as set forth on Schedule 6.5.1 outstanding (the "Convertible
Securities"). TNCI Shares are validly issued, are fully paid and non-assessable
and are subject to no restrictions on transfer (other than those provided under
state and federal securities laws). TNCI Shares shown as outstanding constitute
the only outstanding shares of the capital stock of TNCI of any nature
whatsoever, voting and non-voting. All TNCI Shares are required to be
certificated, and TNCI has executed and delivered no certificates for shares in
excess of the number of TNCI Shares set forth above. There are, and except as
set forth on Schedule 6.5.2 as of the Closing Date there will be, no outstanding
options, warrants, rights, calls, commitments, conversion rights, plans or other
agreements of any character providing for the purchase, issuance or sale of, or
any securities convertible into, capital stock of TNCI, whether issued, unissued
or held in its treasury.
6.6 No Additional Outstanding Options and Warrants. TNCI has not, and
as of the Closing Date will not, issue any additional shares of its capital
stock or any Convertible Securities or grant any rights to acquire or agree to
issue any additional shares of its capital stock or any Convertible Securities.
6.7 No Subsidiaries. TNCI has no subsidiaries and does not own five
percent (5%) or more of the securities having voting power of any corporation
(or would own such securities in such amount upon the closing of any existing
purchase obligations for securities).
6.8 Government Approvals. No consent, approval or authorization of, or
notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by TNCI.
6.9 Financial Statements and Public Reports. The audited consolidated
financial statements of TNCI for the fiscal year ended December 31, 1998 with
accompanying notes, all as contained in TNCI's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998 delivered to IFT, fairly and accurately
present, in all material respects, the financial condition, assets and
liabilities of TNCI at such date, the results of its operation and changes in
its financial position for the year ended on such date, in conformity with
generally accepted accounting principles consistently applied. Such financial
statements have been prepared from the books and records of TNCI in accordance
with GAAP, on a consistent basis, and contain and reflect all necessary
adjustments for a fair and accurate presentation of TNCI's financial condition
as of the date of such statements and for the year ended on such date. TNCI has
not had any disputes or disagreements during the last three (3) years with its
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
6.10 Absence of Undisclosed Liabilities and Obligations. TNCI has no
liabilities or obligations of any nature in excess of $5,000 individually or
$15,000 in the aggregate (whether accrued, absolute, contingent or otherwise)
except to the extent set forth in Schedule 6.10 and as reflected on its
Financial Statements. Except as set forth on Schedule 6.10, TNCI has no
liabilities or obligations secured by a lien or security interest in any of its
assets.
6.11 Absence of Certain Changes. Except as set forth in Schedule 6.11,
during the period from December 31, 1998 through and including the Closing Date,
TNCI has not:
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6.11.1 Suffered any material adverse change affecting its assets,
liabilities, financial condition or business;
6.11.2 Made any change in the compensation payable or to become
payable to any of its employees or agents, or made any bonus payments,
except for the bonuses which have historically been made in the ordinary
course of business or compensation arrangements to or with any of its
employees or agents, whether direct or indirect;
6.11.3 Paid or declared any dividends, distributions or other payments
due or owing to its stockholders;
6.11.4 Issued any stock, or granted any stock options or warrants to
purchase stock or issued any securities convertible into common stock of
TNCI;
6.11.5 Sold or transferred any of its assets or canceled any
indebtedness or claims owing to it, except in the ordinary course of
business and consistent with its past practices;
6.11.6 Sold, assigned, encumbered or transferred any formulas, trade
secrets, inventions, patents, patent applications, trademarks, trade names,
copyrights, copyright application, licenses, computer programs or software,
know-how or other intangible assets;
6.11.7 Amended or terminated any contract, agreement or license to
which it is a party otherwise than in the ordinary course of business or as
may be necessary or appropriate for the consummation of the transactions
described herein;
6.11.8 Borrowed any money or incurred, directly or indirectly (as a
guarantor or otherwise), any single instrument of indebtedness in excess of
$25,000, or incurred additional aggregate indebtedness in excess of
$50,000, except in the ordinary course of business and consistent with its
past practices;
6.11.9 Discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities shown in the Financial Statements or current liabilities
incurred since such date in the ordinary course of business, consistent
with its past practices;
6.11.10 Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of its assets, except in the ordinary course of business
and consistent with its past practices; or
6.11.11 Entered into or committed to any other material transaction
other than in the ordinary course of business, consistent with past
practices.
6.12 Taxes. TNCI (and any predecessor corporation or partnership as to
which TNCI is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with
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procedures required by law; has not deducted any expenses or charges or claimed
any credits which are not allowable; and except as set forth in Schedule 6.12.1,
has paid, or accrued and reserved for, all taxes, penalties and interest shown
to be due or required to be paid pursuant to the returns as filed, or as
adjusted pursuant to amendment or correction. TNCI has also provided copies of
all federal and state income and sales tax returns filed, FICA and state income
taxes withholding returns filed and evidence of payment of such taxes as listed
in Schedule 6.12.2 hereto. No examination, audit, or inquiry of any tax return,
federal, state or otherwise of TNCI is currently in progress and TNCI has not
been advised by any taxing authority of any intent to commence any inquiry,
audit or examination of any tax return from any taxing authority or of any issue
or question relating to any return, report or declaration that could result in
the assertion of any deficiency for any federal, state, local, or other tax or
interest or penalties in connection therewith. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return of TNCI.
6.13 Accounts Receivable. Except as specifically noted in Schedule
6.13, no amount included in the accounts receivable of TNCI as of December 31,
1998, has been released or settled for an amount less than the value at which it
was included in the financial statements as of that date. Except as specifically
noted in Schedule 6.13, there are no facts or circumstances (other than general
economic conditions) which would result in any material increase in the
uncollectibility of such accounts receivable over historical collection rates.
6.14 Material Documents. Set forth in Schedule 6.14.1 is a complete
list of all material documents to which TNCI is a party (the "Scheduled
Agreements"). All such documents listed on and attached to Schedule 6.14.1 are
legal, valid, enforceable and accurate and complete copies of such material
documents (or, with the consent of TNCI, forms thereof) as have been requested
by IFT have been provided to IFT. As used herein, material documents shall mean
agreements, covenants and any other instrument that relates to an asset that is
material to the business of TNCI or which otherwise involves an expenditure or
liability of TNCI that is in excess of $30,000 in the aggregate. Except as set
forth in Schedule 6.14.2, consummation of the transactions contemplated hereby
will not cause a breach of or constitute a default (with or without the giving
of notice or the lapse of time or both) under any of the Scheduled Agreements,
result in the forfeiture or impairment of any rights thereunder, require the
consent, approval or act of, or the making of any filing with, any other Person
pursuant to the terms thereof (to the extent the absence of such consent or
approval would constitute a breach or default, or require or result in the
payment of any assignment or related fees or costs). Except as set forth in
Schedule 6.14.2 TNCI has fulfilled and performed its material obligations
required to be performed prior to the date hereof, under each of the Scheduled
Agreements and is not in, breach or default under nor, to TNCI's knowledge is
there any basis for termination of any of the Scheduled Agreements, and no other
party to any of such Scheduled Agreements has, to TNCI's knowledge breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice, or both,
would constitute such a default or breach by TNCI or, by any such other party.
Except as set forth on Schedule 6.14.2, TNCI is not currently renegotiating any
of the Scheduled Agreements or paying liquidated damages in lieu of performance
thereunder. Complete and correct copies of each of the written Scheduled
Agreements (including without limitations all amendments, supplements or other
modifications thereto or waivers of right thereunder) have heretofore been
delivered to TNCI. A complete and correct description of each oral Scheduled
Agreement appears in the Schedule in which such Scheduled Agreement is listed.
6.15 Intellectual Property.
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6.15.1 Schedule 6.15.1 contains a list and brief description of:
6.15.1.1 all United States and foreign patents and patent
applications, all United States, state and foreign trademarks and trademark
applications, service marks, trade names and copyrights and copyright
applications for which registrations have been issued or applied for, and
all other United States, state and foreign trademarks, service marks, trade
names and copyrights (other than the software) owned or used by TNCI;
6.15.1.2 all agreements, contracts or licenses, relating or pertaining
to any asset, property or right of the character described in the preceding
clause (i) to which TNCI is a party;
6.15.1.3 all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures or uses of ideas to which
TNCI is a party; and
6.15.1.4 all registered, assumed or fictitious names under which TNCI
is conducting activities or has within the previous five years conducted
activities.
6.15.2 Except as otherwise disclosed in Schedule 6.15.2, to TNCI's
knowledge, all patents, trademarks and registered copyrights owned, controlled
or used by TNCI are valid and in force and all patent applications, trademark
registrations and copyright registrations of TNCI listed therein are in good
standing all, to the knowledge of TNCI, without challenge of any kind and except
as otherwise disclosed in Schedule 6.15.2, TNCI owns the entire rights, title
and interests in and to such patents and patent applications free and clear of
all Encumbrances. To TNCI's knowledge, all of the registrations for trade names,
trademarks, service marks and copyrights listed in Schedule 6.15.1, as being
owned, controlled, or used by TNCI are valid and in force and all applications
for such registrations are in good standing, all without challenge of any kind,
and to TNCI's knowledge, the entire right, title and interest in and to each
such trade name, trademark, service mark and copyright so listed as well as the
registrations and application for registration therefor is owned by TNCI, free
and clear of all encumbrances. Correct and complete copies of all the patents
and patent applications and of all of the trademarks, trade names, service marks
and copyrights and registrations, applications or deposits therefor and all the
licenses listed in Schedule 6.15.1, have heretofore been delivered by TNCI to
IFT.
6.15.3 To TNCI's knowledge, TNCI has good and marketable title to that
computer software described as "TNCI Owned Software" on Schedule 6.15.3 hereto
(the "TNCI Owned Software"), free of all claims, including claims or rights of
employees, agents, consultants or other parties involved in the development or
creation of such computer software, except as set forth on Schedule 6.15.3.
Except as set forth on Schedule 6.15.3 hereto, TNCI has the right and license to
use that software described as "TNCI Licensed Software" on Schedule 6.15.3
hereto (the "TNCI Licensed Software") free and clear of any limitations or
encumbrances except as may be set forth in any license agreements listed in
Schedule 6.15.3. Except as disclosed on Schedule 6.15.3, TNCI is in full
compliance with all provisions of any license, lease or other similar agreement
pursuant to which it has rights to use the TNCI Licensed Software. Except as
disclosed on Schedule 6.15.3, none of the TNCI
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Licensed Software has been incorporated into or made a part of any TNCI Owned
Software or any other TNCI Licensed Software and none of the TNCI Owned Software
is dependent on any TNCI Licensed Software in order to freely operate in the
manner in which it is intended. The TNCI Owned Software and TNCI Licensed
Software constitute all software used by TNCI ("TNCI's Software"). TNCI has not
received notice that it is infringing any intellectual property rights or any
other person or entity with respect to TNCI's Software, and to the knowledge of
TNCI no other person or entity is infringing any intellectual property rights of
TNCI with respect to TNCI's Software which TNCI leases or licenses to it.
6.16 Governmental Permits.
6.16.1 TNCI owns, holds or possesses all governmental licenses,
franchises, permits, privileges, immunities, approvals, registrations,
easements, rights and other authorizations which are necessary to entitle it to
own, lease, operate and use its assets and properties and to carry on and
conduct the Business as currently conducted (herein collectively called "TNCI
Permits"). Schedule 6.16.1 sets forth a list and brief description of each such
TNCI Permit held by TNCI as of the date of this Agreement. Complete and correct
copies of all of the TNCI Permits listed in Schedule 6.16.1 have heretofore been
delivered to IFT by TNCI.
6.16.2 TNCI is in compliance in all material respects with each of the
TNCI Permits owned, held or possessed by it, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any such TNCI
Permit. No notice of cancellation, of default or of any dispute, appeal or
inquiry concerning any TNCI Permit, or of any event, condition or state of facts
set forth in the preceding sentence, has been received by TNCI. Except as set
forth in Schedule 6.16.2, each of the TNCI Permits is valid subsisting and in
full force and effect without challenge of any kind.
6.17 Litigation. Except as set forth in Schedule 6.17, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body against TNCI, the Assets, or TNCI's
employees which may have an adverse effect on TNCI or TNCI's financial
condition. There is no action, suit, proceeding or investigation pending or, to
TNCI's knowledge, threatened which questions the legality or properties of the
transactions contemplated by this Agreement or which seeks to prevent or
materially delay the transactions contemplated by this Agreement.
6.18 Employees. Schedule 6.18 hereto sets forth the name and current
monthly salary and any accrued benefit for each employee of TNCI. There will be
no changes in Schedule 6.18 through the Closing Date, except in the ordinary
course of business.
6.19 Compliance With Laws. TNCI has conducted and is continuing to
conduct its business in material compliance with, and is in material compliance
with, all applicable statutes, orders, rules and regulations promulgated by
governmental authorities relating in any material respect to its operations,
conduct of business or use of properties, including, without limitation, any
applicable statute, order, rule or regulation relating to (i) wages, hours,
hiring, nondiscrimination, retirement, benefits, pensions, working conditions,
and worker safety and health; (ii) air, water, toxic substances, noise, or
solid, gaseous or liquid waste generation, handling, storage, disposal or
transportation; (iii) zoning and building codes; (iv) the production, storage,
processing, advertising, sale, distribution, transportation, disposal, use and
warranty of products; or (v) trade and antitrust regulations. The execution,
delivery and performance of this Agreement by TNCI and the consummation by TNCI
of the transactions contemplated by this Agreement will not violate, contravene
or constitute a default under any applicable
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statutes, orders, rules and regulations promulgated by governmental authorities
or cause a lien on any material property used, owned or leased by TNCI to be
created thereunder. To the knowledge of TNCI there are no proposed changes in
any applicable statutes, orders, rules and regulations promulgated by
governmental authorities that would cause any representation or warranty
contained in this Paragraph 6.19 to be untrue or have an adverse effect on its
operations, conduct of business or use of properties. TNCI has not taken any
action that requires notification of the employees of TNCI pursuant to the
provisions of the WARN Act or that would cause TNCI to have any liability
thereunder. There are no injunctions, orders, awards, decrees of any
governmental body or political subdivision currently in effect against IFT.
6.20 Filings. TNCI has made all filings and reports required under all
local, state and federal laws and regulations with respect to its business and
assets and of any predecessor entity or partnership, except where the failure to
make such filings and reports would not have a material adverse affect on the
business, assets, financial condition, or results of operations or prospects of
TNCI.
6.21 Certain Activities. TNCI has not, directly or indirectly, engaged
in or been a party to any of the following activities:
6.21.1 Bribes, kickbacks or gratuities to any person or entity,
including domestic or foreign government officials or any other payments to any
such persons or entity, whether legal or not legal, to obtain or retain business
or to receive favorable treatment of any nature with regard to business
(excluding commissions or gratuities paid or given in full compliance with
applicable law and constituting ordinary and necessary expenses incurred in
carrying on its business in the ordinary course);
6.21.2 Contributions (including gifts), whether legal or not legal,
made to any domestic or foreign political party, political candidate or holder
of political office (except where such is in compliance with applicable law);
6.21.3 Holding of or participation in bank accounts, funds or pools of
funds created or maintained in the United States or any foreign country, without
being reflected on the corporate books of account, or as to which receipts or
disbursements therefrom have not been reflected on such books, the purpose of
which is to obtain or retain business or to receive favorable treatment with
regard to business;
6.21.4 Receiving or disbursing monies, the actual nature of which has
been improperly disguised or intentionally misrecorded on or improperly omitted
from the corporate books of account;
6.21.5 Paying fees to domestic or foreign consultants or commercial
agents which exceed the reasonable value of the ordinary and customary
consulting and agency services purported to have been rendered;
6.21.6 Paying or reimbursing (including gifts) personnel of TNCI for
the purpose of enabling them to expend time or to make contributions or payments
of the kind or for the purposes referred to in Paragraphs 6.21.1 through 6.21.5
above;
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6.21.7 Participating in any manner in any activity which is illegal
under the international boycott provisions of the Export Administration Act, as
amended, or the international boycott provisions of the Internal Revenue Code,
or guidelines or regulations thereunder; and
6.21.8 Making or permitting unlawful charges, mischarges or defective
or fraudulent pricing under any contract or subcontract under a contract with
any department, agency or subdivision thereof, of the United States government,
state or municipal government or foreign government.
6.22 Employment Relations. TNCI is in compliance with all Federal,
state or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on TNCI; no unfair labor practice complaint against
TNCI is pending before the National Labor Relations Board; there is no labor
strike, dispute, slow down or stoppage actually pending or, to TNCI's knowledge,
threatened against or involving TNCI; no labor representation question exists
respecting the employees of TNCI; no grievance which might have an adverse
effect upon TNCI or the conduct of its business has been filed against TNCI; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by TNCI; and TNCI has not experienced
any material labor difficulty during the last three (3) years.
6.23 Insurance Coverage. The policies of fire, liability or other forms
of insurance of TNCI are described in Schedule 6.23.
6.24 Charter and By-Laws. TNCI has heretofore delivered to TNCI true,
accurate and complete copies of the Articles of Incorporation and By-Laws of
TNCI, together with all amendments to each of the same as of the date hereof.
6.25 Corporate Minutes. The minute books of TNCI made available to IFT
previously and at the Closing are the correct and only such minute books and do
and will contain complete and accurate records of any and all proceedings and
actions at all meetings, including written consents executed in lieu of meetings
of its stockholders, Board of Directors and committees thereof through the
Closing Date. The stock records of TNCI delivered to IFT at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of TNCI.
6.26 Default on Indebtedness. TNCI is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money.
6.27 Indebtedness. Except as described in Schedule 6.27, TNCI's
shareholders, and any corporation or entity with which they are affiliated, are
not indebted to TNCI, and TNCI has no indebtedness or liability to its
shareholders and any corporation or entity with which they are affiliated.
6.28 Product Liability Claims; Product Warranties. Schedule 6.28 sets
forth all product liability claims pending or, to the knowledge of TNCI,
threatened against TNCI and all product liability claims paid by or on behalf of
TNCI for the three (3) year period prior to the date of this Agreement. Except
as set forth on Schedule 6.29, TNCI has not given or offered any warranty
covering
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any products sold or distributed by it, and TNCI has not extended to its
customers and indemnification or guarantees.
6.29 Environmental Protection. Except as set forth on Schedule 6.29,
6.29.1 The operations of TNCI comply in all material respects with all
applicable Environmental Laws and there are no substances or conditions existing
at any facility that may support a claim or cause of action under any
Environmental Laws.
6.29.2 TNCI has obtained, or has taken appropriate steps as required by
Environmental Laws to obtain, all environmental, health and safety permits
necessary for its operations, and all such permits are in food standing and TNCI
is currently in compliance with all terms and conditions of such permits;
6.29.3 TNCI's facilities and operations at the facilities are not
subject to any judicial or administrative proceeding, order, judgment, decree or
settlement, or to the knowledge of TNCI, any investigation, alleging or
addressing (i) violation of any Environmental Laws, or (ii) any remedial action;
and TNCI has not received any notice of any claims or liabilities and costs
arising from the release or threatened release of a contaminant into the
environment, or claims, complaints, notices or requests for information with
respect to any alleged violation of any Environmental Laws or complaints or
notices regarding potential liability under any Environmental Laws.
6.30 Completeness of Representations and Schedules. The Schedules and
Exhibits hereto completely and correctly present in all material respects the
information required by this Agreement. This Agreement, the certificates to be
delivered by the officers of TNCI at the Closing, any Schedules and Exhibits to
be delivered under this Agreement and the representations and warranties of this
Paragraph 6, and the documents and written information pertaining to TNCI
furnished to IFT or its agents by or on behalf of TNCI, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make this Agreement, or such certificates, schedules, documents or
written information, not misleading.
