SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERTLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,1999
Commission File Number: 1-13760
THE NETWORK CONNECTION, INC.
1324 Union Hill Road
Alpharetta, Georgia 30004
(770-751-0889)
A Georgia Corporation IRS Employer ID No.
58-1712432
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.001 par value per share Registered on The Nasdaq
Stock Market
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(b) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 10, 1999, the registrant had outstanding 5,278,737
shares of its Common Stock.
Transitional Small Business Disclosure Format (Check One): Yes
[ ] No [ X ]
TABLE OF CONTENTS
ITEM PAGE(S)
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS (Unaudited)
Balance Sheet March 31,1999
3,4
Statements of Operations Three Months Ended
March 31,1999 and 1998
5
Statements of Cash Flows Three Months Ended
March 31,1999 and 1998
6
Notes to Financial Statements March 31,1999
7
2. Management's Discussion and Analysis of Financial Condition
and Results
of Operations
8-12
PART II. OTHER INFORMATION
5. Other Information 13
6. Exhibits and Reports on Form 8-K
13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE NETWORK CONNECTION, INC.
BALANCE SHEET (Unaudited)
March 31,
1999
ASSETS
Current assets:
Cash 106,629
Short-term investments 45,834
Accounts receivable, less 1,478,496
allowance of $2,792,000
Inventories:
Raw materials, less 1,162,778
allowance of $205,000
Work in process 1,518,069
Prepaid expenses 209,120
---------
---------
Total current assets 4,520,926
Property and equipment:
Land 150,000
Building and improvements 763,055
Furniture, fixtures and 2,468,918
equipment
Software 40,734
Vehicles 162,773
---------
---------
3,585,479
Less accumulated (1,170,74
depreciation 1)
---------
---------
2,414,738
Other assets, net 83,618
---------
---------
Total assets $7,019,28
2
=========
==
THE NETWORK CONNECTION,
INC.
BALANCE SHEET (Unaudited)
March 31,
1999
LIABILITIES AND
SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and $2,497,200
accrued expenses
Payable to shareholders 74,429
Notes payable 2,293,082
Deferred revenue 521,332
Current portion of long- 36,974
term debt and capital
lease obligations
-----------
----------
Total current liabilities 5,423,017
Long-term debt, less 693,002
current portion
-----------
-----------
Total liabilities 6,116,018
Commitments and
contingencies (Notes)
Redeemable convertible
preferred stock, $.01 par
value, $1,000 stated
value:
Authorized, 1,500
shares;
Issued and outstanding, 1,548,667
1,500
Shareholders' equity:
Preferred stock, $.01 par
value:
Authorized, 2,500,000
shares;
Issued and outstanding,
none
Common stock, $.001 par
value:
Authorized, 10,000,000
shares;
Issued and outstanding, 5,200
5,199,646 shares
Additional paid-in capital 16,704,015
Accumulated deficit (17,354,618
)
-----------
-----------
Total shareholders' (645,403)
deficit
-----------
----------
Total liabilities and $7,019,282
shareholders' deficit
===========
==
THE NETWORK CONNECTION,
INC.
STATEMENTS OF
OPERATIONS
(Unaudited)
Three T
Months h
Ended r
e
e
M
o
n
t
h
s
E
n
d
e
d
March 31, M
a
r
c
h
3
1
,
1999 1998
Revenues $121,764 $111,907
Cost of revenues 93,926 102,206
---------- -----------
---------- ---------
Gross profit 27,838 9,701
Selling, general and 842,189 1,028,426
administrative
Research and 94,519 52,380
development
---------- -----------
---------- ---------
Operating (loss) income (908,870) (1,071,105)
Interest, net (360,313) (85,160)
---------- -----------
---------- ---------
Net loss (1,269,183 (1,156,265)
)
Preferred stock 26,000 0
dividends
---------- -----------
---------- ----------
Net loss to common ($1,295,18 ($1,156,265
shareholders 3) )
========== ===========
== =
Basic and Diluted Net ($0.25) ($0.28)
loss per share
========== ===========
== =
Shares used in per 5,192,979 4,152,393
share calculation
========== ===========
== =
THE NETWORK
CONNECTION, INC.
STATEMENTS OF
CASH FLOWS
(Unaudited)
Three T
months h
Ended r
e
e
m
o
n
t
h
s
E
n
d
e
d
March 31, M
a
r
c
h
3
1
,
1999 1998
Operating
activities
Net loss ($1,269,1 ($1,156,26
83) 5)
Adjustments to
reconcile net
loss to net cash
used
In operating
activities
Depreciation 108,524 153,598
and amortization
Changes in
operating assets
and liabilities:
Accounts 396,283 518,444
receivable
Inventory (81,117) 44,609
Prepaid 36,070 (101,340)
expenses and
other assets
Accounts (105,339) (1,458,554
payable and )
accrued expenses
--------- ----------
--------- ---------
-
Net cash used in (914,762) (1,999,508
operating )
activities
Investing
activities:
Purchase of (6,612) (16,994)
property and
equipment
Sale of short- 0 531,275
term investments
--------- ----------
--------- ---------
-
Net cash (used (6,612) 514,281
in) provided by
investing
activities
Financing
activities:
Payment of bank (669,000) (526,000)
borrowings under
line of credit
Net proceeds from 689,000 0
issuance of
promissory notes
Net proceeds from 0 2,037,722
issuance of
convertible debt
Payment of long- (6,997) (11,143)
term debt and
capital lease
obligations
--------- ----------
--------- ---------
-
Net cash provided 13,003 1,500,579
by financing
activities
--------- ----------
--------- ---------
-
Net change in (908,371) 15,352
cash
Cash at 1,015,000 1,024,648
beginning of
period
--------- ----------
--------- ---------
-
Cash at end of $106,629 $1,040,000
period
========= ==========
== =
Supplemental
Information:
Fully depreciated $317,894 0
assets written
off
Preferred stock $26,000 0
dividends
Inventory $158,438 0
transferred to
property and
equipment
Common Stock $321,593 0
issued in lieu of
payment of
accounts payable
THE NETWORK CONNECTION, INC.
CONDENSED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Description of Business
The Network Connection, Inc. (the "Company") was incorporated on
December 30, 1986. The Company designs, manufactures and
distributes computer networking products for use in employee
training, academic, telecommunications, entertainment and other
industry applications. The Company's products are based upon a
proprietary engineered process utilizing non-proprietary personal
computer hardware standards with standard major components and
subsystems. The Company's products are designed to be compatible
with industry-standard network operating systems.
Basis of Presentation - Going Concern
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern
which contemplate the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
incurred net losses from operations for several years, has an
accumulated deficit at March 31, 1999, and has used substantial
cash in its operations which raises substantial doubt about the
Company's ability to continue as a going concern. Management
believes that the completion of the change of control transaction
with Interactive Flight Technologies, Inc. ("IFT") described
below, future debt and equity offerings and successful
commercialization of its products and services will generate the
required capital necessary to continue as a going concern.
Concentration of Credit Risk
The Company's principal financial instruments subject to
potential credit risk are cash and equivalents and trade accounts
receivable. The Company invests its cash and credit instruments
with highly rated financial institutions and performs periodic
evaluations of the relative standing of these financial
institutions. Trade accounts receivable are generally unsecured;
therefore, the Company is at risk to the extent such amounts
become uncollectible.
Inventories
Inventories consist primarily of components purchased for
assembly into products and work in process and are stated at the
lower of cost or market using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are calculated using the straight-line method over
the estimated useful lives of the assets, principally five years,
except for buildings for which the life is forty years.
Income Taxes
Under the Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes", the liability method
is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse.
The Company provides a valuation allowance for deferred tax
assets which are determined by management to be below the
threshold for realization established by SFAS 109.
Revenue Recognition
Revenues are recognized when the products are shipped or
installed based upon the terms of the contract, expiration of
rights of acceptance or return and determination that the related
receivables are collectible. Revenues pursuant to contracts that
provide for revenue sharing with customers or others is
recognized as cash is received in the amount of the Company's
retained portion of the cash pursuant to the revenue sharing
agreement.
The Company's products are often used with other products in
large complex projects. As a result, the Company may grant
extended payment terms for certain sales of up to 180 days based
on the nature of the project.
Deferred Revenue
Deferred revenue represents the advance billings of equipment
sales as allowed under purchase and installation contracts.
Other Assets
Costs incurred to establish and defend trademarks and patents are
capitalized. Such costs are amortized using the straight-line
method over 20 years.
Basic and Diluted Net Loss Per Common Share
Basic and Diluted net loss per common share have been computed by
dividing net loss by the weighted average number of common shares
outstanding during each period.