7. Covenants.
7.1 Affirmative Covenants of IFT. Between the date hereof and the
Closing Date, except as otherwise contemplated by this Agreement or as consented
to by TNCI, IFT will:
7.1.1 Operate the Business and the Assets in accordance with all
applicable laws and regulations, and in the ordinary course of business
except where the failure to do so will not result in a material adverse
effect on the Business and the Assets;
7.1.2 Provide TNCI with all information regarding IFT which is
reasonably required in connection with TNCI's preparation of its proxy
materials relating to the transaction contemplated by this Agreement. Such
information will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements, in light of
the circumstances in which they were made, not misleading. IFT will
promptly furnish amended and supplemental information as may be necessary,
in light of developments occurring subsequent to the mailing of a proxy
statement by TNCI to its shareholders, to ensure that information regarding
IFT does not, as of the date
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of the TNCI shareholders' meeting, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
7.1.3 Promptly inform TNCI in writing of any variances from the
representations and warranties contained in Paragraph 5 hereof;
7.1.4 Take all such actions as necessary to obtain shareholder
approval, if necessary for consummation of the transactions contemplated by
this Agreement and to approve the transactions contemplated hereby; and
7.1.5 Use its best efforts to obtain all third party consents
necessary or desirable to consummate the transactions contemplated hereby
and to cause all conditions to the closing to be satisfied.
7.2 Affirmative Covenants of TNCI. Between the date hereof and the
Closing Date, except as otherwise contemplated by this Agreement or as consented
to by IFT, TNCI will:
7.2.1 Conduct its operations according to the ordinary and usual
course of business, and use best efforts to preserve intact its business
organization and material rights and franchises, proprietary rights,
permits, licenses, and maintain satisfactory relationship with licensors,
suppliers, distributors, customers and others having relationships with
TNCI;
7.2.2 Provide IFT with all information regarding TNCI which is
reasonably required in connection with IFT's preparation of its proxy
materials relating to the transaction contemplated by this Agreement. Such
information will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements, in light of
the circumstances in which they were made, not misleading. TNCI will
promptly furnish amended and supplemental information as may be necessary,
in light of developments occurring subsequent to the mailing of a proxy
statement by IFT to its stockholders, ensure that information regarding
TNCI does not, as of the date of the IFT stockholders' meeting, contain any
untrue statement of a material fact or omit a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading;
7.2.3 Promptly inform IFT in writing of any variances from the
representations and warranties contained in paragraph 6 hereof;
7.2.4 Take all such actions as necessary to obtain shareholder
approval, if necessary, to effectuate this transaction and to approve the
transactions contemplated hereby and to amend TNCI's Articles of
Incorporation to increase the number of authorized shares to 30,000,000;
7.2.5 Use its best efforts to obtain all third party consents
necessary or desirable to consummate the transactions contemplated hereby,
and to cause all conditions to the closing to be satisfied.
7.2.6 Use its best efforts to obtain the approval of the Nasdaq Stock
Market, Inc. to the proposed transaction as contemplated by Paragraph 9.2;
and
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7.2.7 Use its best efforts to obtain the irrevocable proxies in favor
of IFT as contemplated by Paragraphs 10.13.1, 10.13.2 and 10.13.3.
7.3 Negative Covenants of IFT. Prior to the Closing Date, without the
prior written consent of TNCI or as otherwise contemplated by this Agreement,
IFT will not:
7.3.1 Voluntarily take any action that would result in a breach of
IFT's representations and warranties under Paragraph 5 of this Agreement;
7.3.2 Incur any liabilities or obligations relating to the Business,
or increases in salaries of the employees set forth in Schedule 5.16, other
than those incurred in the ordinary and necessary course of business, or
undertake any extraordinary capital expenditures relating to the Business;
or
7.3.3 Take or omit to take any action which could be reasonably
anticipated to have a material adverse effect upon the Assets or the
Business.
7.4 Negative Covenants of TNCI. Prior to the Closing Date, without the
prior written consent of IFT, TNCI will not:
7.4.1 Voluntarily take any action that would result in a breach of
TNCI's representations and warranties under Paragraph 6 of this Agreement;
7.4.2 Incur any liabilities or obligations, or increases in salaries
or other direct or indirect corporation expenses, other than those incurred
in the ordinary and necessary course of business and not exceeding $1,000
in aggregate, or undertake any extraordinary capital expenditures in excess
of $5,000 in the aggregate;
7.4.3 Take or omit to take any action which could be reasonably
anticipated to have a material adverse effect upon its business,
operations, financial condition, operating results, or assets;
7.4.4 Issue any additional shares of its capital stock or any
Convertible Securities or grant any rights to acquire or agree to issue any
additional shares of its capital stock or any Convertible Security; or
7.4.5 Undertake any debt or equity financing.
7.5 Noncompetition.
7.5.1 IFT acknowledges and recognizes the highly competitive nature of
the business in which it is engaged and accordingly agrees that, in the
event that the transaction contemplated hereby closes, to induce TNCI to
consummate the transaction contemplated by this Agreement, IFT shall not,
for a period of three (3) years after the Closing Date: (i) engage directly
or indirectly in any Competitive Business (as defined below) anywhere in
the Restricted Territory (as defined below), whether such engagement be as
an employer, officer, director, owner, investor, employee, partner,
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consultant or other participant in any Competitive Business; (ii) solicit
or accept business for any Competitive Business from anyone who is or
becomes an active or prospective customer of TNCI or its Affiliates or who
was an active or prospective customer of the business at or prior to the
Closing Date; (iii) solicit for employment or hire any employee of IFT,
TNCI, or its Affiliates; or (iv) attempt to do any of the things or assist
anyone else in doing any of the things specified in subparagraphs (i), (ii)
or (iii) above. Notwithstanding the foregoing, the ownership or control of
up to no more than 5% of the outstanding securities of any company which
has a class of securities traded on any national or regional stock exchange
or on the NASDAQ market and ownership of shares issued by TNCI, shall not
be deemed a violation of this Paragraph 7.5.1.
7.5.2 As used in this Paragraph 7.5.1: (i) "Competitive Business"
means and includes any business, individual, corporation or other entity
which is engaged wholly or partly in any business directly competitive with
the Business as conducted at the Closing; and (ii) "Restricted Territory"
means anywhere in the world.
7.5.3 Not later than the Closing, IFT and TNCI shall have obtained
non-competition agreements from the current officers of IFT and TNCI,
containing terms substantially identical to the terms of Paragraph 7.5.1.
7.6 No Public Announcements. Prior to Closing, without the prior
written consent of the other parties, neither IFT nor TNCI shall make any press
release or other public disclosure, or make any statement to any customer,
supplier or other person with regard to the transactions contemplated by this
Agreement, except as may be required by any applicable securities laws or
regulations; provided, however, that TNCI and IFT may each issue a press release
and file such other reports and make such other disclosure as may be required by
applicable securities law or the rules or regulations of NASDAQ or the Boston
Stock Exchange upon execution of this Agreement. Each party shall provide the
other with any such press release or other disclosure document prior to its
release for review and comment. After Closing, without the prior written consent
of each of TNCI and IFT, neither party shall make any press release or other
public disclosure, or make any statement to any customer, supplier or other
person with regard to the transactions contemplated by this Agreement, except as
required by applicable securities laws or regulations or the rules of
regulations of NASDAQ or the Boston Stock Exchange.
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8. Due Diligence Inspection and Confidential Information.
8.1 Due Diligence Inspection. During the seven (7) day period after
execution of this Agreement, IFT and its representatives shall have the right to
inspect all plant, equipment and operations of TNCI, its premises and its
financial and other records at reasonable times. IFT shall also have the right
to discuss the affairs of TNCI with the managers, customers, prospective
customers, employees, suppliers, advertisers, retailers, banking and other
financial institutions, lessors and such other parties as IFT deems appropriate,
upon reasonable notice of the proposed times and dates thereof. IFT shall
complete its due diligence, provided it has received the cooperation of TNCI
contemplated in this Paragraph, no later than seven (7) days following the
execution and delivery of this Agreement by the parties. TNCI shall likewise
have the right, upon the execution of this Agreement, to inspect IFT, its
financial and other records and to discuss the affairs of IFT with appropriate
parties under the same terms and conditions and upon the same schedule as IFT
shall have to complete its preliminary due diligence. IFT and TNCI will
cooperate with all reasonable requests by the other party for information and
will use their best efforts to secure the cooperation of the foregoing third
parties who may reasonably be requested to furnish information to each other.
8.2 Confidential Information. IFT shall keep all confidential
information derived from TNCI relating to the business of TNCI confidential
pending the Closing of the transaction contemplated by this Agreement. TNCI
shall keep all confidential information derived from IFT relating to the
business of IFT confidential pending the Closing. No party to this Agreement
shall be liable for disclosure of confidential information if such disclosure is
required by law or if the disclosure is of information already publicly
available.
8.3 Return of Confidential Information. If this Agreement should be
terminated pursuant to Paragraph 12 of this Agreement, TNCI and IFT shall return
all such confidential information and documents which they have received and
agree not to disclose or use such information in any manner which damages the
businesses or prospects of IFT or TNCI, as the case may be.
9. Conditions Precedent to the Obligations of TNCI. The obligations of
TNCI pursuant to this Agreement are, at the option of TNCI, subject to the
fulfillment to TNCI's reasonable satisfaction on or before the Closing Date of
each of the following conditions:
9.1 Execution of Agreement. IFT has duly executed and delivered this
Agreement to TNCI.
9.2 Approval. TNCI shall have obtained the written approval of the
Nasdaq Stock Market, Inc. to issue the TNCI capital stock contemplated by this
Agreement without shareholder approval; provided that TNCI waives this condition
precedent if TNCI has not obtained such approval by the Closing Date.
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9.3 Representations and Warranties Accurate.
9.3.1 IFT shall deliver the Disclosure Schedule to this Agreement no
later than seven (7) days from the date of this Agreement. TNCI shall have
seven (7) days after its receipt of the Disclosure Schedule to determine,
in its sole discretion, whether or not TNCI shall accept the
representations and warranties as modified or amplified by the Disclosure
Schedule. If TNCI determines that any part of the Disclosure Schedule is
unacceptable, TNCI may provide IFT additional time to remedy the matter or
may terminate this Agreement in accordance with its provisions.
9.3.2 All representations and warranties of IFT contained in this
Agreement shall be true in all respects when made on the date of execution
of this Agreement, and also at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date. IFT
shall furnish TNCI with a certificate, dated the Closing Date and signed on
behalf of IFT and by a duly authorized officer thereof stating the above in
such form as TNCI may reasonably request. The acceptance of the Purchase
Price by IFT shall constitute an affirmation by IFT of the truth, as of the
Closing Date, of the representations and warranties made by in this
Agreement.
9.4 Performance of IFT. IFT shall have performed and complied with all
agreements, terms and conditions required by this Agreement to be performed or
complied with and IFT shall deliver a certificate, in form and substance
satisfactory to TNCI, to that effect, dated the Closing Date, and signed in the
manner set forth in Paragraph 9.3.2, on or before the Closing Date.
9.5 Title. At or prior to the Closing Date, there shall have been
delivered to TNCI in form reasonably satisfactory to TNCI, the following
documents transferring title to the Assets to TNCI:
9.5.1 Appropriate bills of sales, assignments and other instruments
giving and conveying to TNCI all right, title and interest in and to the
Assets described in Schedule 1.1; and
9.5.2 Duly executed UCC-2 Releases, as described in Paragraph 5.12,
"Title to the Assets," of this Agreement, or evidence that no liens have
been recorded against the Assets and consents to the assignment and
transfer by IFT to TNCI of all rights of IFT in and to all contracts,
agreements, commitments and other assets to be assigned and transferred to
TNCI hereunder in all instances in which the same may be necessary to vest
in TNCI all of IFT's right, title and interest therein and thereto.
9.5.3 Evidence that all trademarks, trade names, service marks,
patents, licenses or other rights IFT uses in connection with the Business
are free and clear of any encumbrances, controversies, infringement or
other claims or obligations on the Closing Date.
9.6 Consents. Prior to Closing, IFT shall have obtained all approvals
in conjunction with the transfer of the Assets to TNCI as may be required by any
contracts between IFT and any of its customers or other third parties required
to effect the sale and transfer of the Assets, and such approvals shall be
issued in written form and substance satisfactory to TNCI and its counsel or
TNCI shall have waived such requirements.
9.7 Possession. IFT shall deliver to TNCI possession of the Assets.
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9.8 Opinion of Counsel. TNCI shall have received an opinion of counsel
for IFT substantially in the form set forth in Exhibit A.
9.9 Fairness Opinion. TNCI shall have received a "fairness opinion"
with respect to the fairness, from a financial point of view, of the
transactions contemplated by this Agreement to the shareholders of TNCI, which
fairness opinion is satisfactory in form and scope to TNCI's board of directors.
9.10 Financial and Other Conditions. IFT shall have no contingent or
other material liabilities connected with the Business, except as disclosed in
the financial statements or as described in Schedule 2.1.
9.11 Legal Prohibition. On the Closing Date, there shall exist no
injunction or final judgment, law or regulation threatening to restrain
prohibiting or invalidating the consummation of the transactions contemplated by
this Agreement, or which might affect TNCI's right to own, operate, and have
assigned to it the Assets.
9.12 [INTENTIONALLY OMITTED].
9.13 Material Changes. There shall be no material adverse change in the
Business, financial condition, results of operates or prospects of the Business
from the date of this Agreement to the Closing Date.
10. Conditions Precedent to the Obligations of IFT. The obligations of
IFT under this Agreement are, at the option of IFT, subject to the fulfillment
to IFT's reasonable satisfaction on or before the Closing Date of each of the
following conditions:
10.1 Execution of this Agreement. TNCI shall have duly executed and
delivered this Agreement to IFT.
10.2 Approval. IFT shall have obtained the approval of its stockholders
if required under Delaware law and the requirements of the Nasdaq Stock Market,
Inc.
10.3 [INTENTIONALLY OMITTED].
10.4 Payment. Subject to the terms and conditions hereof, TNCI shall
have transferred the TNCI Shares free and clear of any liens, encumbrances or
other obligations and assumed the Assumed Liabilities of IFT in exchange for the
Assets as described in Paragraph 3, "Purchase Price."
10.5 Representations and Warranties Accurate.
10.5.1 TNCI shall deliver the Disclosure Schedule to this Agreement no
later than seven (7) days after the date of this Agreement. IFT shall have
seven (7) days after its receipt of the Disclosure Schedule to determine,
in its sole discretion, whether or not IFT shall accept the representations
and warranties as modified or amplified by the Disclosure Schedule. If IFT
determines that any party of the Disclosure Schedule is unacceptable, IFT
may provide TNCI additional time to remedy the matter or may terminate this
Agreement in accordance with its provisions.
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10.5.2 All representations and warranties of TNCI contained in this
Agreement shall have been true in all respects when made on the date of
execution of this Agreement, and also at and as of the Closing Date as if
such representations and warranties were made at and as of the Closing
Date. TNCI shall furnish IFT with a certificate, dated the Closing Date and
signed on behalf of TNCI and by a duly authorized officer thereof stating
the above in such form as IFT may reasonably request. The acceptance of the
Assets by TNCI shall constitute an affirmation by TNCI of the truth, as of
the Closing Date, of the representations and warranties made by in this
Agreement.
10.6 Performance of TNCI. TNCI shall have performed and complied with
all agreements, terms and conditions required by this Agreement to be performed
or complied with and TNCI shall deliver a certificate, in form and substance
satisfactory to IFT, to that effect, dated the Closing Date, and signed in the
manner set forth in Paragraph 10.5.2, on or before the Closing Date.
10.7 Consents. Prior to Closing, TNCI shall have obtained all consents
and approvals in conjunction with the transfer of the TNCI Shares to IFT as may
be required to effect such transfer and such consents and approvals shall be
issued in written form and substance reasonably satisfactory to IFT and its
counsel, or IFT shall have waived such requirements.
10.8 Opinion of Counsel. IFT shall have received an opinion of counsel
for TNCI substantially in the form set forth in Exhibit B.
10.9 [INTENTIONALLY OMITTED].
10.10 [INTENTIONALLY OMITTED].
10.11 Financial Statements. TNCI's financial statements, shall be
acceptable to IFT, in its sole discretion, and IFT shall have the opportunity in
the due diligence process to review such Financial Statements with TNCI's
independent auditors, PriceWaterhouseCoopers;
10.12 Board of Directors. The directors of TNCI shall have appointed to
the Board of Directors of TNCI those persons set forth in Paragraph 16 hereof,
and the directors shall have appointed as the officers of TNCI those persons set
forth in Paragraph 16, to take effect upon consummation of the transaction.
10.13 Convertible Securities. On or before the execution of this
Agreement, the holders of the outstanding shares of Preferred Stock, convertible
notes, and related warrants of TNCI shall have reached agreements with IFT or
TNCI, as the case may be, on terms satisfactory to IFT, regarding the
disposition or conversion into shares of TNCI Common Stock of their holdings.
Without limiting the foregoing, the following shall have occurred prior to the
Closing:
10.13.1 The Holders of all of the outstanding Series A Notes, Series D
Notes and Series E Notes shall have converted such Preferred Stock and
notes into that number of shares of Common Stock of TNCI on terms approved
by IFT and shall have granted IFT irrevocable proxies to vote such shares
and executed lock-up agreements respecting the shares for the duration of
the proxies on terms acceptable to IFT, in its discretion;
10.13.2 Wil Riner and his wife, James Riner and his wife, Wil Riner,
Jr. and his wife and Bryan Carr and his wife shall have granted IFT
irrevocable proxies to vote their shares of
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Common Stock of TNCI on terms acceptable to IFT, in its discretion. The
foregoing proxies shall be limited to voting to approve the terms of this
Agreement, increase the number of authorized shares of Common Stock to at
least 30,000,000 and effect any other action or matter required to complete
the transactions contemplated by this Agreement. These proxies will
terminate upon the earlier of IFT obtaining the approval of TNCI's
shareholders on the foregoing matters or September 30, 1999, provided that
such date may be extended up to December 31, 1999 if any legal or
regulatory action prevents consideration of such matters by the
shareholders on or before September 30, 1999. The parties granting these
proxies shall not be permitted to sell, transfer, assign or pledge their
shares unless their proposed transferees or pledgees agree to be bound by
the terms of these proxies; and
10.13.3 TNCI shareholders in addition to those set forth in Paragraphs
10.13.1 and 10.13.2 shall have provided irrevocable proxies to IFT to vote
their shares of Common Stock of TNCI on terms acceptable to IFT in its
discretion, which shares when added to the shares subject to the proxies
granted to IFT in Paragraphs 10.13.1 and 10.13.2 and such other shares of
voting capital stock of TNCI held by IFT shall equal at least 50.1% of the
outstanding voting capital stock of TNCI. The foregoing proxies shall be
limited to voting to approve the terms of this Agreement, increase the
number of authorized shares of Common Stock to at least 30,000,000 and
effect any other action or matter required to complete the transactions
contemplated by this Agreement. These proxies will terminate upon the
earlier of IFT obtaining the approval of TNCI's shareholders on the
foregoing matters or September 30, 1999, provided that such date may be
extended up to December 31, 1999 if any legal or regulatory action prevents
consideration of such matters by the shareholders on or before September
30, 1999. The parties granting these proxies shall not be permitted to
sell, transfer, assign or pledge their shares unless their transferees or
pledgees agree to be bound by the terms of these proxies.
10.14 Other Issues. IFT shall have acquired the Series B Preferred
Stock and the IFT secured note shall have been amended on terms acceptable to
IFT. IFT shall have received proxies from certain shareholders of TNCI as
determined by IFT.
10.15 Directors and Officers Coverage. TNCI shall have purchased
Directors and Officers liability insurance policies in favor of the existing
directors and officers and the officers and directors set forth in Paragraph 16
in amounts and on terms reasonably acceptable to IFT, but in any event with
limits not less than Fifteen Million Dollars ($15,000,000), to be effective
immediately following the Closing Date and with an insurer reasonably acceptable
to IFT.
10.16 Material Changes. There shall be no material adverse change in
the business, financial conditions, results of operations or prospects of TNCI
from the date of this Agreement to the Closing Date.
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11. Indemnification.
11.1 Survival of Representations, Warranties and Certain Covenants. The
representations and warranties made by the parties in this Agreement and in the
certificates delivered at the Closing, and all of the covenants of the parties
in this Agreement, shall survive the execution and delivery of this Agreement
and the Closing Date and shall expire on the first anniversary of the Closing
Date. Any claim for indemnification shall be effective only if notice of such
claim is given by the party claiming indemnification or other relief to the
party against whom such indemnification or other relief is claimed on or before
the first anniversary of the Closing Date (other than in Paragraphs 5.8, 5.9 and
6.12, and any of which results from fraud, the survival period for which shall
be sixty (60) days following the end of the applicable statute of limitations
period).