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Potential Change of Control Transaction
On April 29, 1999, the Company, entered into a definitive
agreement ("IFT Agreement") with Interactive Flight Technologies,
Inc., a Delaware corporation ("IFT"), regarding the acquisition
by the Company of all or substantially all of the assets and
specified liabilities of IFT (the "Net Assets") relating to IFT's
interactive entertainment business (the "Business") in
consideration for the Company's issuance to IFT of that number of
shares of its Capital Stock as would constitute 60% of the
Company's fully-diluted equity as defined in the IFT Agreement
(the"Acquisition").The NetAssets will include:$4.25 million in cash
benefit of accounts receivable and warranty contracts owing to
IFT; the proceeds and other recoveries generated by certain
litigation brought by IFT; all IFT interactive entertainment
intellectual property, and other tangible assets related to the
Business (including but not limited to customer lists and files,
trade secrets, trademarks, service marks, assignable government
permits and other rights under leases and rights under specified
contracts); inventory, furniture, fixtures, computers and
equipment related to the Business; other infrastructure
(including FAA certified repair station) relating to the
Business; IFT's engineering and technical staff; and the benefit
of all IFT research and development efforts. In addition to the
usual and customary representations, covenants and conditions
contained in agreements of the type used to consummate
transactions like the Acquisition, the definitive agreement
provides that closing of the Acquisition is subject to the
receipt of a "fairness opinion" with respect to the terms of the
Acquisition to the effect that the Acquisition is fair from a
financial point of view, to the Company shareholders. The
Company has agreed to refrain from entering into negotiations
with any other party for the sale of all or substantially all of
its assets, or for the sale of control of the Company, until
May 15, 1999. IFT similarly agreed not to enter into
negotiations for the acquisition of control of any other company
engaged in the interactive entertainment business until May 15,
1999. The tansaction is expected to be treated as a reverse
acquisition of the Company by IFT under the purchase method of
accounting. There is no guarantee that the Acquisition will be
consummated on the terms set forth in the IFT Agreement. IFT
developed interactive entertainment products for use in the
airline and travel industry. It currently maintains only one
ongoing contract for its interactive entertainment products, and
is currently engaged in the redirection of its business
activities into new markets. IFT is a Nasdaq: NMS registrant and
trades under the ticker symbol FLYT.
Settlement of Litigation
On January 22, 1999, in consideration for the settlement of
outstanding litigation brought by Sigma Designs, Inc., a vendor
to the Company (the "Sigma") and the mutual release of claims,
under the terms of the Settlement Agreement, the Company agreed
to pay $50,000 in cash to Sigma and to issue to Sigma 110,000
Initial Shares of Common Stock. The Company also issued to Sigma
a warrant to acquire 40,000 shares of Common Stock, exercisable
at $3.44 per share. The Company is obligated to file with the
Securities and Exchange Commission, a Registration Statement and
to use its best efforts to keep the Registration Statement
effective for a period of five (5) years after the Registration
Statement is declared effective, or until such earlier date when
the Offered Shares may be sold pursuant to Rule 144(k) under the
Securities Act. Under the terms of the Settlement Agreement, the
Company may be required to pay an additional cash amount to the
holder of the Shares in the event that on the date of
Registration (the "Repricing Date"), the market price for the
Initial Shares (the "Market Price") is not at least $319,850 (the
"Repricing Price").
Subsequent Events
In April 1999, the Company issued to an institutional investor
$400,000 face amount of short-term indebtedness due September 5,
1999 for $320,000, which indebtedness bears interest at 7% per
annum, and which indebtedness the Company may repay (at its
option) with the issuance of shares of its common stock at a
discount to the then market price per share.
Effective May 10, 1999, the Company entered into a Securities
Purchase Agreement with IFT pursuant to which, in consideration
for the waiver of any prior defaults under the terms of the
Company's Series B Preferred Stock (then owned by IFT), the
Registration Rights Agreement related to the shares of Common
Stock into which the Series B Preferred Stock is convertible and
any other agreements under which IFT had rights with respect to
the Series B Preferred Stock, the Company issued to IFT 800
shares of the Company's newly created Series C 8% Convertible
Preferred Stock, $1,000 stated value, which shares are
convertible into shares of the Company's common Stock at a 33.3%
discount to the market price of the Company's Common Stock at the
time of conversion and subject to mandatory redemption for cash
under certain circumstances. Also effective May 10, 1999, the
Company entered into a Fourth Allonge to its January 25, 1999
$750,000 note made in favor of IFT, as amended (the "IFT Note"),
whereby in consideration for IFT's waiver of all prior defaults
under the terms of the IFT Note, the Company agreed to make
principal and accrued interest under the IFT Note convertible
into shares of the Company's Series C Preferred Stock. Pursuant
to Amendment No.1 to the Registration Rights Agreement originally
entered into with the prior holder of the Series B Preferred
Stock, the shares of Common Stock to be owned by IFT following
conversion of its shares of the Company's Series C Preferred
Stock will be subject to registration rights under the terms of
such registration Rights Agreement, rights under which have been
assigned to IFT.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Revenues increased $9,857 to $121,764 for the quarter ended March
31, 1999 from $111,907 for the quarter ended March 31, 1998. This
increase primarily resulted from revenues on an engineering
contract with Alstom.
Selling, general and administrative expenses decreased by
$186,237 (18%) for the quarter ended March 31, 1999, as compared
to the same 1998 period. This decrease related primarily to a
reduction (i) marketing expenses (including advertising, trade
show, public relations, bidding and proposal and demonstration
expenses), and (ii) employment of sales and marketing personnel
and related payroll.
Changes in interest expense are attributable to changes in
average outstanding borrowings and default interest and penalties
on promissory notes during the 1999 period and changes in average
outstanding borrowings during the 1998 period.
The net loss of $1,269,183 was greater than that of for the
comparable 1998 quarter by $112,918 due primarily to reduced
selling, general and administrative expenses offset by higher
interest expense.
Liquidity and Capital Resources; Certain Transactions
The Company entered into a definitive agreement with IFT in a
change of control transaction that is expected to close by May
15, 1999. The Company believes the IFT transaction will generate
sufficient cash to fund currently anticipated future cash
requirements during the next twelve months. If the proposed
change of control should not be completed, the Company will
require additional cash from alternative external sources in
order to fund currently anticipated cash requirements, including
performance under existing contracts, repayment of indebtedness
and ongoing payroll expense. It is uncertain as to the Company's
ability to obtain additional capital.
The Company's primary source of funding was principally due to
the net proceeds from the issuance of $689,000 of debt. Cash used
in operating activities was $914,762 and the purchase of
property and equipment was $6,612. The negative change in cash
from operating activities primarily resulted from a net loss of
$1.3 million and a decrease in accounts payable and accrued
expenses of $105,339 and an increase in inventory of $81,117,
offset by a decrease in accounts receivable of $396,283. The
reduction in cash from operating activities was offset by
depreciation and amortization of $108,524.
Capital expenditures for the purchase of property and equipment
for the fiscal period ended March 31, 1999 were $6,612, primarily
for the purchase of additional equipment and software in order to
expand product demonstration and development capabilities for
CruiseView and TrainView. During 1999, capital expenditures, if
any, are anticipated to be funded through existing working
capital or other financing.
On January 25, 1999, the Company entered into a loan transaction
with IFT, pursuant to (i) a promissory note in the principal
amount of $750,000, bearing a rate of interest of 9.5% per annum,
for a term ending on the earlier of May 15, 1999, or the closing
date of a change of control transaction between the Company and
IFT and (ii) a security agreement granting IFT a security
interest in all accounts receivable of the Company.
On January 22, 1999, in consideration for the settlement of
outstanding litigation brought by Sigma Designs, Inc., a vendor
to the Company (the "Sigma") and the mutual release of claims,
under the terms of the Settlement Agreement, the Company agreed
to pay $50,000 in cash to Sigma and to issue to Sigma 110,000
Initial Shares of Common Stock. The Company also issued to Sigma
a warrant to acquire 40,000 shares of Common Stock, exercisable
at $3.44 per share. The Company is obligated to file with the
Securities and Exchange Commission, a Registration Statement and
to use its best efforts to keep the Registration Statement
effective for a period of five (5) years after the Registration
Statement is declared effective, or until such earlier date when
the Offered Shares may be sold pursuant to Rule 144(k) under the
Securities Act. Under the terms of the Settlement Agreement, the
Company may be required to pay an additional cash amount to the
holder of the Shares in the event that on the date of
Registration (the "Repricing Date"), the market price for the
Initial Shares (the "Market Price") is not at least $319,850 (the
"Repricing Price").
In April 1999, the Company issued to an institutional investor
$400,000 face amount of short-term indebtedness due September 5,
1999 for $320,000, which indebtedness bears interest at 7% per
annum, and which indebtedness the Company may repay (at its
option) with the issuance of shares of its common stock at a
discount to the then market price per share.