11.1.1 The representations and warranties of the parties shall not be
affected or diminished by any investigation at any time by or on behalf of
the party for whose benefit such representations and warranties were made.
11.1.2 The expiration of any representation or warranty shall not
affect any parties' right to pursue any claim made prior to such
expiration.
11.2 Indemnification by TNCI.
11.2.1 TNCI agrees to indemnify and hold IFT harmless, from and after
the Closing Date, against and in respect of all matters in connection with
any losses, liabilities, costs or damages (including reasonable attorneys'
fees) incurred by IFT that result from any misrepresentation or breach of
the warranties by TNCI in Paragraph 6, "Representations and Warranties of
TNCI," or any breach or nonfulfillment of any agreement or covenant on the
part of TNCI contained in this Agreement, and all suits, actions,
proceedings, demands, judgments, costs and expenses incident to the
foregoing matters, including reasonable attorneys' fees.
11.2.2 No claim for indemnification may be made under this Paragraph
11 after the first anniversary of the Closing Date, except in accordance
with Paragraph 11.1. Notwithstanding the foregoing, no claim for
indemnification under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by
an indemnified party against an indemnifying party unless and until the
cumulative total of all losses suffered by such indemnified party and
covered by such Paragraphs (the "Losses") exceeds $100,000 (the
"Threshold"). Once Losses exceed the Threshold, the indemnified party
suffering such Losses may recover all Losses which exceed the Threshold,
without being able to recover any Losses which do not exceed the Threshold.
11.3 Indemnification by IFT.
11.3.1 IFT agrees to indemnify and hold TNCI, its officers, directors
and representatives, (the "TNCI Parties") harmless, from and after the
Closing Date, against and in respect of all matters in connection with any
losses, liabilities, costs or damages (including reasonable attorneys'
fees) incurred by TNCI that result from any misrepresentation or breach of
the warranties by IFT in Paragraph 5, "Representations and Warranties of
IFT," or any breach or nonfulfillment of any agreement or covenant on the
part of IFT contained in this Agreement, and all suits, actions,
proceedings, demands, judgments, costs and expenses incident to the
foregoing matters, including reasonable attorneys' fees.
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11.3.2 No claim for indemnification may be made under this Paragraph
11 after the first anniversary of the Closing Date, except in accordance
with Paragraph 11.1. Notwithstanding the foregoing, no claim for
indemnification under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by
an indemnified party against an indemnifying party unless and until the
cumulative total of all losses suffered by such indemnified party and
covered by such paragraphs (the "Losses") exceeds $100,000 (the
"Threshold"). Once Losses exceed the Threshold, the indemnified party
suffering such Losses may recover all Losses which exceed the Threshold,
without being able to recover any Losses which do not exceed the Threshold.
11.4 Mediation. If any TNCI Party believes that a matter has occurred
that entitles it to indemnification under Paragraph 11.3, "Indemnification by
IFT," or any IFT Party believes that a matter has occurred that entitles it to
indemnification under Paragraph 11.2, "Indemnification by TNCI," the TNCI Party
or IFT Party as the case may be (the "Indemnified Party"), shall give written
notice to the party or parties against whom indemnification is sought (each of
whom is referred to herein as an "Indemnifying Party") describing such matter in
reasonable detail (the "Dispute Notice"). The Indemnified Party shall be
entitled to give such notice prior to the establishment of the amount of its
losses, liabilities, costs or damages, and to supplement its claim from time to
time thereafter by further notices as they are established. Each Indemnifying
Party shall send a written response to such claim for indemnification within
thirty (30) days after receipt of the claim stating its acceptance or objection
to the indemnification claim, and explaining its position in respect thereto in
reasonable detail. If such Indemnifying Party does not timely so respond, it
will be deemed to have accepted the Indemnified Party's indemnification claim as
specified in the notice given by the Indemnified Party. If the Indemnifying
Party gives a timely objection notice, then the parties shall resolve the
dispute by binding mediation in Phoenix, Arizona under the Commercial Mediation
Rules of the American Arbitration Association (AAA) in effect on the date of the
Dispute Notice. If the parties cannot agree on the selection of a mediator
within twenty (20) days after delivery of the Dispute Notice, the mediator will
be selected by the AAA. The prevailing party in any such mediation shall be
entitled to recover from, and have paid by, the other party hereto all fees and
disbursements of such mediation, including its reasonable attorneys.
11.5 Indemnification Shares. The parties agree that if it is determined
that IFT is entitled to indemnification pursuant to Paragraph 11.4, then at the
option of IFT's Board of Directors, TNCI shall compensate IFT by issuing to IFT
shares of TNCI Common Stock. The number of shares to be issued pursuant to this
paragraph (the "Indemnification Shares") shall be determined by dividing the
dollar amount of TNCI's obligation for indemnification by the average of the
closing prices of the TNCI Common Stock as reported on the principal trading
market for TNCI Common Stock for the twenty (20) trading days immediately
preceding the date that the notice of claim is given to TNCI. The parties agree
that this measure of damages is equitable in light of the method of payment of
the Purchase Price.
11.6 No Finders. TNCI represents and warrants to IFT and IFT represents
and warrants to TNCI that there are no obligations to pay any fee or commission
to any broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement. TNCI agrees to indemnify and hold harmless IFT
from any breach of TNCI's representation in the previous sentence, and IFT
agrees to indemnify and hold TNCI harmless from any breach of its representation
in the previous sentence.
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11.7 Third Person Claim Procedures. If any third person asserts a claim
against an Indemnified Party in connection with the matter involved in such
claim, the Indemnified Party shall promptly (but in no event later than ten (10)
days prior to the time at which an answer or other responsive pleading or notice
with respect to the claim is required) notify the Indemnifying Party of such
claim. The Indemnifying Party shall have the right, at its election, to take
over the defense or settlement of such claim by giving prompt notice to the
Indemnified Party that it will do so, such election to be made and notice given
in any event at least five (5) days prior to the time at which an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, the Indemnifying Party may conduct the
defense of such claim through counsel of its choosing (subject to the
Indemnified Party's approval, not to be unreasonably withheld), will be
responsible for the expenses of such defense, and shall be bound by the results
of its defense or settlement of the claim to the extent it produces damage or
loss to the Indemnified Party. The Indemnifying Party shall not settle such
claims without prior notice to and consultation with the Indemnified Party, and
no such settlement involving any injunction or material and adverse effect on
the Indemnified Party may be agreed to without its consent. Notwithstanding the
assumption of the defense of any claim by the indemnifying party, the
indemnified party(ies) shall have the right to employ a single, 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 single, separate legal counsel to
the indemnified party(ies) if (and only if): (x) the indemnifying party shall
have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
indemnifying party, based upon an opinion of counsel in writing, reasonably
acceptable to the indemnifying party, shall have concluded that representation
of the indemnified party(ies) and the indemnifying party by the same legal
counsel would not be appropriate due to actual (i) conflicts of interest 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(ies) 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(ies) within a reasonable period of time after notice of the
commencement of such claim [it being recognized and acknowledged that Nixon,
Hargrave, Devans & Doyle LLP and Streich Lang, PA, shall be regarded as such
reasonably satisfactory counsel to the indemnified party(ies)]. IF the
indemnifying 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(ies). As long
as the Indemnifying Party is diligently contesting any such claim in good faith,
the Indemnified Party shall not pay or settle any such claim. If the
Indemnifying Party does not make such election, or having made such election
does not proceed diligently to defend such claim prior to the time at which an
answer or other responsive pleading or notice with respect thereto is required,
or does not continue diligently to contest such claim, then the Indemnified
Party may take over defense and proceed to handle such claim in its exclusive
discretion, and the Indemnifying Party shall be bound by any defense or
settlement that the Indemnified Party may make in good faith with respect to
such claim and shall pay the reasonable attorneys fees of such defense, subject
to paying for only one counsel. The parties agree to cooperate in defending such
third party claims, and the defending party shall have access to records,
information and personnel in control of the other part which are pertinent to
the defense thereof.
11.8 Limitation of Remedies. No party to this Agreement shall be liable
to any other party or parties or have any remedies against any other party or
parties under this Agreement other than as provided in Paragraph 11,
"Indemnification," and Paragraph 12, "Termination." The parties
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understand that this requires that all disputed claims shall be submitted to
arbitration in accordance with Paragraph 10.4, "Arbitration."
12. Termination.
12.1 Termination Events. This Agreement may be terminated and abandoned
prior to the closing thereof, by notice given in the manner hereinafter
provided:
12.1.1 By TNCI, (a) if without a material breach of the terms or
conditions of this Agreement by TNCI, all of the conditions set forth in
Paragraph 9, "Conditions Precedent to the Obligations of TNCI," shall not
have been satisfied on or before the Closing Date and have not been waived
by TNCI on or before such dates, as the case may be, or (b) a material
breach of the terms or conditions of this Agreement by IFT occurs which
breach is not cured within ten (10) days following the giving of written
notice thereof to IFT.
12.1.2 By IFT, (a) if without a material breach of the terms or
conditions of this Agreement by IFT occurs which breach is not cured within
ten (10) days following the giving of written notice thereof to IFT, all of
the conditions set forth in Paragraph 10, "Conditions Precedent to the
Obligations of IFT," shall not have been satisfied on or before the Closing
Date and have not been waived by IFT on or before such date, as the case
may be, or (b) a material breach of the terms or conditions of this
Agreement by TNCI occurs which breach is not cured within ten (10) days
following the giving of written notice thereof to TNCI.
12.1.3 By the mutual agreement of TNCI and IFT.
12.2 Effect of Termination. In the event this Agreement is terminated
pursuant to Paragraph 12.1, "Termination Events," this Agreement shall forthwith
become void, and, there shall be no liability or continuing obligations on the
part of the parties hereunder, except as provided below:
12.2.1 no party may terminate this Agreement pursuant to Paragraph
12.1.1(b) or 12.1.2(b) if such party is in material breach of the terms of
this Agreement;
12.2.2 TNCI shall continue to be bound by Paragraph 7.4.5 through
November 14, 1999 so long as IFT owns at least 20% of the outstanding
Common Stock of TNCI, computed by assuming that all Preferred Stock or
convertible notes held by IFT have been converted into Common Stock of
TNCI; and provided that if IFT does not give its consent to a proposed
transaction during the foregoing period, which consent shall not be
unreasonably withheld, TNCI may purchase the Common Stock and Common Stock
equivalents based on conversion of Preferred Stock and convertible debt
held by IFT at a price equal to the greater of $3.50 per share or the
average of the bid and ask prices of the Common Stock on the principal
market on which the Common Stock is traded on the date of purchase; and
12.2.3 after November 14, 1999 IFT shall have a right of first
refusal, for a period of fifteen (15) days after receipt of written notice
from TNCI, to purchase any debt or equity securities of TNCI on the same
terms and conditions as any bona fide third party. IFT shall have the
foregoing right of first refusal so long as IFT owns at least 20% of the
outstanding Common Stock of
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TNCI, computed by assuming that all Preferred Stock and convertible debt
held by IFT have been converted into Common Stock of TNCI.
12.2.4 TNCI shall grant IFT a license to use TNCI's technology under
terms of a license agreement attached as Exhibit C hereto, which license
shall (i) permit TNCI to continue to utilize such technology directly in
its business, but not license such technology to any third party; (ii) be
for a fifteen (15) year term; (iii) permit IFT to license the technology on
a royalty-free basis; and (iv) give IFT a first right of refusal to
purchase the technology on the same terms and conditions as TNCI proposes
to sell the technology to a bona fide third party purchaser.
13. Expenses and Transfer Taxes.
13.1 TNCI shall be solely responsible for paying its own expenses and
costs incident to the preparation of this Agreement and to the consummation of
the transactions contemplated by this Agreement, and shall have no obligation
for paying such expenses or costs of IFT.
13.2 IFT shall be solely responsible for paying is own expenses and
costs incident to the preparation of this Agreement and to the consummation of
the transactions contemplated by this Agreement, and shall have no obligation to
reimburse the expenses or costs of TNCI.
13.3 Notwithstanding any of the other provisions hereof, in the event
of arbitration with respect to the interpretation or enforcement of this
Agreement in accordance with Paragraph 11.4 hereof, the prevailing party in any
such matter shall be entitled to recover from the other party their or its
reasonable costs and expense, including reasonable attorneys' fees, incurred in
such arbitration and/or litigation. For purposes of this subparagraph 13.3, a
party shall be deemed to be the prevailing party only if such party (A)(i)
receives an award or judgment in such arbitration and/or litigation for more
than 50% of the disputed amount involved in such matter, or (ii) is ordered to
pay the other party less than 50% of the disputed amount involved in such matter
or (B)(i) succeeds in having imposed a material equitable remedy on the other
party (such as an injunction or order compelling specific performance), or (ii)
succeeds in defeating the other party's request for such an equitable remedy.
13.4 TNCI and IFT do not believe any sales or transfer taxes will be
due as a result of the sale and transfer of the Assets as contemplated in this
Agreement. TNCI shall, however, pay any sales or transfer taxes which may become
due on the sale or transfer of the Assets to TNCI and the other transactions
contemplated under this Agreement.
14. Risk of Loss. The risk of loss or destruction of all or any part of
the Assets prior to the Closing Date from any cause (including, without
limitation, fire, theft, acts of God or public enemy) shall be upon IFT. Such
risk shall be upon TNCI if such loss occurs after the Closing Date.
15. Notification of Claims. Each party will promptly notify the other
of any third party claims against any party relating to TNCI or the Assets of
which it receives knowledge or notice so as to permit such party an opportunity
to prepare a timely defense to such claim or to attempt settlement.
16. TNCI Board of Directors. On the Closing Date, the Board of
Directors and officers of TNCI shall consist of the following seven (7) persons;
Irwin L. Gross (Chairman), Wilbur Riner, Sr. (President and CEO), Morris C.
Aaron (Executive Vice President), Frank E. Gomer (Executive Vice
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President), two (2) outside directors to be determined by IFT, and one (1)
outside director to be determined by TNCI.
17. Miscellaneous.
17.1 Binding Agreement. The parties covenant and agree that this
Agreement, when executed and delivered by the parties, will constitute a legal,
valid and binding agreement between the parties and will be enforceable in
accordance with its terms.
17.2 Negotiations with Third Parties. In consideration of the
undertakings by the parties of the substantial legal, accounting and other
expenses incident to the parties proceeding toward the closing of the
transaction contemplated hereby the parties agree that, through the earlier of
May 15, 1999 or the Closing Date, neither party will enter into or pursue any
arrangements or negotiations with any other party relative to (i) the merger of
TNCI into any other party or any purchase or sale of substantially all of the
assets or control relative to any extraordinary transaction, in the case of
TNCI, without the consent of IFT, and (ii) the acquisition by IFT of all or
substantially all of the assets, or the voting control, of a company whose
business is related to or in competition with the business conducted by TNCI,
without the consent of TNCI.
17.3 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto, their legal
representatives, successors and assigns.
17.4 Entire Agreement. This Agreement and its exhibits and schedules
constitute the entire contract among the parties hereto with respect to the
subject matter thereof, superseding all prior communications and discussions and
no party hereto shall be bound by any communication on the subject matter hereof
unless such is in writing signed by any necessary party thereto and bears a date
subsequent to the date hereof. The exhibits and schedules shall be construed
with and deemed as an integral part of this Agreement to the same extent as if
the same had been set forth verbatim herein. Information set forth in any
exhibit, schedule or provision of this Agreement shall be deemed to be set forth
in every other exhibit, schedule or provision of this Agreement and therefore
shall be deemed to be disclosed for all purposes of this Agreement.
17.5 Modification. This Agreement may be waived, changed, amended,
discharged or terminated only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, amendment, discharge or
termination is sought.
17.6 Notices. All notices, requests, demands and other communications
shall be deemed to have been duly given three (3) days after postmark of deposit
in the United States mail, if mailed, certified or registered mail, postage
prepaid, one day after delivery to a nationally recognized overnight courier,
upon receipt by facsimile (with confirmation back), or upon hand delivery:
If to IFT:
Interactive Flight Technologies, Inc.
4041 North Central Avenue, Suite B-200
Phoenix, Arizona 85012
Attn: Irwin L. Gross, Chief Executive Officer
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With copy to:
Christian J. Hoffmann, III
Streich Lang, P.A.
Renaissance One
Two North Central Avenue
Phoenix, Arizona 85004-2391
If to TNCI:
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30201
Attn: Wilbur Riner, Sr., President
With a copy to:
Peter W. Rothberg, Esq.
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022-7001
or to such other address as any party shall designate to the other in writing.
The parties shall promptly advise each other of changes in addresses for such
notices.
17.7 Choice of Law. This Agreement shall be governed by, construed,
interpreted and enforced according to the laws of the State of Delaware.
17.8 Severability. If any portion of this Agreement shall be finally
determined by any court or governmental agency of competent jurisdiction to
violate applicable law or otherwise not to conform to requirements of law and,
therefore, to be invalid, the parties will cooperate to remedy or avoid the
invalidity, but, in any event, will not upset the general balance of
relationships created or intended to be created between them as manifested by
this Agreement and the instruments referred to herein. Except insofar as it
would be an abuse of the foregoing principle, the remaining provisions hereof
shall remain in full force and effect.
17.9 Other Documents. The parties shall upon reasonable request of the
other, execute such documents as may be reasonably necessary to carry out the
intent of this Agreement.
17.10 Headings and the Use of Pronouns. The paragraph headings hereof
are intended solely for convenience of reference and shall not be construed to
explain any of the provisions of this Agreement. All pronouns and any variations
thereof and other words, as applicable, shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the person or
matter may require.
17.11 Time is of the Essence. Time is of the essence of this Agreement.
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17.12 No Waiver and Remedies. No failure or delay on a parties part to
exercise any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by a party of a right or remedy hereunder
preclude any other or further exercise. No remedy or election hereunder shall be
deemed exclusive but it shall, where ever possible, be cumulative with all other
remedies in law or equity.
17.13 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
17.14 Further Assurances. Each of the parties hereto shall use
commercially practicable efforts to fulfill all of the conditions set forth in
this Agreement over which it has control or influence (including obtaining any
consents necessary for the performance of such party's obligations hereunder)
and to consummate the transactions contemplated hereby, and shall execute and
deliver such further instruments and provide such documents as are reasonably
necessary to effect this Agreement.
17.15 Rules of Construction. The normal rules of construction which
require the terms of an agreement to be construed most strictly against the
drafter of such agreement are hereby waived since each party has been
represented by counsel in the drafting and negotiation of this Agreement.
17.16 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
17.17 Bulk Sales; Sales Tax. The parties hereby waive compliance with
the requirements of any applicable bulk sales or bulk transfer statutes of any
states having jurisdiction, and IFT hereby agrees to be responsible for and
shall indemnify and hold harmless TNCI against any liability that may arise as a
result of any obligations imposed by such statutes. Additionally, IFT shall be
responsible for and shall indemnify and hold harmless TNCI for any sales tax due
upon the transfer of the Assets pursuant to this Agreement or any sales tax
which should have been collected by IFT in connection with operation of the
Business being transferred on or prior to the Closing Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IFT: TNCI:
INTERACTIVE FLIGHT TECHNOLOGIES, THE NETWORK CONNECTION, INC., a
INC., a Delaware Corporation Georgia corporation
- ---------------------------------- -------------------------------
Irwin L. Gross, Chief Executive Wilbur Riner, Sr., President
Officer
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FIRST AMENDMENT
TO
ASSET PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT (the "Amendment") to that certain Asset Purchase
and Sale Agreement dated as of April 29, 1999 (the "Purchase Agreement"), is
entered into as of this 14th day of May, 1999 by and among Interactive Flight
Technologies, Inc. ("IFT"), and The Network Connection, Inc. ("TNCI").
WHEREAS, the parties have previously entered into the Purchase
Agreement; and
WHEREAS, the parties now wish to amend the Purchase Agreement to
provide for the other matters set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Section 7 is hereby amended by adding a new Section 7.7 which shall
read in its entirety as follows:
7.7. Payment of Net Litigation and Other Proceeds; Performance of
Contracts.
7.7.1 IFT shall pay to TNCI the Net Swissair Proceeds (as defined
below) actually collected by IFT with respect to existing accounts
receivable identified on Schedule 1.1 from Swissair Swiss Air Transport
Company, Ltd., SR Technics, Ltd. and SAIR Group (the "Accounts"), and other
amounts sought to be recovered from such parties pursuant to the Complaint
filed by IFT in the United States District Court for the District of
Arizona on May 6, 1999 (Civ. 99-0836PHX SMM) (collectively with the
Accounts, the "Swissair Claims"). As used herein, Net Swissair Proceeds
shall mean the aggregate amounts actually received by IFT with respect to
such Swissair Claims, net of (i) any cost or expenses, direct or indirect,
incurred by IFT in connection with the collection of such Swissair Claims
(including without limitation, any and all costs of litigation, attorneys'
fees, court costs, and the like, incurred either in connection with the
prosecution of such Swissair Claims or in defending any counterclaims in
connection therewith; (ii) any costs or expenses of performing any IFT
obligations under any of the existing contracts, or otherwise incurred with
respect to such receivables, which are incurred
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following the Closing Date; (iii) any counterclaims or other amounts paid
or payable by IFT to such parties; and (iv) state and federal taxes paid by
IFT with respect to amounts received by IFT pursuant to the Swissair
claims, the amounts of which tax payments have been approved by TNCI, which
approval will not be unreasonably withheld. In connection therewith, TNCI
agrees that it shall perform on behalf of IFT any obligations required of
IFT under any contracts with such parties and shall indemnify, defend, and
hold harmless IFT from any costs and expenses incurred by IFT as a result
of TNCI's performance.
7.7.2 IFT shall pay to TNCI the Net Other Proceeds (as defined below)
actually received by IFT in connection with the pending litigation against
Avnet/Hamilton Hallmark, FortuNet, and the employees set forth in Schedule
7.7.2 (collectively, the "Miscellaneous Claims"). As used herein, Net Other
Proceeds shall mean the aggregate amounts actually received by IFT with
respect to such Miscellaneous Claims, net of (i) any costs or expenses,
direct or indirect, incurred by IFT in connection with the collection of
such Miscellaneous Claims (including, without limitation, any and all costs
of litigation, attorneys' fees, court costs, and the like, incurred either
in connection with the prosecution of such Miscellaneous Claims or in
defending any counterclaims in connection therewith; (ii) any costs or
expenses of performing any IFT obligations under the FortuNet agreement;
(iii) any counterclaims or other amounts paid or payable by IFT to such
parties; and (iv) taxes paid by IFT with respect to amounts received by IFT
pursuant to the Swissair claims, the amounts of which tax payments have
been approved by TNCI, which approval will not be unreasonably withheld.
Such amounts shall also be reduced by the amount of any judgments or
amounts payable to such parties pursuant to any counterclaims or otherwise.
In connection therewith TNCI agrees that it shall perform on behalf of IFT
any obligations of IFT under the FortuNet contract.
2. Section 7 is hereby further amended by adding a new Section 7.8
which shall read in its entirety as follows:
7.8 Upon a determination by TNCI that such transfers are desirable, IFT
shall use reasonable efforts to effect the transfers of the permits set forth in
Schedule 5.14.1 with all required approvals.
3. Section 8.1 is hereby amended to read in its entirety as follows:
8.1 Due Diligence Inspection. During the period from the date hereof
until and through May 14, 1999, IFT and its representatives shall have the right
to inspect all plant,
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equipment and operations of TNCI, its premises and its financial and other
records at reasonable times. IFT shall also have the right to discuss the
affairs of TNCI with the managers, customers, prospective customers, employees,
suppliers, advertisers, retailers, banking and other financial institutions,
lessors and such other parties as IFT deems appropriate, upon reasonable notice
of the proposed times and dates thereof. IFT shall complete its due diligence,
provided it has received the cooperation of TNCI contemplated in this Paragraph,
no later than May 14, 1999. TNCI shall likewise have the right, upon the
execution of this Agreement, to inspect IFT, its financial and other records and
to discuss the affairs of IFT with appropriate parties under the same terms and
conditions and upon the same schedule as IFT shall have to complete its
preliminary due diligence. IFT and TNCI will cooperate with all reasonable
requests by the other party for information and will use their best efforts to
secure the cooperation of the foregoing third parties who may reasonably be
requested to furnish information to each other.
4. Section 9.3.1 is hereby amended to read in its entirety as follows:
9.3.1 IFT shall deliver the Disclosure Schedule to this Agreement no
later than May 14, 1999. TNCI shall have the lesser of seven (7) days after its
receipt of the Disclosure Schedule or the remaining time until the Closing Date
to determine, in its sole discretion, whether or not TNCI shall accept the
representations and warranties as modified or amplified by the Disclosure
Schedule. If TNCI determines that any part of the Disclosure Schedule is
unacceptable, TNCI may provide IFT additional time to remedy the matter or may
terminate this Agreement in accordance with its provisions.
5. Section 10.5.1 is hereby amended to read in its entirety as follows:
10.5.1 TNCI shall deliver the Disclosure Schedule to this Agreement no
later than May 14, 1999. IFT shall have the lesser of seven (7) days after its
receipt of the Disclosure Schedule or the remaining time until the Closing Date
to determine, in its sole discretion, whether or not IFT shall accept the
representations and warranties as modified or amplified by the Disclosure
Schedule. If IFT determines that any party of the Disclosure Schedule is
unacceptable, IFT may provide TNCI additional time to remedy the matter or may
terminate this Agreement in accordance with its provisions.
6. A new Section 10.13.1 is hereby added to read in its entirety as
follows:
10.13.1 To the extent any holder of the outstanding Series A Notes,
Series D Notes, and Series E Notes refuses to convert such notes into capital
stock on terms verbally agreed to with IFT as reflected in Schedule 3.1.1-B
after the Closing Date, and IFT issues more shares or other consideration than
originally agreed to, IFT will be reimbursed to the extent of such additional
consideration by TNCI issuing that number of additional shares of TNCI common
stock (based upon the conversion price set forth in the Allonge pertaining to
such notes that were not so converted) equal to the value of the additional
consideration paid by IFT which
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shall be measured as of the date it is agreed to in writing to be given by IFT.
If the consideration consists of securities traded on a stock exchange or
automated quotation system, the value of such securities shall be the average
closing price for the five trading days preceding the date of determination.
7. Section 10.14 is hereby amended to read in its entirety as follows:
10.14 Other Issues. IFT shall have acquired from The Shaar Fund, Ltd.
the 1,500 shares of the Series B Preferred Stock of TNCI which are outstanding
and the secured note dated January 25, 1999 (as amended), payable to the order
of IFT by TNCI in the original face amount of $500,000 shall have been amended
on terms acceptable to IFT. IFT shall have received proxies from certain
shareholders of TNCI as determined by IFT.
8. Section 11.1 is hereby amended by adding the following at the end of
the Section after the word "period":
, and other than as a result of breach of the agreements to perform
certain obligations and to indemnify IFT set forth in Sections 7.7 and
11.2.2 as to which such time limit shall not apply.
9. Section 11.2.2 is hereby renumbered as Section 11.2.3 and a new
Section 11.2.2 is hereby added to read in its entirety as follows:
11.2.2. TNCI hereby agrees to indemnify IFT as set forth in Section 7.7
hereof.
10. Section 16 is hereby amended to read in its entirety as follows:
On the Closing Date, the Board of Directors and officers of TNCI shall
consist of the following seven (7) persons; Irwin L. Gross (Chairman),
Wilbur Riner, Sr. (Executive Vice President-Business Development),
Morris C. Aaron (Executive Vice President and Chief Financial Officer),
Frank E. Gomer (President and Chief Executive Officer), two (2) outside
directors to be determined by IFT and one (1) outside director to be
determined by TNCI.
11. Section 2 is hereby amended by deleting everything after "(the
"Assumed Liabilities")" from the first sentence thereof [thereby deleting
reference to certain Swissair liabilities], and replacing the "," with a period.
12. The first "Whereas" clause in the Recitals is amended by deleting
the work "primarily" and inserting in its place the words "in part."
13. Section 7 is further amended by deleting Section 7.2.2 in its
entirety and replacing
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that section with the words "Intentionally Omitted."
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
_____ day of May, 1999.
IFT:
INTERACTIVE FLIGHT
TECHNOLOGIES, INC., a Delaware
corporation
By:
Its: _____________________________
TNCI:
THE NETWORK CONNECTION, INC.
By:
Its: ____________________________
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ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
---------------
These Amended Articles of Incorporation (the "Amendment") are being
executed as of October 23, 1998, for the purpose of amending the Articles of
Incorporation of The Network Connection, Inc. (the "Company"), pursuant to
Section 14-2-602 of the Georgia Business Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the Corporation is The Network Connection, Inc.
SECOND: That, pursuant to authority conferred upon the Board of Directors
by the Article of Incorporation, said Board of Directors, at a meeting of the
Board of Directors, adopted a resolution providing for the creation of one
thousand and five-hundred (1,500) shares of 8% Series B Convertible Preferred
Stock, which resolution is as follows:
RESOLVED, that pursuant to Article V of the Articles of Incorporation of
the Company, there be and hereby is authorized and created one series of
Preferred Stock, hereby designated as Series B 8% Convertible Preferred Stock to
consist of one thousand and five-hundred (1,500) shares with a par value of $.01
per share and a stated value of $1,000.00 per share (the "Stated Value"), and
that the designations, preferences and relative, participating, optional or
other rights of the Series B 8% Convertible Preferred Stock (the "Series B
Preferred Stock") and qualifications, limitations or restrictions thereof, shall
be as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Amendment have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
<PAGE>
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "Average Price" per share of Common Stock means the average of the
closing bid prices as reported on the Nasdaq SmallCap Market ("NASDAQ") for the
lowest five of the twenty Trading Days immediately preceding the Conversion
Date.
(d) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
(e) "Capital Shares" means the Common Shares and any other shares of any
other class or series of common stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(f) "Closing Date" means October 23, 1998.
(g) "Closing Price" per share of Common Stock means the closing bid price
as reported on the NASDAQ for the Trading Day immediately preceding the Closing
Date.
(h) "Common Shares" or "Common Stock" means shares of common stock, $.001
par value, of the Corporation.
(i) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of the Series B Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series B Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(j) "Conversion Date" means any day on which all or any portion of shares
of the Series B Preferred Stock is converted in accordance with the provisions
hereof.
(k) "Conversion Notice" has the meaning set forth in Section 6.2.
(l) "Conversion Price" means on any date of determination the applicable
price for the conversion of
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shares of Series B Preferred Stock into Common Shares on such day as set forth
in Section 6.1.
(m) "Conversion Ratio" on any date means determination of the applicable
percentage of the Market Price for conversion of shares of Series B Preferred
Stock into Common Shares on such day as set forth in Section 6.1.
(n) "Corporation" means The Network Connection, Inc., a Georgia
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(o) "Current Market Price" on any date of determination means the closing
price of a Common Share on such day as reported on the NASDAQ.
(p) "Default Dividend Rate" shall be equal to the Preferred Stock Dividend
Rate plus an additional 4% per annum.
(q) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person to whom the Series B Preferred Stock is subsequently transferred in
accordance with the provisions hereof.
(r) "Market Disruption Event" means any event that results in a material
suspension or limitation of trading of Common Shares on the NASDAQ.
(s) "Market Price" per Common Share means the average of the closing prices
of the Common Shares as reported on the NASDAQ for the five Trading Days in any
Valuation Period.
(t) "Maximum Rate" has the meaning set forth in Section 7.3(b).
(u) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any
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<PAGE>
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
(v) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(w) "Registration Rights Agreement" means that certain Registration Rights
Agreement of even date herewith between the Corporation and The Shaar Fund Ltd.
(x) "SEC" means the United States Securities and Exchange Commission.
(y) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(z) "Securities Purchase Agreement" means that certain Securities Purchase
Agreement of even date herewith between the Corporation and The Shaar Fund Ltd.
(aa) "Series B Preferred Stock" means the Series B 8% Convertible Preferred
Stock of the Corporation or such other convertible Preferred Stock exchanged
therefor as provided in Section 2.1.
(bb) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
(cc) "Trading Day" means any day on which purchases and sales of securities
authorized for quotation on the NASDAQ are reported thereon and on which no
Market Disruption Event has occurred.
(dd) "Valuation Event" has the meaning set forth in Section 6.1.
(ee) "Valuation Period" means the five Trading Day period immediately
preceding the Conversion Date.
All references to "cash" or "$" herein means
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currency of the United States of America.
ARTICLE 2
RESERVED
ARTICLE 3
RANK
SECTION 3.1
The Series B Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities"); and (iii) pari passu with any class or series of capital
stock of the Corporation hereafter created specifically ranking on parity with
the Series B Preferred Stock ("Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, the Board of Directors
shall be obligated to declare and the Corporation shall be obligated to pay, out
of funds legally available for the payment of dividends, dividends (subject to
Sections 4(a)(ii)) at the rate of 8% per annum (computed on the basis of a
360-day year) (the "Dividend Rate") on the Liquidation Value (as defined below)
of each share of Series B Preferred Stock on and as of the most recent Dividend
Payment Due Date (as defined below) with respect to each Dividend Period (as
defined below). Dividends on the Series B Preferred Stock shall be cumulative
from the date hereof, whether or not declared for any reason, including if such
declaration is prohibited under any outstanding indebtedness or borrowings of
the Corporation or any of its Subsidiaries, or any other contractual provision
binding on the Corporation or any of its Subsidiaries, and whether or not there
shall be funds legally available for the payment thereof.
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<PAGE>
(ii) Each dividend shall be payable in equal quarterly amounts on each
March 31, June 30, September 30 and December 31 of each year (each, a "Dividend
Payment Due Date"), commencing December 31, 1998, to the holders of record of
shares of the Series B Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on any record date, not more than 60
days or less than 10 days preceding the payment dates thereof, as shall be fixed
by the Board of Directors. For the purposes hereof, "Dividend Period" means the
quarterly period commencing on and including the day after the immediately
preceding Dividend Payment Date and ending on and including the immediately
subsequent Dividend Payment Date. Accrued and unpaid dividends for any past
Dividend Period may be declared and paid at any time, without reference to any
Dividend Payment Due Date, to holders of record on such date, not more than 15
days preceding the payment date thereof, as may be fixed by the Board of
Directors.
(iii) At the option of the Corporation, the dividend shall be paid in cash
or through the issuance of duly and validly authorized and issued, fully paid
and non-assessable, freely tradeable shares of the Common Stock valued at the
Market Price. The Common Stock to be issued in lieu of cash payments shall be
registered for resale in the Registration Statement to be filed by the
Corporation to register the Common Stock issuable upon conversion of the shares
of Series B Preferred Stock and exercise of the Warrants as set forth in the
Registration Rights Agreement. Notwithstanding the foregoing, until such
Registration Statement has been declared effective under the Securities Act by
the SEC, payment of dividends on the Series B Preferred Stock shall be in cash.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series B Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared
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<PAGE>
and paid or declared and a sum sufficient for the payment thereof set apart for
such payment on the Series B Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of the dividend on such class or
series of Pari Passu Securities. When dividends are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon shares of the Series B Preferred Stock and all dividends declared
upon any other class or series of Pari Passu Securities shall be declared
ratably in proportion to the respective amounts of dividends accumulated and
unpaid on the Series B Preferred Stock and accumulated and unpaid on such Pari
Passu Securities.
(d) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series B
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series B
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series B Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
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ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series B Preferred Stock, subject
to Article 5, shall have received the Liquidation Preference (as defined in
Section 5.1(c)) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series B Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate liquidation preference payable on all such shares.
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<PAGE>
(b) At the option of each Holder, the sale, conveyance of disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to, such transaction an
amount equal to 120% of the Liquidation Preference with respect to each
outstanding share of Series B Preferred Stock in accordance with and subject to
the terms of this Article 5; provided, that all holders of Series B Preferred
Stock shall be deemed to elect the option set forth above if at least a majority
in interest of such holders elect such option. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series B Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
dividends on such share of Series B Preferred Stock until the most recent
Dividend Payment Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(ii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
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ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the option of the Holder, the
shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time, (i) from and after a date 30 days
from the date hereof until a date 60 days from the date hereof at a Conversion
Price equal to the lower of the (a) the Closing Price or (b) 80.0% of the
Average Price, (ii) from and after a date 61 days from the date hereof until a
date 90 days from the date hereof at a Conversion Price equal to the lower of
the (a) the Closing Price or (b) 77.5% of the Average Price and (iii) from and
after a date 61 days from the date hereof at a Conversion Price equal to the
lower of the (a) the Closing Price or (b) 75% of the Average Price. At the
Corporation's option, the amount of accrued and unpaid dividends as of the
Conversion Date shall not be subject to conversion but instead may be paid in
cash as of the Conversion Date; if the Corporation elects to convert the amount
of accrued and unpaid dividends at the Conversion Date into Common Stock, the
Common Stock issued to the Holder shall be valued at the Conversion Price.
The number of shares of Common Stock due upon conversion of Series B
Preferred Stock shall be (i) the number of shares of Series B Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately following the occurrence of such Valuation
Event and end on the Conversion Date; provided that, if a Valuation Event occurs
on the fifth day of any Valuation Period, then the Conversion Price shall be the
Current Market Price of the Common Shares on such day; and provided, further,
that the Holder may, in its discretion, postpone such Conversion Date to a
Trading Day which is no more than five (5) Trading Days after the occurrence of
the latest Valuation Event by delivering a notification to the Corporation
within two (2) Business Days of the receipt of the Valuation Event Notice. In
the event that the Holder
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deems the Valuation Period to be other than the five (5) Trading Days
immediately prior to the Conversion Date, the Holder shall give written notice
of such fact to the Corporation in the related Conversion Notice at the time of
conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities, to officers, directors or employees of the
Company, or otherwise under the Company's 1994 Employee Stock Option Plan or
non-employee Director Stock Option Plan;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders
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made in respect of the sale of all or substantially all of the Corporation's
assets (other than under the circumstances provided for in the foregoing
Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(f), inclusive, which in the opinion of the Corporation's Board of Directors,
determined in good faith, would have a material adverse effect upon the rights
of the Holder at the time of a conversion of the Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the Series
B Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Preferred Stock and issue the Common
Stock Issued at Conversion effective as of the Conversion Date. The Conversion
Notice also shall state the name or names (with addresses) of the persons who
are to become the holders of the Common Stock Issued at Conversion in connection
with such conversion. The Holder shall deliver the shares of Series B Preferred
Stock to the Corporation by express courier within 30 days following the date on
which the telecopied Conversion Notice has been transmitted to the Corporation.
Upon surrender for conversion, the Preferred Stock shall be accompanied by a
proper assignment hereof to the Corporation or be endorsed in blank. As promptly
as practicable after the receipt of the Conversion Notice as aforesaid, but in
any event not more than five Business Days after the Corporation's receipt of
such Conversion Notice, the Corporation shall (i) issue the Common Stock issued
at Conversion in accordance with the provisions of this Article 6, and (ii)
cause to be mailed for delivery by overnight courier to the Holder (X) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion, (Y) cash, as provided in
Section 6.3, in respect of any fraction of a Share issuable upon such conversion
and (Z) cash in the amount of accrued and unpaid dividends as of the Conversion
Date. Holder shall indemnify the Corporation for any damages to third parties as
a result of a claim by such third party to ownership of the Preferred Stock
converted
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prior to the receipt of the Preferred Srock by the Corporation. Such conversion
shall be deemed to have been effected at the time at which the Conversion Notice
indicates so long as the Preferred Stock shall have been surrendered as
aforesaid at such time, and at such time the rights of the Holder of the
Preferred Stock, as such, shall cease and the Person and Persons in whose name
or names the Common Stock Issued at Conversion shall be issuable shall be deemed
to have become the holder or holders of record of the Common Shares represented
thereby. The Conversion Notice shall constitute a contract between the Holder
and the Corporation, whereby the Holder shall be deemed to subscribe for the
number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 6.4), to surrender
the Preferred Stock and to release the Corporation from all liability thereon.
No cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Preferred Stock into
Common Shares or otherwise dishonors or rejects any Conversion Notice delivered
in accordance with this Section 6.2 or (ii) any third party who is not and has
never been an Affiliate of the Holder commences any lawsuit or proceeding or
otherwise asserts any claim before any court or public or governmental authority
which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the
right of the Holder hereof to effect the conversion of the Preferred Stock into
Common Shares, then the Holder shall have the right, by written notice to the
Corporation, to require the Corporation to promptly redeem the Series B
Preferred Stock for cash at a redemption price equal to, in the case of (i), one
hundred and twenty-five percent (125%) of the Stated Value thereof together with
all accrued and unpaid dividends thereon and, in the case of (ii), one hundred
and fifteen percent (115%) of the Stated Value thereof together with all accrued
and unpaid dividends thereon (each, the "Mandatory Purchase Amount"). Under any
of the circumstances set forth above, the Corporation shall be responsible for
the payment of all costs and expenses of the Holder, including reasonable legal
fees and expenses, as and when incurred in disputing any such action or pursuing
its rights hereunder (in addition to any other rights of the Holder).
SECTION 6.3 Fractional Shares. No fractional Common
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Shares or scrip representing fractional Common Shares shall be issued upon
conversion of the Series B Preferred Stock. Instead of any fractional Common
Shares which otherwise would be issuable upon conversion of the Series B
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction. No cash payment of less than
$1.50 shall be required to be given unless specifically requested by the Holder.
SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series B Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series B
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series B Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series B Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series B Preferred Stock
providing that the Holder shall have the right to convert such new Series B
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series B Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series B Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series B Preferred Stock had
the Series B Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory
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share exchange or sale or transfer. The provisions of this Section 6.4 shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers.
SECTION 6.5 Adjustments to Conversion Ratio. For so long as any shares of
the Series B Preferred Stock are outstanding, if the Corporation (i) issues and
sells pursuant to an exemption from registration under the Securities Act (A)
Common Shares at a purchase price on the date of issuance thereof that is lower
than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an exercise price on
the date of issuance of the warrants or options that is lower than the Current
Warrant Price (as defined in the Warrants (as defined in the Securities Purchase
Agreement)) for the Holder, except for employee stock option agreements or stock
incentive agreements of the Corporation, or (C) convertible, exchangeable or
exercisable securities with a right to exchange at lower than the Current Market
Price on the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, and (ii) grants the right to the purchaser(s)
thereof to demand that the Corporation register under the Securities Act such
Common Shares issued or the Common Shares for which such warrants or options may
be exercised or such convertible, exchangeable or exercisable securities may be
converted, exercised or exchanged, then the Conversion Ratio shall be reduced to
equal the lowest of any such lower rates.
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<PAGE>
SECTION 6.6 Optional Redemptions Under Certain Circumstances. (i) At
anytime after the date of issuance of the Series B Preferred Stock until a date
60 days after the Closing Date, the Corporation, upon notice delivered to the
Holder as provided in Section 6.7, may redeem the Series B Preferred Stock (but
only with respect to such shares as to which the Holder has not theretofore
furnished a Conversion Notice in compliance with Section 6.2), at one hundred
and three percent (103%) of the Stated Value thereof (the "Optional Redemption
Price"), together with all accrued and unpaid dividends thereon to the date of
redemption (the "Redemption Date"). (ii) At anytime after the date of issuance
of the Series B Preferred Stock until the Mandatory Conversion Date (as defined
below), the Corporation, upon notice delivered to the Holder as provided in
Section 6.7, may redeem the Series B Preferred Stock (but only with respect to
such shares as to which the Holder has not theretofore furnished a Conversion
Notice in compliance with Section 6.2), at one hundred and thirty-five percent
(135%) of the Stated Value thereof (the "Optional Redemption Price"), together
with all accrued and unpaid dividends thereon to the Redemption Date; provided,
however, that the Corporation may only redeem the Series B Preferred Stock under
this Section 6.6(ii) if the Current Market Price is less than the Current Market
Price on the Closing Date. Except as provided in Article 6 hereof, the
Corporation shall not have the right to prepay or redeem the Series B Preferred
Stock.
SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to Section
6.6 shall be provided by the Corporation to the Holder in writing (by registered
mail or overnight courier at the Holder's last address appearing in the
Corporation's security registry) not less than ten (10) nor more than thirty
(30) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Market
Price per Common Share) and this Section 6.7.
SECTION 6.8 Surrender of Preferred Stock. Upon any redemption of the Series
B Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall either
deliver the Series B Preferred Stock by hand to the Corporation at its principal
executive offices or surrender the same to the Corporation at such address by
express courier. Payment of the Optional Redemption Price specified in Section
6.6 shall be made by the Corporation to the Holder against receipt of the Series
B Preferred Stock (as provided in this Section
16
<PAGE>
6.8) by wire transfer of immediately available funds to such account(s) as the
Holder shall specify to the Corporation. If payment of such redemption price is
not made in full by the Mandatory Redemption Date or the Redemption Date, as the
case may be, the Holder shall again have the right to convert the Series B
Preferred Stock as provided in Article 6 hereof.
SECTION 6.9 Mandatory Conversion. On the third anniversary of the date of
this Agreement (the "Mandatory Conversion Date"), the Corporation shall convert
all Series B Preferred Stock outstanding at the Conversion Price.
Notwithstanding the previous sentence, unless the Corporation shall have
obtained the approval of its voting stockholders to such issuance in accordance
with the rules of the NASDAQ or such other stock market as the Corporation shall
be required to comply with, the Corporation shall not issue shares of Common
Stock upon such conversion, if such issuance of Common Stock, when added to the
number of shares of Common Stock previously issued by the Corporation (i) upon
conversion of shares of the Series B Convertible Preferred Stock, (ii) upon
exercise of the Warrants issued pursuant to the terms of the Securities Purchase
Agreement and (iii) in payment of dividends on the Series B Convertible
Preferred Stock, would equal or exceed twenty percent (20%) of the number of
shares of the Corporation's Common Stock which were issued and outstanding on
the Closing Date (the "Maximum Issuance Amount"). In the event that a Mandatory
Conversion would require the Corporation to issue shares of Common Stock equal
to or in excess of the Maximum Issuance Amount, the Corporation shall complete
such Mandatory Conversion by (i) converting shares of Series B Convertible
Preferred Stock which would result in the Corporation issuing shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) redeeming the
remaining shares of Series B Convertible Preferred Stock in cash at a price
equal to one hundred and thirty-five percent (135%) of the Stated Value of the
shares of Series B Convertible Preferred Stock to be so redeemed, together with
all accrued and unpaid dividends thereon to the date of such redemption.
SECTION 6.10 Compliance with Section 13(d). Notwithstanding anything herein
to the contrary, the Holder shall not have the right, and the Company shall not
have the obligation, to convert all or any portion of the Series B Convertible
Preferred Stock (and the Company shall not have the right to pay dividends on
the Series B Convertible
17
<PAGE>
Preferred Stock in shares of common stock) if and to the extent that the
issuance to the Holder of shares of common stock upon such conversion (or
payment of dividends) would result in the Holder being deemed the "beneficial
owner" of more than 5% of the then outstanding shares of Common Stock within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules promulgated thereunder. If any court of competent jurisdiction shall
determine that the foregoing limitation is ineffective to prevent a Holder from
being deemed the beneficial owner of more than 5% of the then outstanding shares
of Common Stock, then the Corporation shall redeem so many of such Holder's
shares (the "Redemption Shares") of Series B Convertible Preferred Stock as are
necessary to cause such Holder to be deemed the beneficial owner of not more
than 5% of the then outstanding shares of Common Stock. Upon such determination
by a court of competent jurisdiction, the Redemption Shares shall immediately
and without further action be deemed returned to the status of authorized but
unissued shares of Series B Convertible Preferred Stock and the Holder shall
have no interest in or rights under such Redemption Shares. Any and all
dividends paid on or prior to the date of such determination shall be deemed
dividends paid on the remaining shares of Series B Convertible Preferred Stock
held by the Holder. Such redemption shall be for cash at a redemption price
equal to the sum of (i) the Stated Value of the Redemption Shares and (ii) any
accrued and unpaid dividends to the date of such redemption; provided, however,
if the redemption is a result of the Mandatory Redemption pursuant to Section
6.9, the Corporation may either (i) (a) make such redemption in cash at a
redemption price equal to the sum of (x) one hundred and thirty-five percent
(135%) of the Stated Value of such shares and (y) any accrued and unpaid
dividends to the date of such redemption or (ii) extend the Mandatory Conversion
Date for a period of one year.
SECTION 6.11 Shareholder Approval. Unless the Corporation shall have
obtained the approval of its voting stockholders to such issuance in accordance
with the rules of the NASDAQ or such other stock market as the Corporation shall
be required to comply with, the Corporation shall not issue shares of Common
Stock (i) upon conversion of any shares of Series B Convertible Preferred Stock
or (ii) as a dividend on the Series B Convertible Preferred Stock, if such
issuance of Common Stock, when added to the number of shares of Common Stock
previously issued by the Corporation (i) upon conversion of shares of the Series
B Convertible Preferred Stock, (ii) upon exercise of the Warrants issued
18
<PAGE>
pursuant to the terms of the Securities Purchase Agreement and (iii) in payment
of dividends on the Series B Convertible Preferred Stock, would equal or exceed
twenty percent (20%) of the number of shares of the Corporation's Common Stock
which were issued and outstanding on the Closing Date (the "Maximum Issuance
Amount"). In the event that a properly executed Conversion Notice is received by
the Corporation which would require the Corporation to issue shares of Common
Stock equal to or in excess of the Maximum Issuance Amount, the Corporation
shall honor such conversion request by (i) converting the number of shares of
Series B Convertible Preferred Stock stated in the Conversion Notice not in
excess of the Maximum Issuance Amount and (ii) redeeming the number of shares of
Series B Convertible Preferred Stock stated in the Conversion Notice equal to or
in excess of the Maximum Issuance Amount in cash at a price equal to one hundred
and twenty-five percent (125%) of the Stated Value of the shares of Series B
Convertible Preferred Stock to be so redeemed, together with all accrued and
unpaid dividends thereon. In the event that the Corporation shall elect to pay a
dividend in shares of Common Stock which would require the Corporation to issue
shares of Common Stock equal to or in excess of the Maximum Issuance Amount, the
Corporation shall pay (i) a dividend in shares of Common Stock equal to one less
than an amount which would result in the Corporation issuing shares equal to the
Maximum Issuance Amount and (ii) the balance of the dividend in cash.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series B Preferred Stock have no voting power, except as
otherwise provided by the Georgia Business Corporation Code ("GCL"), in this
Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each Holder of
Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any
19
<PAGE>
proposed liquidation, dissolution or winding up of the Corporation, the
Corporation shall mail a notice to each Holder, at least thirty (30) days prior
to the consummation of the transaction or event, whichever is earlier), of the
date on which any such action is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time.
To the extent that under the GCL the vote of the holders of the Series B
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series B
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series B Preferred Stock
(except as otherwise may be required under the GCL) shall constitute the
approval of such action by the class. To the extent that under the GCL holders
of the Series B Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series B Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series B Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other infirmation sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the GCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the GCL) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series B
Preferred Stock;
(b) create any new class or series of
20
<PAGE>
capital stock having a preference over the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation ("Senior Securities") or alter or change the rights, preferences or
privileges of any Senior Securities so as to affect adversely the Series B
Preferred Stock;
(c) increase the authorized number of shares of Series B Preferred Stock;
or
(d) do any act or thing not authorized or contemplated by this Amendment
which would result in taxation of the holders of shares of the Series B
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event holders of at least a majority of the then outstanding shares
of Series B Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series B Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series B Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert pursuant to the terms of this Amendment as
they exist prior to such alteration or change or continue to hold their shares
of Series B Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series B Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series B Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series B Preferred Stock, new shares of Series B Preferred
Stock of like tenor. The Series B Preferred Stock shall be held and
21
<PAGE>
owned upon the express condition that the provisions of this Section 10.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series B Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person
in whose name the Series B Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series B Preferred Stock for the purpose of receiving payment of dividends on
the Series B Preferred Stock, for the conversion of the Series B Preferred Stock
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series B Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any
event described in Sections 6.1, 6.6 or 6.7 of this Amendment, the Corporation
shall cause to be mailed to the Holder of the Series B Preferred Stock at its
last address as it appears in the Corporation's security registry, at least
twenty (20) days prior to the applicable record, effective or expiration date
hereinafter specified (or, if such twenty (20) days notice is not practicable,
at the earliest practicable date prior to any such record, effective or
expiration date), a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, issuance or granting of rights,
options or warrants, or if a record is not to be taken, the date as of which the
holders of record of Series B Preferred Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series B Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
22
<PAGE>
SECTION 9.4 Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series B Preferred Stock. Upon any transfer of the Series B Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series B Preferred Stock register.
The Corporation may deem the person in whose name the Series B Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series B Preferred Stock for the
purpose of receiving payment of dividends on the Series B Preferred Stock, for
the conversion of the Series B Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series B Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Preferred Stock.
SECTION 9.6 Headings. The headings of the Articles and Sections of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the
Certificate of Incorporation to be signed by its duly authorized officers on
this 23 day of October, 1998.
THE NETWORK CONNECTION, INC.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
INITIAL
HOLDER
THE SHAAR FUND LTD.
By: _________________________
Name:
Title:
24
<PAGE>
ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series B 8% Convertible Preferred Stock (the
"Series B Preferred Stock") issued by The Network Connection, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series B Preferred Stock into shares of the common stock, $.001
par value, of the Corporation ("Common Stock"), in accordance with the terms of
the Amendment. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series B Preferred Stock specified above into Shares of
Common Stock Issued at Conversion in accordance with the provisions of Article 6
of the Amendment. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series B Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Amendment.
Dated: _______________________
- ------------------------------------
Signature
Fill in for registration of Series B Preferred Stock:
Please print name and address
(including zip code number):
- --------------------------------------------------
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
---------------------
These Amended Articles of Incorporation (the "Amendment") are being
executed as of April 29, 1999, for the purpose of amending the Articles of
Incorporation of The Network Connection, Inc. (the "Company"), pursuant to
Section 14-2-602 of the Georgia Business Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the Corporation is The Network Connection, Inc.
SECOND: That, pursuant to authority conferred upon the Board of Directors
by the Articles of Incorporation, said Board of Directors, at a meeting of the
Board of Directors, adopted a resolution providing for the amendment of the
terms of the Company's 8% Series B Convertible Preferred Stock, which resolution
is as follows:
RESOLVED, that pursuant to Article V of the Articles of Incorporation of
the Company, there be and hereby is authorized an amendment to the terms of the
Company's Series B 8% Convertible Preferred Stock (the "Series B Preferred
Stock"), which amendment shall be as follows:
1. The first paragraph of Section 6.1 of Article 6 of the Articles of
Amendment to the Articles of Incorporation of the Company creating the terms and
conditions of the Series B Preferred Stock (the "First Amendment") be, and it
hereby is, amended in its entirety to read as follows:
"SECTION 6.1 Conversion, Conversion Price. At the option of the Holder,
the shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of
a share), at any time, and from time to time, at a Conversion Price equal to the
lower of (a) 75% of the Average Price calculated at the time of conversion; or
(b) 75% of the Average Price calculated as if April 29, 1999 were the Conversion
Date. At the Corporation's option, the amount of accrued and unpaid dividends as
of the Conversion Date shall not be subject to conversion but instead may be
paid in cash as of the Conversion Date; if the Corporation elects to convert the
amount of accrued and unpaid dividends at the Conversion Date into Common Stock,
the Common Stock issued to the Holder shall be valued at the Conversion Price."
2. A new Section 6.1-A shall be added to Article 6 of the First Amendment,
to read as follows:
"SECTION 6.1-A Dilution Protection. Notwithstanding anything to the
contrary contained in Section 6.1 above or otherwise herein, if a Valuation
Event occurs after April 30,
<PAGE>
1999 as a result of which the number of Common Shares Outstanding (assuming for
purposes of such determination, the issuance of all such shares pursuant to an
exercise or conversion (as the case may be) of options, warrants, and other
securities issued as part of such Valuation Event) shall be increased or
decreased, then the Conversion Price shall be proportionately decreased or
increased, respectively, and the number of Common Shares reserved for issuance
pursuant to the conversion of the then Outstanding Series B Preferred Stock
shall be proportionately increased or decreased, respectively, so as to reflect
appropriately the effects of such Valuation Event, effective immediately upon
the effectiveness of such Valuation Event. The adjustment required by the
foregoing sentence shall be effectuated each time a separate Valuation Event
shall occur, and such adjustments shall, therefore, be cumulative."
THIRD: The amended Articles of Incorporation were approved by the Board of
Directors in the manner required by Section 14-2-602 of the Georgia Business
Corporation Code as of April 29, 1999, and shareholder approval was not
required.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the
Certificate of Incorporation to be signed by its duly authorized officers on
this 29th day of April 1999.
THE NETWORK CONNECTION, INC.
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Title:
INITIAL HOLDER:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: __________________________________
Name:
Title:
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
---------------
These Articles of Amendment (the "Amendment") are being executed as of
April 30, 1999, for the purpose of amending the Articles of Incorporation of The
Network Connection, Inc. (the "Company"), pursuant to Section 14-2-602 of the
Georgia Business Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the corporation is The Network Connection, Inc.
SECOND: Pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, the Board of Directors, adopted the following
resolution providing for the creation of sixteen hundred (1,600) shares of
Series C 8% Convertible Preferred Stock:
RESOLVED, that pursuant to Article V of the Articles of Incorporation of
the Company, there be and hereby is authorized and created one series of
Preferred Stock, hereby designated as Series C 8% Convertible Preferred Stock to
consist of sixteen hundred (1,600) shares with a par value of $.01 per share and
a Stated Value of $1,000.00 per share (the "Stated Value"), and that the
designations, preferences and relative, participating, optional or other rights
of the Series C 8% Convertible Preferred Stock (the "Series C Preferred Stock")
and qualifications, limitations or restrictions thereof, shall be as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Amendment have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "Average Price" per share of Common Stock means the average of the
closing bid prices as reported on the Nasdaq Stock Market ("NASDAQ") or if
not then traded on such market, on such exchange or quotation system where
such shares are
1
<PAGE>
traded for the lowest five of the twenty Trading Days immediately preceding
the Conversion Date or Dividend Payment Date as the case may be.
(d) "Business Day" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated
to close.
(e) "Capital Shares" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter
authorized and however designated, which have the right to participate in
the distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(f) "Closing Date" means April 29, 1999.
(g) "Common Shares" or "Common Stock" means shares of common stock,
$.001 par value, of the Corporation.
(h) "Common Stock Issued at Conversion" when used with reference to
the securities issuable upon conversion of the Series C Preferred Stock,
means all Common Shares now or hereafter Outstanding and securities of any
other class or series into which the Series C Preferred Stock hereafter
shall have been changed or substituted, whether now or hereafter created
and however designated.
(i) "Conversion Date" means any day on which all or any portion of
shares of the Series C Preferred Stock is converted in accordance with the
provisions hereof.
(j) "Conversion Notice" has the meaning set forth in Section 6.2.
(k) "Conversion Price" means on any date of determination the
applicable price for the conversion of shares of Series C Preferred Stock
into Common Shares on such day as set forth in Section 6.1.
(l) "Corporation" means The Network Connection, Inc., a Georgia
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the
Corporation's assets, or otherwise.
(m) "Current Market Price" on any date of determination means the
closing bid price of a Common Share on such day as reported on the NASDAQ
or such other exchange or quotation system where such Common Stock is
traded.
2
<PAGE>
(n) "Holder" means Interactive Flight Technologies, Inc., any
successor thereto, or any Person to whom the Series C Preferred Stock is
subsequently transferred in accordance with the provisions hereof.
(o) "Market Disruption Event" means any event that results in a
material suspension or limitation of trading of Common Shares on the
NASDAQ.
(p) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all
issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that any such Shares directly
or indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for
purposes hereof.
(q) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government
or political subdivision or any agency or instrumentality thereof.
(r) "Registration Rights Agreement" means that certain Registration
Rights Agreement dated October 23, 1998, as amended, between the
Corporation and the Shaar Fund Ltd. as amended on the date hereof.
(s) "SEC" means the United States Securities and Exchange Commission.
(t) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the
time.
(u) "Securities Purchase Agreement" means that certain Securities
Purchase Agreement of even date herewith between the Corporation and
Interactive Flight Technologies, Inc.
(v) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(x) "Trading Day" means any day on which purchases and sales of
securities authorized for quotation on the NASDAQ are reported thereon and
on which no Market Disruption Event has occurred.
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<PAGE>
(y) "Valuation Event" has the meaning set forth in Section 6.1.
(z) "Valuation Period" means the twenty (20) Trading Day period
immediately preceding each Conversion Date.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
RESERVED
ARTICLE 3
RANK
SECTION 3.1
The Series C Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities"); (iii) pari passu with Corporation's Series B 8%
Convertible Preferred Stock, and (iv) pari passu with any class or series of
capital stock of the Corporation hereafter created specifically ranking on
parity with the Series C Preferred Stock ("Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, the Board of Directors
shall be obligated to declare, and the Corporation shall be obligated to pay,
out of funds legally available for the payment of dividends, dividends (subject
to Sections 4(a)(ii)) at the rate of 8% per annum (computed on the basis of a
360-day year) (the "Dividend Rate") of the Stated Value of each share of Series
C Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series C Preferred Stock shall be cumulative from the date
hereof, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
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(ii) Each dividend shall be payable in equal quarterly amounts on each
March 31, June 30, September 30 and December 31 of each year (each, a
"Dividend Payment Due Date"), commencing June 30, 1999, to the holders of
record of shares of the Series C Preferred Stock, as they appear on the
stock records of the Corporation at the close of business on any record
date, not more than 60 days nor less than 10 days preceding the payment
dates thereof, as shall be fixed by the Board of Directors. For the
purposes hereof, "Dividend Period" means the quarterly period commencing on
and including the day after the immediately preceding a Dividend Payment
Date and ending on and including the immediately subsequent Dividend
Payment Date. Accrued and unpaid dividends for any past Dividend Period may
be declared and paid at any time, without reference to any Dividend Payment
Due Date, to holders of record on such date, not more than 15 days
preceding the payment date thereof, as may be fixed by the Board of
Directors.
(iii) At the option of the Corporation, the dividend shall be paid in
cash or through the issuance of duly and validly authorized and issued,
fully paid and non-assessable, freely tradable shares of the Common Stock
valued at the Average Price. The Common Stock to be issued in lieu of cash
payments shall be registered for resale in the Registration Statement to be
filed by the Corporation to register the Common Stock issuable upon
conversion of the shares of Series C Preferred Stock as set forth in the
Registration Rights Agreement. Notwithstanding the foregoing, until such
Registration Statement has been declared effective under the Securities Act
by the SEC, payment of dividends on the Series C Preferred Stock shall be
in cash.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series C Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series C Preferred Stock that may be in arrears.
(c) As long as any shares of the Series C Preferred Stock are Outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series C Preferred Stock for
all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities. When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series C Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends
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accumulated and unpaid on the Series C Preferred Stock and accumulated and
unpaid on such Pari Passu Securities.
(d) As long as any shares of the Series C Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series C
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series C
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series C Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
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ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series C Preferred Stock, subject
to Article 5, shall have received the Liquidation Preference (as defined in
Section 5.1(c)) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series C Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series C Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preferences payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall be deemed to be a liquidation,
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dissolution or winding up of the Corporation pursuant to which the Corporation
shall be required to distribute, upon consummation of and as a condition to,
such transaction an amount equal to 120% of the Liquidation Preference with
respect to each outstanding share of Series C Preferred Stock in accordance with
and subject to the terms of this Article 5; provided, that all holders of Series
C Preferred Stock shall be deemed to elect the option set forth above if at
least a majority in interest of such holders elect such option. "Person" shall
mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series C Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
dividends on such share of Series C Preferred Stock until the most recent
Dividend Payment Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(ii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF SERIES C PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the option of the Holder, the
shares of Series C Preferred Stock may be converted, either in whole or in part,
into Common Shares (calculated as to each such conversion to the nearest 1/100th
of a share), at any time, and from time to time, at a Conversion Price equal to
the lowest of (a) $2.6875, (b) 66.67% of the Average Price or (c) the amount
determined pursuant to Section 6.5. At the Corporation's option, the amount of
accrued and unpaid dividends as of the Conversion Date shall not be subject to
conversion but instead may be paid in cash as of the Conversion Date; if the
Corporation elects to convert the amount of accrued and unpaid dividends at the
Conversion Date into Common Stock, the Common Stock issued to the Holder shall
be valued at the Conversion Price.
The number of shares of Common Stock due upon conversion of Series C
Preferred Stock shall be (i) the number of shares of Series C Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs after the date hereof as a result of which the number of
Common Shares
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Outstanding (assuming for purposes of such determination, the issuance of all
such shares pursuant to an exercise or conversion (as the case may be) of
options, warrants, and other securities issued as part of such Valuation Event)
shall be increased or decreased, then the Conversion Price shall automatically
be proportionately decreased or increased, respectively, and the number of
Common Shares reserved for issuance pursuant to the conversion of the then
Outstanding Series C Preferred Stock shall be automatically proportionately
increased or decreased respectively, so as appropriately to reflect the effects
of such Valuation Event, effective immediately upon the effectiveness of such
Valuation Event. The adjustment required by the foregoing sentence shall be
effectuated each time a separate Valuation Event shall occur, and such
adjustments shall therefore be cumulative. Notwithstanding anything to the
contrary contained herein, if a Valuation Event occurs during any Valuation
Period, the calculation of the Average Price, Conversion Price, and Current
Market Price shall be equitably adjusted to reflect the effects of the Valuation
Event.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution or dividend of its Capital Shares in respect of
Outstanding Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities, to officers, directors or employees of the
Corporation, or otherwise under the Corporation's 1994 Employee Stock Option
Plan or non-employee Director Stock Option Plan;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
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convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(f), inclusive, which in the opinion of the Corporation's Board of Directors,
determined in good faith, would have a material adverse effect upon the rights
of the Holder at the time of a conversion of the Series C Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the Series
C Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Series C Preferred Stock and issue the
Common Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series C Preferred Stock to the Corporation by express courier within 30 days
following the date on which the telecopied Conversion Notice has been
transmitted to the Corporation. Upon surrender for conversion, the Series C
Preferred Stock shall be accompanied by a proper assignment hereof to the
Corporation or be endorsed in blank. As promptly as practicable after the
receipt of the Conversion Notice as aforesaid, but in any event not more than
five Business Days after the Corporation's receipt of such Conversion Notice, or
such Series C Preferred Stock, whichever is later, the Corporation shall (i)
issue the Common Stock issued at Conversion in accordance with the provisions of
this Article 6, and (ii) cause to be mailed for delivery by overnight courier to
the Holder (X) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion, (Y) cash,
as provided in Section 6.3, in respect of any fraction of a Share issuable upon
such conversion and (Z) cash in the amount of accrued and unpaid dividends as of
the Conversion Date. Holder shall indemnify the Corporation for any damages to
third parties as a result of a claim by such third party to ownership of the
Series C Preferred Stock converted prior to the receipt of the Series C
Preferred Stock by the Corporation. Such conversion shall be deemed to
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have been effected at the time at which the Conversion Notice indicates so long
as the Series C Preferred Stock shall have been surrendered as aforesaid at such
time, and at such time the rights of the Holder of the Series C Preferred Stock,
as such, shall cease and the Person and Persons in whose name or names the
Common Stock Issued at Conversion shall be issuable shall be deemed to have
become the holder or holders of record of the Common Shares represented thereby.
The Conversion Notice shall constitute a contract between the Holder and the
Corporation, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 6.4), to surrender the Series C
Preferred Stock and to release the Corporation from all liability thereon. No
cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series C Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Series C Preferred Stock into Common Shares, then the Holder shall have the
right but not the obligation, by written notice to the Corporation, to require
the Corporation promptly to redeem the Series C Preferred Stock for cash at a
redemption price equal to, in the case of (i), one hundred and twenty-five
percent (125%) of the Stated Value thereof together with all accrued and unpaid
dividends thereon and, in the case of (ii), one hundred and fifteen percent
(115%) of the Stated Value thereof together with all accrued and unpaid
dividends thereon (each, the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series C Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series C Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
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SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series C Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series C
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series C Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series C Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series C Preferred Stock
providing that the Holder shall have the right to convert such new Series C
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series C Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series C Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series C Preferred Stock had
the Series C Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 6.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
SECTION 6.5 Possible Reduction of Conversion Price. For as long as any
shares of the Series C Preferred Stock are outstanding, if the Corporation (i)
issues and sells pursuant to an exemption from registration under the Securities
Act (A) Common Shares at a purchase price on the date of issuance thereof that
is lower than the then applicable Conversion Price, (B) warrants or options with
an exercise price calculated as a percentage (less than 100%) of the Current
Market Price (however defined) or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Current Market Price on
the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, and (ii) grants the right to the purchaser(s)
thereof to demand that the Corporation register under the Securities Act such
Common Shares issued or the Common Shares for which such warrants or options may
be exercised or such
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convertible, exchangeable or exercisable securities may be converted, exercised
or exchanged, then the Conversion Price shall, at the option of the Holder be
reduced to equal the lowest of any such lower rates.
SECTION 6.6 Optional Redemptions Under Certain Circumstances. At any time
until the Mandatory Conversion Date (as defined below), the Corporation, upon
notice delivered to the Holder as provided in Section 6.7, may redeem the Series
C Preferred Stock (but only with respect to such shares as to which the Holder
has not theretofore furnished a Conversion Notice in compliance with Section
6.2), at one hundred and thirty-five percent (135%) of the Stated Value thereof
(the "Optional Redemption Price"), together with all accrued and unpaid
dividends thereon to the Redemption Date; provided, however, that the
Corporation may only redeem the Series C Preferred Stock under this Section 6.6
if the Current Market Price is less than $2.6875. Except as provided in Article
6 hereof, the Corporation shall not have the right to prepay or redeem the
Series C Preferred Stock.
SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to Section
6.6 shall be provided by the Corporation to the Holder in writing (by registered
mail or overnight courier at the Holder's last address appearing in the
Corporation's security registry) not fewer than ten (10) nor more than thirty
(30) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Current
Market Price per Common Share) and this Section 6.7.
SECTION 6.8 Surrender of Series C Preferred Stock. Upon any redemption of
the Series C Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall
either deliver the Series C Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt of
the Series C Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Redemption Date, the Holder shall have the option, exercisable at any time
thereafter to (i) receive interest on the unpaid obligation at the rate of
Twelve Percent (12%) per annum or the highest lawful rate available whichever is
lower or (ii) treat the redemption as void ab initio and thereby to retain all
the rights as a holder of Series C Preferred Stock.
SECTION 6.9 Mandatory Conversion. On April 30, 2002 (the "Mandatory
Conversion Date"), the Corporation shall convert all Series C Preferred Stock
outstanding at the then applicable Conversion Price. Notwithstanding the
previous sentence, unless the Corporation shall have obtained the approval of
its voting stockholders to such issuance in accordance with the rules of the
NASDAQ or of such other stock market as
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the Corporation shall be required to comply with, the Corporation shall not
issue shares of Common Stock upon such conversion, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation to the Holder would equal or exceed twenty percent (20%) of the
number of shares of the Corporation's Common Stock which were issued and
outstanding on the Closing Date (the "Maximum Issuance Amount").
SECTION 6.9A Note Issuance. In the absence of stockholder approval
referred to in Section 6.9 or Section 6.11, if a Conversion would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall complete such Conversion by (i)
converting shares of Series C Preferred Stock which would result in the
Corporation's issuing one share of Common Stock fewer than the Maximum Issuance
Amount and (ii) issuing a Note (the "Note") to the Holder in an amount equal to
(x) the aggregate Stated Value of the shares of Series C Preferred Stock owned
by the Holder after giving effect to the conversion under (i) and (y) all
accrued and unpaid dividends thereon to the date of such issuance. The Note
shall bear interest at the rate of 8% per annum, compounded continuously, shall
mature one year after issuance, and shall, at the option of the Holder, be
convertible into additional Common Shares at any time, and from time to time, at
the Conversion Price which applied on the applicable Conversion Date; provided,
however, that such conversion right shall be exercisable only upon receipt of
the stockholder approval referred to Section 6.9 or Section 6.11 as the case may
be. Corporation hereby covenants and agrees to use its best efforts to obtain
such stockholder approval as promptly as possible.
SECTION 6.10 Compliance with Section 13(d). Notwithstanding anything herein
to the contrary, until the Holder shall have filed a Schedule 13D or Schedule
13G under the Securities Exchange Act of 1934 (the "Exchange Act") and otherwise
complied with the requirements of Section 13 of the Exchange Act with respect to
its beneficial ownership of the Common Stock, the Holder shall not have the
right, and the Corporation shall not have the obligation, to convert all or any
portion of the Series C Preferred Stock (and the Corporation shall not have the
right to pay dividends on the Series C Preferred Stock in shares of Common
Stock) if and to the extent that the issuance to the Holder of shares of Common
Stock upon such conversion (or payment of dividends) would result in the
Holder's being deemed the "beneficial owner" of more than 5% of the then
outstanding shares of Common Stock within the meaning of Section 13(d) of the
Exchange Act, and the rules promulgated thereunder. If any court of competent
jurisdiction shall determine that the foregoing limitation is ineffective to
prevent a Holder from being deemed the beneficial owner of more than 5% of the
then outstanding shares of Common Stock, then the Corporation shall redeem so
many of such Holder's shares (the "Redemption Shares") of Series C Preferred
Stock as are necessary to cause such Holder to be deemed the beneficial owner of
not more than 5% of the then outstanding shares of Common Stock. Upon such
determination by a court of competent jurisdiction,
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the Redemption Shares shall immediately and without further action be deemed
returned to the status of authorized but unissued shares of Series C Preferred
Stock and the Holder shall have no interest in or rights under such Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series C Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) the Stated Value of the Redemption Shares and (ii)
any accrued and unpaid dividends to the date of such redemption.
SECTION 6.11 Stockholder Approval. Unless the Corporation shall have
obtained approval by its voting stockholders in accordance with the rules of the
NASDAQ or such other stock market or quotation system as the Corporation shall
be required to comply with, of the issuance of Common Shares to the Holder
pursuant to a conversion of Series C Preferred Stock or as a dividend on the
Series C Preferred Stock, then the Corporation shall not issue shares of Common
Stock upon any such conversion or as such a dividend, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (i) upon conversion of shares of the Series C Preferred Stock.
and (ii) in payment of dividends on the Series C Preferred Stock would equal or
exceed the Maximum Issuance Amount. In the event that the Corporation shall
elect to pay a dividend in shares of Common Stock which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the
dividend in cash.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series C Preferred Stock have no voting power, except as
otherwise provided by the Georgia Business Corporation Code ("GCL"), in this
Article 7, and in Article 8 below; provided, that in the event that on or before
July 15, 1999, the Corporation's Articles of Incorporation have not been amended
to increase the number of authorized shares of Common Stock sufficiently to
permit the Corporation to issue to Interactive Flight Technologies, Inc.
("IFT"), upon the exercise of all options and warrants and the conversion of all
convertible securities held by IFT, that number of shares of Common Stock
necessary to satisfy the Corporation's obligations under all such securities
(the "Charter Amendment"), then the shares of Series C Preferred Stock, in
combination with the shares of Series B Preferred Stock, shall entitle the
holders thereof to cast that number of votes at any duly called meeting of the
stockholders of the Corporation which, when added to the shares of Common Stock
held by any of the holders of the Series B Preferred Stock and Series C
Preferred Stock on the record date
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for such stockholder meeting, shall be necessary to equal a majority of the
number of votes entitled to be cast at such stockholder meeting by the holders
of all voting shares of the Corporation.
Notwithstanding the above, the Corporation shall provide each Holder of
Series C Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any taking by the Corporation of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the GCL the vote of the holders of the Series C
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series C
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series C Preferred Stock
(except as otherwise may be required under the GCL) shall constitute the
approval of such action by the class. To the extent that under the GCL holders
of the Series C Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series C Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of stockholders as the date as of which the Conversion Price
is calculated. Holders of the Series C Preferred Stock shall be entitled to
notice of all stockholder meetings or written consents (and copies of proxy
materials and other information sent to stockholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the GCL.
ARTICLE 8
PROTECTIVE PROVISIONS
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So long as shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the GCL) of the holders of at least a majority of the
then outstanding shares of Series C Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series C
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series C Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series C Preferred Stock;
(c) increase the authorized number of shares of Series C Preferred Stock;
or
(d) do any act or thing not authorized or contemplated by this Amendment
which would result in taxation of the holders of shares of the Series C
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event holders of at least a majority of the then outstanding shares
of Series C Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series C Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series C Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series C Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert pursuant to the terms of this Amendment as
they exist prior to such alteration or change or continue to hold their shares
of Series C Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Series C Preferred Stock. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of shares of Series C Preferred
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Stock and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Corporation, or, in the
case of any such mutilation, upon surrender and cancellation of the Series C
Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such
lost, stolen, destroyed or mutilated shares of Series C Preferred Stock, new
shares of Series C Preferred Stock of like tenor. The Series C Preferred Stock
shall be held and owned upon the express condition that the provisions of this
Section 10.1 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series C Preferred Stock and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person
in whose name the Series C Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series C Preferred Stock for the purpose of receiving payment of dividends on
the Series C Preferred Stock, for the conversion of the Series C Preferred Stock
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series C Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any
event described in Sections 6.1, 6.6 or 6.7 of this Amendment, the Corporation
shall cause to be mailed to the Holder of the Series C Preferred Stock at its
last address as it appears in the Corporation's security registry, at least
twenty (20) days prior to the applicable record, effective or expiration date
hereinafter specified (or, if such twenty (20) days notice is not practicable,
at the earliest practicable date prior to any such record, effective or
expiration date), a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, issuance or granting of rights,
options or warrants, or if a record is not to be taken, the date as of which the
holders of record of Series C Preferred Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series C Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series C Preferred Stock. Upon any transfer of the Series C Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series C Preferred Stock register.
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The Corporation may deem the person in whose name the Series C Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series C Preferred Stock for the
purpose of receiving payment of dividends on the Series C Preferred Stock, for
the conversion of the Series C Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series C Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
C Preferred Stock.
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SECTION 9.6 Headings. The headings of the Articles and Sections of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the
Certificate of Incorporation to be signed by its duly authorized officers on
this ____ day of April, 1999.
THE NETWORK CONNECTION, INC.
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Title:
INITIAL HOLDER
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: _________________________
Name:
Title:
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ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series C 8% Convertible Preferred Stock (the
"Series C Preferred Stock") issued by The Network Connection, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series C Preferred Stock into shares of the common stock, $.001
par value, of the Corporation ("Common Stock"), in accordance with the terms of
the Amendment. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series C Preferred Stock specified above into Shares of
Common Stock Issued at Conversion in accordance with the provisions of Article 6
of the Amendment. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series C Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Amendment.
Dated:
- --------------------------------------
Signature
Fill in for registration of Series C Preferred Stock:
Please print name and address
(including zip code number):
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
---------------
These Articles of Amendment (the "Amendment") are being executed as of May
5, 1999, for the purpose of amending the Articles of Incorporation of The
Network Connection, Inc. (the "Company"), pursuant to Section 14-2-602 of the
Georgia Business Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the corporation is The Network Connection, Inc.
SECOND: Pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, the Board of Directors, adopted the following
resolution providing for the creation of Two Million Four Hundred Ninety-Five
Thousand Four Hundred (2,495,400) shares of Series D Convertible Preferred
Stock:
RESOLVED, that pursuant to Article V of the Articles of Incorporation of
the Company, there be and hereby is authorized and created a series of Preferred
Stock, hereby designated as Series D Convertible Preferred Stock to consist of
Two Million Four Hundred Ninety-Five Thousand Four Hundred (2,495,400) shares
with a par value of $.01 per share and a Stated Value of $10.00 per share (the
"Stated Value"), and that the designations, preferences and relative,
participating, optional or other rights of the Series D Convertible Preferred
Stock (the "Series D Preferred Stock") and qualifications, limitations or
restrictions thereof, shall be as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Amendment have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "Agreement" means that certain Asset Purchase and Sale Agreement dated
April 29, 1999 between the Corporation and IFT.
<PAGE>
(d) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
(e) "Capital Shares" means the Common Shares and any other shares of any
other class or series of common stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(f) "Closing Date" means the date of closing under the Agreement.
(g) "Common Shares" or "Common Stock" means shares of common stock, $.001
par value, of the Corporation.
(h) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of the Series D Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series D Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(i) "Conversion Date" means any day on which all or any portion of shares
of the Series D Preferred Stock is converted in accordance with the provisions
hereof.
(j) "Conversion Notice" has the meaning set forth in Section 6.2.
(k) "Conversion Price" means on any date of determination the applicable
price for the conversion of shares of Series D Preferred Stock into Common
Shares on such day as set forth in Section 6.1.
(l) "Corporation" means The Network Connection, Inc., a Georgia
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(m) "Current Market Price" on any date of determination means the closing
bid price of a Common Share on such day as reported on the NASDAQ or such other
exchange or quotation system where such Common Stock is traded.
(n) "Holder" means IFT, any successor thereto, or any Person to whom the
Series D Preferred Stock is subsequently transferred in accordance with the
provisions hereof.
(o) "IFT" means Interactive Flight Technologies, Inc., a Delaware
corporation.
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(p) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(q) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(r) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
(s) "Valuation Event" has the meaning set forth in Section 6.1.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
RESERVED
ARTICLE 3
RANK
The Series D Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities"); (iii) pari passu with Corporation's Series B 8%
Convertible Preferred Stock and with Corporation's Series C 8% Convertible
Preferred Stock, and (iv) pari passu with any class or series of capital stock
of the Corporation hereafter created specifically ranking on parity with the
Series D Preferred Stock ("Pari Passu Securities").
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ARTICLE 4
DIVIDENDS
The Holder shall be entitled to receive dividends and distributions on or
with respect to the Series D Preferred Stock if, as, when, and in the amounts
declared by Corporation's Board of Directors.
ARTICLE 5
LIQUIDATION PREFERENCE
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series D Preferred Stock shall
have received the Liquidation Preference (as defined below) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series D Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series D
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preferences payable on all
such shares.
(b) At the option of each Holder, the sale, conveyance of disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation
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of a transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is disposed of, or the consolidation, merger or
other business combination of the Corporation with or into any other Person (as
defined below) or Persons when the Corporation is not the survivor shall be
deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute, upon
consummation of and as a condition to, such transaction an amount equal to 120%
of the Liquidation Preference with respect to each outstanding share of Series D
Preferred Stock in accordance with and subject to the terms of this Article 5;
provided, that all holders of Series D Preferred Stock shall be deemed to elect
the option set forth above if at least a majority in interest of such holders
elect such option. "Person" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series D Preferred Stock shall mean an amount equal to the Stated
Value thereof.
ARTICLE 6
CONVERSION OF SERIES D PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. Each share of Series D Preferred
Stock shall be convertible into the number of shares of Common Stock (rounded to
the nearest 1/100 of a share) equal to a fraction, the numerator of which is (a)
the product of One Hundred Fifty Percent (150%) multiplied by the number of
outstanding shares of Common Stock on the Closing Date (excluding the shares of
Common Stock and Preferred Stock issued to IFT on the Closing Date pursuant to
the Agreement), treating all convertible securities (other than the Series D
Preferred Stock), options, warrants, and other rights to acquire securities of
Corporation outstanding on the Closing Date as if they had been converted or
exercised (whether or not actually converted or exercised), as the case may be,
minus (b) the number of shares of Common Stock issued to IFT on the Closing Date
pursuant to the Agreement, and the denominator of which is 2,495,400.
Notwithstanding anything to the contrary contained herein, if a Valuation
Event occurs after the date hereof as a result of which the number of Common
Shares Outstanding (assuming for purposes of such determination, the issuance of
all such shares pursuant to an exercise or conversion (as the case may be) of
options, warrants, and other securities issued as part of such Valuation Event)
shall be increased or decreased, then the Conversion Price shall automatically
be proportionately decreased or increased, respectively, and the number of
Common Shares reserved for issuance pursuant to the conversion of the then
Outstanding Series D Preferred Stock shall be automatically proportionately
increased or decreased respectively, so as appropriately to reflect the effects
of such Valuation Event, effective immediately upon the effectiveness of such
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Valuation Event. The adjustment required by the foregoing sentence shall be
effectuated each time a separate Valuation Event shall occur, and such
adjustments shall therefore be cumulative.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution or dividend of its Capital Shares in respect of
Outstanding Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities, to officers, directors or employees of the
Corporation, or otherwise under the Corporation's 1994 Employee Stock Option
Plan or non-employee Director Stock Option Plan;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(f), inclusive, which in the opinion of the Corporation's Board of Directors,
determined
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<PAGE>
in good faith, would have a material adverse effect upon the rights of the
Holder at the time of a conversion of the Series D Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the Series
D Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Series D Preferred Stock and issue the
Common Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series D Preferred Stock to the Corporation by express courier within 30 days
following the date on which the telecopied Conversion Notice has been
transmitted to the Corporation. Upon surrender for conversion, the Series D
Preferred Stock shall be accompanied by a proper assignment hereof to the
Corporation or be endorsed in blank. As promptly as practicable after the
receipt of the Conversion Notice as aforesaid, but in any event not more than
five Business Days after the Corporation's receipt of such Conversion Notice, or
such Series D Preferred Stock, whichever is later, the Corporation shall (i)
issue the Common Stock issued at Conversion in accordance with the provisions of
this Article 6, and (ii) cause to be mailed for delivery by overnight courier to
the Holder (X) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion and (Y)
cash, as provided in Section 6.3, in respect of any fraction of a Share issuable
upon such conversion. Holder shall indemnify the Corporation for any damages to
third parties as a result of a claim by such third party to ownership of the
Series D Preferred Stock converted prior to the receipt of the Series D
Preferred Stock by the Corporation. Such conversion shall be deemed to have been
effected at the time at which the Conversion Notice indicates as long as the
Series D Preferred Stock shall have been surrendered as aforesaid at such time,
and at such time the rights of the Holder of the Series D Preferred Stock, as
such, shall cease and the Person and Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby. The
Conversion Notice shall constitute a contract between the Holder and the
Corporation, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 6.4), to surrender the Series D
Preferred Stock and to release the Corporation from all liability thereon. No
cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
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(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series D Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Series D Preferred Stock into Common Shares, then the Holder shall have the
right but not the obligation, by written notice to the Corporation, to require
the Corporation promptly to redeem the Series D Preferred Stock for cash at a
redemption price equal to, in the case of (i), one hundred and twenty-five
percent (125%) of the Stated Value thereof and, in the case of (ii), one hundred
and fifteen percent (115%) of the Stated Value thereof (each, the "Mandatory
Purchase Amount"). Under any of the circumstances set forth above, the
Corporation shall be responsible for the payment of all costs and expenses of
the Holder, including reasonable legal fees and expenses, as and when incurred
in disputing any such action or pursuing its rights hereunder (in addition to
any other rights of the Holder).
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series D Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series D Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series D Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series D
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series D Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series D Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series D
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Preferred Stock providing that the Holder shall have the right to convert such
new Series D Preferred Stock (upon terms and conditions not less favorable to
the Holder than those in effect pursuant to the Series D Preferred Stock) and to
receive upon such exercise, in lieu of each Common Share theretofore issuable
upon conversion of the Series D Preferred Stock, the kind and amount of shares
of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one Common Share issuable upon conversion of the
Series D Preferred Stock had the Series D Preferred Stock been converted
immediately prior to such reclassification, change, consolidation, merger,
mandatory share exchange or sale or transfer. The provisions of this Section 6.4
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers.
SECTION 6.5 Compliance with Section 13(d). Notwithstanding anything herein
to the contrary, until the Holder shall have filed a Schedule 13D or Schedule
13G under the Securities Exchange Act of 1934 (the "Exchange Act") and otherwise
complied with the requirements of Section 13 of the Exchange Act with respect to
its beneficial ownership of the Common Stock, the Holder shall not have the
right, and the Corporation shall not have the obligation, to convert all or any
portion of the Series D Preferred Stock if and to the extent that the issuance
to the Holder of shares of Common Stock upon such conversion would result in the
Holder's being deemed the "beneficial owner" of more than 5% of the then
outstanding shares of Common Stock within the meaning of Section 13(d) of the
Exchange Act, and the rules promulgated thereunder. If any court of competent
jurisdiction shall determine that the foregoing limitation is ineffective to
prevent a Holder from being deemed the beneficial owner of more than 5% of the
then outstanding shares of Common Stock, then the Corporation shall redeem so
many of such Holder's shares (the "Redemption Shares") of Series D Preferred
Stock as are necessary to cause such Holder to be deemed the beneficial owner of
not more than 5% of the then outstanding shares of Common Stock. Upon such
determination by a court of competent jurisdiction, the Redemption Shares shall
immediately and without further action be deemed returned to the status of
authorized but unissued shares of Series D Preferred Stock and the Holder shall
have no interest in or rights under such Redemption Shares. Any and all
dividends paid on or prior to the date of such determination shall be deemed
dividends paid on the remaining shares of Series D Preferred Stock held by the
Holder. Such redemption shall be for cash at a redemption price equal to the sum
of (i) the Stated Value of the Redemption Shares and (ii) any accrued and unpaid
dividends to the date of such redemption.
SECTION 6.6 Shareholder Approval. Unless the Corporation shall have
obtained approval by its voting stockholders in accordance with the rules of the
NASDAQ or such other stock market or quotation system as the Corporation shall
be required to comply with, of the issuance of Common Shares to the Holder
pursuant to a conversion of Series D Preferred Stock, then the Corporation shall
not issue shares of Common Stock upon
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<PAGE>
any such conversion if such issuance of Common Stock, when added to the number
of shares of Common Stock previously issued by the Corporation upon conversion
of shares of the Series D Preferred Stock, would equal or exceed twenty percent
(20%) of the number of shares of the Corporation's Common Stock which were
issued and outstanding on the Closing Date. The limitation on the Holder's right
of conversion contained in the preceding sentence shall terminate on July 15,
1999.
ARTICLE 7
VOTING RIGHTS
Except as otherwise provided by the Georgia Business Corporation Code
("GCL"), in this Article 7, or in Article 8 below, the Holders of the Series D
Preferred Stock shall have no voting power.
In the event that on or before July 15, 1999, the Corporation's Articles of
Incorporation have not been amended to increase the number of authorized shares
of Common Stock sufficiently to permit the Corporation to issue to IFT, upon the
exercise of all options and warrants and the conversion of all convertible
securities held by IFT, that number of shares of Common Stock necessary to
satisfy the Corporation's obligations under all such securities, then each share
of Series D Preferred Stock shall be entitled to cast six (6) votes at any duly
called meeting of the stockholders of the Corporation on any matter presented
for consideration of such stockholders.
During the period in which the Series D Preferred Stock shall be
non-voting, the Corporation shall nonetheless provide each Holder of Series D
Preferred Stock with prior notification of any meeting of the stockholders (and
copies of proxy materials and other information sent to stockholders). In the
event of any taking by the Corporation of a record of its stockholders for the
purpose of determining stockholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the GCL the vote of the holders of the Series D
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series D
Preferred Stock represented at a duly
10
<PAGE>
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series D Preferred Stock (except as otherwise may be required
under the GCL) shall constitute the approval of such action by the class. To the
extent that under the GCL holders of the Series D Preferred Stock are entitled
to vote on a matter with holders of Common Stock, voting together as one class,
each share of Series D Preferred Stock shall be entitled to a number of votes
equal to the number of shares of Common Stock into which it is then convertible
using the record date for the taking of such vote of shareholders as the date as
of which the Conversion Price is calculated. Holders of the Series D Preferred
Stock shall be entitled to notice of all shareholder meetings or written
consents (and copies of proxy materials and other information sent to
shareholders) with respect to which they would be entitled to vote, which notice
would be provided pursuant to the Corporation's bylaws and the GCL.
ARTICLE 8
PROTECTIVE PROVISIONS
As long as shares of Series D Preferred Stock are Outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the GCL) of the holders of at least a majority of the
then outstanding shares of Series D Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series D
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series D Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series D Preferred Stock;
(c) increase the authorized number of shares of Series D Preferred Stock;
or
(d) do any act or thing not authorized or contemplated by this Amendment
which would result in taxation of the holders of shares of the Series D
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event holders of at least a majority of the then outstanding shares
of Series D Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series D Preferred Stock,
pursuant to subsection
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<PAGE>
(a) above, so as to affect the Series D Preferred Stock, then the Corporation
will deliver notice of such approved change to the holders of the Series D
Preferred Stock that did not agree to such alteration or change (the "Dissenting
Holders") and Dissenting Holders shall have the right for a period of thirty
(30) days to convert pursuant to the terms of this Amendment as they exist prior
to such alteration or change or continue to hold their shares of Series D
Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Series D Preferred Stock. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of shares of Series D Preferred Stock and, in the case
of any such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series D Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series D Preferred Stock, new shares of Series
D Preferred Stock of like tenor. The Series D Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 10.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series D Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person
in whose name the Series D Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series D Preferred Stock for the purpose of receiving payment of dividends on
the Series D Preferred Stock, for the conversion of the Series D Preferred Stock
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series D Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any
event described in Section 6.1 of this Amendment, the Corporation shall cause to
be mailed to the Holder of the Series D Preferred Stock at its last address as
it appears in the Corporation's security registry, at least twenty (20) days
prior to the applicable record, effective or expiration date hereinafter
specified (or, if such twenty (20) days notice is not practicable, at the
earliest practicable date prior to any such record, effective or expiration
date), a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, issuance or granting of rights, options
or warrants, or if a record is
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<PAGE>
not to be taken, the date as of which the holders of record of Series D
Preferred Stock to be entitled to such dividend, distribution, issuance or
granting of rights, options or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of Series D Preferred Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series D Preferred Stock. Upon any transfer of the Series D Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series D Preferred Stock register.
The Corporation may deem the person in whose name the Series D Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series D Preferred Stock for the
purpose of receiving payment of dividends on the Series D Preferred Stock, for
the conversion of the Series D Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series D Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
D Preferred Stock.
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<PAGE>
SECTION 9.6 Headings. The headings of the Articles and Sections of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the
Certificate of Incorporation to be signed by its duly authorized officers as of
the day first above written.
THE NETWORK CONNECTION, INC.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
INITIAL HOLDER
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: _________________________
Name:
Title:
<PAGE>
ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series D Preferred Stock (the "Series C
Preferred Stock") issued by The Network Connection, Inc. (the "Corporation")
hereby irrevocably exercises its option to convert __________ shares of the
Series D Preferred Stock into shares of the common stock, $.001 par value, of
the Corporation ("Common Stock"), in accordance with the terms of the Amendment.
The undersigned hereby instructs the Corporation to convert the number of shares
of the Series D Preferred Stock specified above into Shares of Common Stock
Issued at Conversion in accordance with the provisions of Article 6 of the
Amendment. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series D Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Amendment.
Dated: __________________
- --------------------------------------
Signature
Fill in for registration of Series D Preferred Stock:
Please print name and address
(including zip code number):
- -----------------------------------------------------------------
SECURED
PROMISSORY NOTE
$500,000 January ___, 1999
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 Five Hundred Thousand Dollars
($500,000), 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.
1. Funding.
Payee shall fund $350,000 on the date hereof and $150,000 on February 15,
1999 by wire transfer of immediately available funds to an account specified by
Maker. Notwithstanding the foregoing, Payee may, in its sole discretion, fund
the second payment of $150,000 prior to February 15, 1999.
2. Payments of Principal and Interest.
(a) The outstanding principal balance of this Note, together with all
accrued and unpaid interest thereon, shall be due and payable on the earlier of
(i) May 15, 1999, or (ii) the date of closing of a merger transaction or other
combination of Maker and Payee (the "Maturity Date").
(b) Interest on the outstanding principal balance of this Note shall be
payable on the Maturity Date together with repayment of the principal balance.
(c) In the event that any scheduled payment date hereunder is a day on
which banks in the State of Georgia are required or authorized to be closed,
then the payment that would be due on such day shall instead be due and payable
on the next day which is not such a non-banking day, with additional interest
for such delay at the rate then in effect hereunder.
<PAGE>
3. Prepayment.
Maker shall have the right to prepay, without penalty, at any time or times
after the date hereof, all or any portion of the outstanding principal balance
of this Note, together with interest on the principal amount prepaid accrued to
the date of prepayment. Any and all principal prepayments hereunder shall be
applied first to accrued and unpaid interest, then to reduce the outstanding
principal balance, and lastly to any prepayment or other penalty or charge.
4. Collateral Security.
To secure the prompt payment and performance of Maker's obligations
hereunder, Maker has executed and delivered to Payee a Security Agreement of
even date herewith (the "Security Agreement") pursuant to which Maker has
granted to Payee a first priority lien on and security interest in Maker's
Accounts (as defined in the Security Agreement).
5. Warrants.
To induce Payee to advance the principal balance hereof, Maker has
delivered to Payee warrants (the "Warrants") which upon exercise entitle the
Payee to acquire 100,000 shares of the Common Stock, $.001 par value, of Maker
(the "Common Stock"), which Warrants will be exercisable at an exercise price
equal to 110% of the closing sale price, as reported on The Nasdaq Stock Market,
for a share of the Common Stock on the date of this Note.
6. Events of Default.
The occurrence of any of the following events or circumstances shall be an
"Event of Default" hereunder:
(a) Any failure by the Maker to pay when due all or any principal or
interest or other payment hereunder; or
(b) Maker uses any of the proceeds hereof to repay indebtedness for
borrowed money existing on the date hereof; or
(c) If the Maker (i) admits in writing its inability to pay generally its
debts as they mature, or (ii) makes a general assignment for the benefit of
creditors, or (iii) is adjudicated a bankrupt or insolvent, or (iv) files a
voluntary petition in bankruptcy, or (v) takes advantage, as against its
creditors, of any bankruptcy law or statute of the United States of America or
any state or subdivision thereof now or hereafter in effect, or (vi) has a
petition or proceeding filed against it under any provision of any bankruptcy or
insolvency law or statute of the United States of America or any state or
subdivision thereof, which petition or proceeding is not dismissed within sixty
(60) days after the date of the commencement thereof, (vii) has a receiver,
liquidator, trustee, custodian, conservator, sequestrator or other such person
appointed by any court to take charge of its affairs or assets or business and
such appointment is not vacated or discharged
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<PAGE>
within sixty (60) days thereafter, or (viii) takes any action in furtherance of
any of the foregoing; or
(d) Any failure by the Maker to perform or observe any other agreement,
covenant, term or condition contained in this Note, the Security Agreement, or
in any other agreement between the Maker and the Payee, and the continuance of
such failure or non-performance for ten (10) days; or
(e) If a final judgment in an amount in excess of $150,000 is rendered
against the Maker which is not, within sixty (60) days after the entry thereof,
discharged or the execution thereof stayed pending appeal, or within sixty (60)
days after the expiration of any such stay, such judgment is not discharged; or
(f) Any default with respect to any indebtedness or liabilities of the
Maker in an amount in excess of $150,000 if the effect of such default is to
permit the holder to accelerate the maturity of any such indebtedness or
liabilities or to cause such indebtedness or liabilities to become due prior to
the stated maturity thereof; or
(g) The occurrence of any levy upon or seizure or attachment of any
property of the Maker having an aggregate fair value in excess of $150,000,
which levy, seizure or attachment shall not be set aside, bonded or discharged
within sixty (60) days after the date thereof; or
(h) (i) the payment of any dividends or distributions by the Maker in
respect of its Common Stock, (ii) the redemption by the Maker of any capital
stock or other equity interests in the Maker, other than in accordance with the
terms of any series of preferred stock of Maker which is authorized and of which
shares are outstanding on the date of this Note, or in connection with any other
transaction which is not on terms at least as favorable as those which could be
obtained at that time in an arms'-length transaction with an unaffiliated third
person, (iv) any sale of all or substantially all of the assets of the Maker in
a single transaction or series of related transactions, (v) any merger or
consolidation to which the Maker is a party, other than with a wholly-owned
subsidiary of the Maker, (vi) any transfer of or change in ownership interest in
the Maker, approved by the Board of Directors of Maker, which represents more
than 50% of the securities of Maker which entitle the holders thereof generally
to vote for the election of directors of Maker, or (vii) any change in the
senior management of the Maker; or
(i) Any failure by the Maker to maintain insurance on its assets and
properties of types and in amounts which are customary for businesses or
individuals similarly situated; or
(j) Any liquidation, dissolution or winding up of the Maker or its
business.
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<PAGE>
7. Remedies on Default.
If any Event of Default shall occur and be continuing, Payee, or any other
holder hereof shall, in addition to any and all other available rights and
remedies, have the right, at its option (except for an Event of Default under
paragraph 6(c) above, the occurrence of which shall automatically effect
acceleration hereunder), (a) to declare the entire unpaid principal balance of
this Note, together with all accrued interest hereunder, to be immediately due
and payable, and (b) to pursue any and all available remedies at law or in
equity for the collection of such principal and interest, including but not
limited to the exercise of all rights and remedies against the Maker and the
remedies provided in the Security Agreement.
8. Certain Waivers.
Except as otherwise expressly provided in this Note, the Maker hereby
waives diligence, demand, presentment for payment, protest, dishonor,
nonpayment, default, and notice of any and all of the foregoing. All amounts
payable under this Note shall be payable without relief under any applicable
valuation and appraisement laws. The Maker hereby expressly agrees that this
Note, or any payment hereunder, may be extended, modified or subordinated (by
forbearance or otherwise) from time to time, without in any way affecting the
liability of the Maker.
9. Waivers and Amendments.
Neither any provision of this Note nor any performance hereunder may be
amended or waived orally, but only by an agreement in writing and signed by the
party against whom enforcement of any waiver, change, modification or discharge
is sought.
10. Cumulative Remedies.
No right or remedy conferred upon the Payee under this Note is intended to
be exclusive of any other right or remedy contained herein or in any instrument
or document delivered in connection herewith, and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and/or now or hereafter existing at law or in equity or
otherwise.
11. Waivers; Course of Dealing.
No course of dealing between the Maker and the Payee, or any failure or
delay on the part of the Payee in exercising any rights or remedies, or any
single or partial exercise of any rights or remedies, shall operate as a waiver
or preclude the exercise of any other rights or remedies available to the Payee.
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<PAGE>
12. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Note shall be deemed to be a contract made under the laws of the State
of New York and shall be governed by, and construed in accordance with, the laws
of the State of New York. The Maker hereby irrevocably consents to the
jurisdiction of all courts (state and federal) sitting in the State of Delaware
in connection with any claim, action or proceeding relating to or for the
collection or enforcement of this Note, and hereby waives any defense of forum
non conveniens or other such claim or defense in respect of the lodging of any
such claim, action or proceeding in any such court. THE MAKER HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY CLAIM, ACTION OR PROCEEDING RELATING TO
OR FOR THE COLLECTION OR ENFORCEMENT OF THIS NOTE.
13. Collection Costs.
In the event that the Payee shall, after the occurrence of an Event of
Default, turn this Note over to an attorney for collection, the Maker shall
further be liable for and shall pay to the Payee all collection costs and
expenses incurred by the Payee, including reasonable attorneys' fees and
expenses; and the Payee may take judgment for all such amounts in addition to
all other sums due hereunder.
14. Notices. All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopy with confirmation back of
delivery, sent by nationally recognized, overnight courier service, or sent by
registered or certified mail, postage prepaid, as follows:
If to the Holder:
Morris C. Aaron
Chief Financial Officer
Interactive Flight Technologies, Inc.
4041 North Central Avenue
Suite 2000
Phoenix, AZ 85012
Telecopy No.: (602) 200-0562
Telephone No.: (602) 200-8900
with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103
Attention: Jeffrey O. Greenfield
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1278
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<PAGE>
If to the Company:
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, GA 30201
Attention: Wilbur Riner, Sr., Chairman
Telephone No.: (770) 751-0889
Telecopy No.: (770) 751-1884
with a copy to:
Nixon, Hargrave, Devans & Doyle, LLP
437 Madison Avenue
New York, NY 10022-7001
Attention: Peter W. Rothberg, Esquire
Telephone No.: (212) 940-3106
Telecopy No.: (212) 940-3111
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be effective on the earlier of (i) the date
of delivery to the addressee, (ii) the date of delivery by facsimile (if
delivered before 4:45 p.m. Eastern Standard Time, or if later, then effective on
the next business day), (iii) five business days after it has been mailed, or
(iv) one business day after delivery to such nationally recognized courier
service.
15. Miscellaneous.
Notwithstanding any provision contained in this Note to the contrary, the
Maker's liability for payment of interest shall not exceed the limits imposed by
applicable usury law. If any provision hereof requires interest payments in
excess of the then legally permitted maximum rate, such provision shall
automatically be deemed to require such payment at the then legally-permitted
maximum rate. This Note shall be binding on the Maker, its successors and
assigns, and shall inure to the benefit of Payee and Payee's successors and
assigns.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused
this Note to be signed in its name by its duly authorized officer on the date
first above written.
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<PAGE>
THE NETWORK CONNECTION, INC.
By: ______________________________
(Title)
-7-
ALLONGE
TO
SECURED PROMISSORY NOTE
ALLONGE, dated January 29, 1999 attached to and forming a part of the
Secured Promissory Note, dated January 26, 1999 (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.
Paragraph 1 of the Note is hereby amended and restated in full to read as
follows:
"Payee shall fund $350,000 on the date hereof, $75,000 on or
about January 29, 1999, and $75,000 not later than February
15, 1999 by wire transfer of immediately available funds to an
account specified by Payee. Notwithstanding the foregoing,
Payee may, in its sole discretion, fund the final payment of
$75,000, or such portion or portions thereof as Payee may
elect, from time to time prior to February 15, 1999."
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 date and
year first above written.
THE NETWORK CONNECTION, INC.
By:______________________________
Accepted and agreed to:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:______________________________
SECOND ALLONGE TO
SECURED PROMISSORY NOTE
ALLONGE, dated March 19, 1999, attached to and forming a part of
the Secured Promissory Note, dated January 26, 1999 (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.
1. The principal amount of the Note is hereby increased to Five
Hundred Forty Thousand Dollars ($540,000). The first paragraph of the
Note is hereby amended and restated in full to read 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 Five Hundred Forty
Thousand Dollars ($540,000), 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 1 of the Note is hereby amended and restated in full
to read as follows:
Payee shall fund $350,000 on the date hereof, $75,000 on or
about January 29, 1999, and $75,000 not later than February
15, 1999 by wire transfer of immediately available funds to
an account specified by Payee. Notwithstanding the
foregoing, Payee may, in its sole discretion, fund the
second payment of $75,000, or such portion or portions
thereof as Payee may elect, from time to time prior to
February 15, 1999. Payee shall fund the remaining $40,000 on
the date hereof.
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, there has been no bank or
financing company borrowing by Maker and that Payee retains a first
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<PAGE>
priority security interest in the Collateral granted by Maker to Payee
pursuant to that certain Security Agreement dated January 25, 1999
("Security Agreement"). The Maker's obligations under the Note, as
amended, shall 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 and the Allonge dated January
29, 1999, are confirmed, ratified, and approved and, as amended by
this Second Allonge, shall continue in full force and effect.
IN WITNESS WHEREOF, Maker and Payee have caused this Second
Allonge to be executed and delivered by their respective duly
authorized officers as of the date and year first above written.
THE NETWORK CONNECTION INC.
By:_______________________________
Accepted and agreed to:
INTERACTIVE FLIGHT TECHNOLOGIES,
INC.
By:________________________________
THIRD ALLONGE TO
SECURED PROMISSORY NOTE
ALLONGE, dated March 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 and the Second Allonge to Secured
Promissory Note dated March 19, 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.
1. The principal amount of the Note is hereby increased to Seven Hundred
Fifty Thousand Dollars ($750,000). The first paragraph of the Note is hereby
amended and restated in full to read 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 Seven Hundred Fifty
Thousand Dollars ($750,000), 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 1 of the Note is hereby amended and restated in full
to read as follows:
Payee shall fund $350,000 on the date hereof, $75,000 on or
about January 29, 1999, and $75,000 not later than February
15, 1999 by wire transfer of immediately available funds to
an account specified by Payee. Notwithstanding the
foregoing, Payee may, in its sole discretion, fund the
second payment of $75,000, or such portion or portions
thereof as Payee may elect, from time to time prior to
February 15, 1999. Payee shall fund $40,000 on March 19,
1999. Payee shall fund $99,000 on or before March 25, 1999,
$43,000 on or before April 23, 1999, and $68,000 on or
before April 30, 1999.
3. The following is hereby added to Paragraph 5 of the Note:
<PAGE>
To induce Payee to advance additional funds to Maker
evidenced by this Note, Maker has agreed to issue to Payee
on the date hereof additional warrants (the "Additional
Warrants") which upon exercise entitle the Payee to acquire
100,000 shares of the Common Stock of Maker, which
Additional Warrants will be exercisable at an exercise price
equal to 110% of the closing sale price, as reported on The
Nasdaq Stock Market, for a share of the Common Stock on the
date of this Note.
4. 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, there has been no bank or
financing company borrowing by Maker and that 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
("Security Agreement"). The Maker's obligations under the Note, as
amended, shall 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.
5. In all other respects, the Note is confirmed, ratified, and
approved and, as amended by this Third Allonge, shall continue in full
force and effect.
IN WITNESS WHEREOF, Maker and Payee have caused this Third
Allonge to be executed and delivered by their respective duly
authorized officers as of the date and year first above written.
THE NETWORK CONNECTION INC.
By:_______________________________
Accepted and agreed to:
INTERACTIVE FLIGHT TECHNOLOGIES,
INC.
By:________________________________
FOURTH ALLONGE TO
SECURED PROMISSORY NOTE
ALLONGE, dated May 10, 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, and the Third
Allonge to Secured Promissory Note dated March 24, 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.
1. The following is hereby added as Paragraph 16 of the Note:
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"). Any
such conversion shall be effected at the rate of one share
of Preferred Stock for each $1,000 due hereunder which Payee
has elected to convert. 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 amount of principal amount and/or accrued
interest to be converted, (ii) the number of shares of
Preferred Stock to be issued as a result of such conversion;
and (iii) the person(s) in whose name the Preferred Stock is
to be issued. The conversion of any portion of this Note and
the resulting issuance of Preferred 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 issued Preferred Stock no later
than five days following such effective date. Upon a
conversion of all amounts due hereunder, Payee shall deliver
the original Note, 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 attached grid the facts related to such partial
conversion and shall confirm the accuracy of the entry by
signing next to each such entry.
2. The following is hereby added as subparagraph (k) to Paragraph
6 ("Events of Default") of the Note:
(k) Any failure by the Maker to (i) continue to negotiate in
good faith in accordance with, and on the basis of, the
terms contained in that certain letter of intent between the
Maker and Payee regarding a proposed business combination
between the Maker and Payee dated January 29, 1999; (ii) act
as expeditiously as reasonably possible to finalize, execute
<PAGE>
and deliver to Payee a definitive agreement based upon such
letter of intent; or (iii) perform on a timely basis any
material obligation of the Maker as may be contained in any
such definitive agreement.
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 January 26, 1999, there has been no bank or financing
company borrowing by Maker and that 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 ("Security
Agreement"). The Maker's obligations under the Note, as amended, shall
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 Fourth Allonge, shall continue in
full force and effect.
IN WITNESS WHEREOF, Maker and Payee have caused this Fourth
Allonge to be executed and delivered by their respective duly
authorized officers as of the date and year first above written.
THE NETWORK CONNECTION, INC.
By:_______________________________
Accepted and agreed to:
INTERACTIVE FLIGHT TECHNOLOGIES,
INC.
By:________________________________
<PAGE>
<TABLE>
<CAPTION>
Partial Conversion Grid
-----------------------
Accrued Interest Principal Principal Balance Accrued Interest
Date Converted Converted After Conversion After Conversion Authorized Signature
---- --------- --------- ---------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
[LETTERHEAD OF VALUEMETRICS, INC.]
May 14, 1999
Board of Directors
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, GA 30201
Attention: Mr. Wilbur Riner
Dear Sirs:
We understand that The Network Connection, Inc. (the "Company" or "TNCI"),
and Interactive Flight Technologies, Inc. ("IFT") have entered into an Asset
Purchase and Sale Agreement, (the "Agreement"), whereby, among other things, the
Company will purchase all, or substantially all, of the tangible and intangible
assets relating to the IFT interactive entertainment device business (the
"Business") and assume specific liabilities relating to the business (the
"Transaction"). The difference between the purchased assets and assumed
liabilities is defined herein as the "Net Assets".
As consideration for the Transaction, (the "Consideration") the Company
will issue to IFT (i) 1,055,745 restricted shares of its voting common stock
$.001 par value ("Common Stock"); and (ii) a number of shares of Series D
Preferred Stock such that the total of the number of shares of Common Stock into
which the Series D Preferred Stock is convertible plus the number of shares of
Common Stock issued to IFT set forth in subparagraph (i) is equal to sixty
percent (60%) of the outstanding shares of capital stock of TNCI immediately
following the Closing Date, taking into account the issuance of such Common
Stock to IFT under subparagraph (i.) and the conversion of Series D Preferred
Stock into Common Stock, and treating all convertible securities, options,
warrants or other rights to acquire securities of TNCI as if converted or
exercised as of the close of business on the date immediately preceding the
Closing Date without consideration of any limits on conversion imposed under
rules of the Nasdaq Stock Market, Inc. without stockholder approval (whether or
not actually converted or exercised as of the Closing Date) into Common Stock.
The shares of Common Stock and Series D Preferred Stock to be issued to IFT as
consideration for the transaction contemplated in the Agreement are collectively
referred to as the "TNCI Shares".
<PAGE>
You have requested our opinion, as financial advisors, as to the fairness,
from a financial point of view, to the Company and its stockholders of the
Consideration to be paid in the Transaction.
In conducting our analysis of the Company and arriving at our opinion
as expressed herein, we have reviewed and analyzed certain financial and other
information of the Company that was publicly available; including filings made
with the Securities and Exchange Commission (the "SEC"). The documents reviewed
by Valuemetrics include, but are not limited to:
(i) Forms 10-KSB for the years ended December 31, 1996, December 31, 1997,
December 31, 1998;
(ii) Forms 10-QSB for the quarter ended September 30, 1998;
(iii) Forms S-3 Registration Statements filed on May 17, 1996, June 28, 1996
and May 1, 1998;
(iv) Form 8-K filed with SEC on June 9, 1998 in connection with the sale of
Convertible Debentures;
(v) Form DEF - 14A Proxy Statement as of April 30, 1998, filed on June 11,
1998;
(vi) Internally prepared list of Promissory Notes, Stock Options and Warrants
outstanding;
(vii) TNCI Investor Information Kit;
(viii) Turnkey Agreement between TNCI and Carnival Cruise Lines;
(ix) Financial forecast for TNCI on a stand-alone basis for the fiscal years
ending December 31, 1999, December 31, 2000 and December 31, 2001;
(x) Articles of Amendment to the Articles of Incorporation of TNCI in
connection with issuance of Series C and Series D Preferred Stock
(xi) Publicly reported trading activity in the common stock of TNCI for the
period from February 1, 1997 through May 14, 1999; and
(xii) Public news releases by TNCI for the period from February 1, 1998
through May 14, 1999.
In addition, Valuemetrics has reviewed available industry and market
research and publicly available financial and stock performance data of
companies that we deemed comparable to the Company.
In conducting our analysis and arriving at our opinion as expressed
herein, we have reviewed and analyzed certain financial and other information of
the Company and IFT. The documents reviewed by Valuemetrics include, but are not
limited to:
(i) Form DEF 14A Proxy Statement of IFT filed as of January 20, 1999;
(ii) Form 10 KSB of IFT filed with SEC as of January 20, 1999 for the fiscal
year ended October 31, 1998;
<PAGE>
(iii) Form 10 QSB of IFT filed with SEC as of February 26, 1999 for the
quarter ended January 31, 1999;
(iv) Presentation to IFT Shareholders as of February 4, 1999 in connection
with the Proposed Transaction;
(v) Forecasted Financial performance of TNCI post Transaction for the years
ended December 31, 1999, December 31, 2000 and December 31, 2001;
(vi) Complaint filed by Philip Arnaldi, individually surviving father and in
his representative capacity as the Administrator of the Estate of
Adriene Valerie Neuweiler against SIAR GROUP, SWISSAIR TRANSPORT
COMPANY, SR TECHNICS LTD., DELTA AIRLINES, INC., McDONNELL DOUGLAS
CORPORATION, THE BOEING COMPANY and IFT ("Arnaldi v. IFT")
(vii) Aviation Products - Completed Operations and Grounding Liability
Insurance Policy produced by Near North Insurance Brokerage, policy
number APG 156315;
(viii) Draft Schedule 1.1.1 - Assets of the Asset Purchase and Sale Agreement
as of April 22. 1999;
(ix) Internally Prepared List of all Fixed Assets and Inventory owned by IFT
as of April 22, 1999;
(x) A detailed internally prepared list of Fixed Assets of IFT as of October
31, 1999;
(xi) Letter of Intent as of February 4, 1999 that documents the mutual intent
of TNCI and IFT regarding the Proposed Transaction;
(xii) Asset Purchase and Sale Agreement as of April 29, 1999 in connection
with the Proposed Transaction
(xiii) Asset Purchase and Sale Agreement as amended as of May 14, 1999 in
connection with the Proposed Transaction
(xiv) Exhibits to Asset Purchase and Sale Agreement as of May 14, 1999 in
connection with the Proposed Transaction
(xv) Securities Purchase Agreement as of May 10, 1999 between TNCI and IFT;
(xvi) Supporting Data for IFT claim v. Avnet, Inc. prepared by management of
IFT;
(xvii) Memo from Nixon, Hargrave, Devans & Doyle LLP in connection with IFT
claim v. Avnet;
(xviii) Fourth, Fifth and Sixth Alonges to Secured Promissory Note between TNCI
and IFT;
(xix) TNCI Pro Forma Capital Structure schedule prepared by IFT
In addition, we have reviewed available industry and market research pertaining
to IFT's operations and various assets.
In rendering our opinion, we have conducted on site due diligence and held
discussions with certain officers, employees and representatives (including
counsel) of the Company and IFT, respectively, concerning the business and
operations, assets, present condition and future prospects of the Company and
IFT and undertook such other studies, analyses and investigations as we have
deemed appropriate.
<PAGE>
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information supplied to or otherwise
used by us in arriving at our opinion and have not attempted independently to
verify such information. We have not assumed any responsibility for the
independent verification of any such information or projections provided to us
and we have further relied upon the assurance of the management of the Company
and IFT that they are unaware of any facts that would make the information or
projections provided to us incomplete or misleading. In arriving at our opinion,
we have not performed or obtained any independent appraisal of the assets or
liabilities of the Company, the Purchased Assets or Assumed Liabilities. We have
also assumed that the transactions described in the Agreement, as amended, would
be consummated on the terms set forth therein, without waiver of any such terms.
We have assumed, with the consent of the Company and IFT, that the
Transaction will comply with applicable federal and state laws, including,
without limitation laws relating to bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer or other similar laws now or
hereafter in effect affecting creditors' rights generally.
As part of our professional services, we are regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
leveraged buyouts, sales of unlisted securities, and valuations for estate,
corporate and other purposes. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in similar
transactions, as well as our experience in securities valuation in general. Our
opinion necessarily is based upon conditions as they exist and can be evaluated
on the date hereof. Subsequent developments may affect this opinion, and we
disclaim any obligation to update, revise or reaffirm this opinion.
This letter and our opinion as expressed herein are for the benefit and use
of the Board of Directors of the Company in its consideration of the
Transaction. The Board of Directors of the Company may rely upon this opinion
with respect to the Transaction. This letter does not constitute a
recommendation of the Transaction over any other alternative transactions which
may be available to the Company and does not address the underlying business
decision of the Board of Directors of the Company to proceed with or effect the
Transaction. In addition, in rendering this opinion, we do not express any view
as to the prices at which the Company's securities may trade prior to or
following the Transaction. This letter does not constitute a recommendation by
our firm to any particular member of the Board of Directors or to any
stockholder as to how such member or stockholder should vote in connection with
the Transaction. We understand that this Opinion will be filed with the SEC and
distributed to IFT stockholders as part of a Proxy Statement relating to the
Transaction. We hereby consent to the foregoing use of this letter. Otherwise,
this letter and the contents hereof may not be published, disseminated, referred
to, summarized, described or otherwise used, nor shall any public reference to
Valuemetrics, Inc. be made, without our prior written consent (except in
documents or
<PAGE>
communications filed with SEC and NASDAQ, including any proxy statements). As
you are aware, we will receive a fee for our services to the Board of Directors
in connection with rendering this opinion, and the Company has indemnified
Valuemetrics for certain liabilities arising out of this engagement including
the rendering of this opinion.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be paid under the terms of the Agreement and
in connection with the Transaction is fair, from a financial point of view, to
the Company and to its stockholders.
Very truly yours,
VALUEMETRICS, INC.