Effective May 10, 1999, the Company entered into a Securities
Purchase Agreement with IFT pursuant to which, in consideration
for the waiver of any prior defaults under the terms of the
Company's Series B Preferred Stock (then owned by IFT), the
Registration Rights Agreement related to the shares of Common
Stock into which the Series B Preferred Stock is convertible and
any other agreements under which IFT had rights with respect to
the Series B Preferred Stock, the Company issued to IFT 800
shares of the Company's newly created Series C 8% Convertible
Preferred Stock, $1,000 stated value, which shares are
convertible into shares of the Company's common Stock at a 33.3%
discount to the market price of the Company's Common Stock at the
time of conversion and subject to mandatory redemption for cash
under certain circumstances. Also effective May 10, 1999, the
Company entered into a Fourth Allonge to its January 25, 1999
$750,000 note made in favor of IFT, as amended (the "IFT Note"),
whereby in consideration for IFT's waiver of all prior defaults
under the terms of the IFT Note, the Company agreed to make
principal and accrued interest under the IFT Note convertible
into shares of the Company's Series C Preferred Stock. Pursuant
to Amendment No.1 to the Registration Rights Agreement originally
entered into with the prior holder of the Series B Preferred
Stock, the shares of Common Stock to be owned by IFT following
conversion of its shares of the Company's Series C Preferred
Stock will be subject to registration rights under the terms of
such registration Rights Agreement, rights under which have been
assigned to IFT.
Outlook: Issues and Risks
Potential Change of Control Transaction
On April 29, 1999, the Company, entered into a definitive
agreement ("IFT Agreement") with Interactive Flight Technologies,
Inc., a Delaware corporation ("IFT"), regarding the acquisition
by the Company of all or substantially all of the assets and
specified liabilities of IFT (the "Net Assets") relating to IFT's
interactive entertainment business (the "Business") in
consideration for the Company's issuance to IFT of that number of
shares of its Capital Stock as would constitute 60% of the
Company's fully-diluted equity as defined in the IFT Agreement
(the"Acquisition").The NetAssets will include:$4.25 million in cash;
the benefit of accounts receivable and warranty contracts owing to
IFT; the proceeds and other recoveries generated by certain
litigation brought by IFT; all IFT interactive entertainment
intellectual property, and other tangible assets related to the
Business (including but not limited to customer lists and files,
trade secrets, trademarks, service marks, assignable government
permits and other rights under leases and rights under specified
contracts); inventory, furniture, fixtures, computers and
equipment related to the Business; other infrastructure
(including FAA certified repair station) relating to the
Business; IFT's engineering and technical staff; and the benefit
of all IFT research and development efforts. In addition to the
usual and customary representations, covenants and conditions
contained in agreements of the type used to consummate
transactions like the Acquisition, the definitive agreement
provides that closing of the Acquisition is subject to the
receipt of a "fairness opinion" with respect to the terms of the
Acquisition to the effect that the Acquisition is fair from a
financial point of view, to the Company shareholders. The
Company has agreed to refrain from entering into negotiations
with any other party for the sale of all or substantially all of
its assets, or for the sale of control of the Company, until
May 15, 1999. IFT similarly agreed not to enter into
negotiations for the acquisition of control of any other company
engaged in the interactive entertainment business until May 15,
1999. The tansaction is expected to be treated as a reverse
acquisition of the Company by IFT under the purchase method of
accounting. There is no guarantee that the Acquisition will be
consummated on the terms set forth in the IFT Agreement. IFT
developed interactive entertainment products for use in the
airline and travel industry. It currently maintains only one
ongoing contract for its interactive entertainment products, and
is currently engaged in the redirection of its business
activities into new markets. IFT is a Nasdaq: NMS registrant and
trades under the ticker symbol FLYT.
Potential Nasdaq and Boston Stock Exchange Delisting
The Company received notification from both NASDAQ and the Boston
Stock Exchange that it no longer meets the requirements for
continued listing based upon net assets and shareholder equity
listing requirements. The Company must submit to NASDAQ and the
Boston Stock Exchange its proposal for achieving compliance
within a specified date. The Company believes that the
transaction with IFT, which is expected to close by May 15, 1999,
should allow TNCi to meet the continued listing requirements.
The Company is currently using its working capital to finance its
current expenses, including installations, equipment purchases,
product development, inventory and other expenses associated with
the delivery and installation of systems for Carnival. Cash
liquidity from external sources will be required to satisfy its
indebtedness which is currently in default and to finance
existing and anticipated growth in the Company's accounts
receivable and inventories resulting from performance under
outstanding orders, including ongoing payroll expenses. The
Company believes that its working capital requirements will
increase throughout 1999 and beyond, particularly as its focus
continues on large, long-term projects. The Company believes the
IFT transaction will generate sufficient cash to fund currently
anticipated future cash requirements during the next twelve
months. Even if the IFT transaction is completed, maintaining an
adequate level of working capital through the end of 1999, and
thereafter, will depend in part on collection of accounts
receivable on a timely basis, successful litigation with non-
paying customers already delinquent, satisfactory settlements
with vendor-creditors (including those already suing the
Company), the success of the Company's products in the
marketplace, the relative profitability of those products,
continued availability of memory and storage components at
favorable pricing and the Company's ability to control operating
expenses. Following completion of the IFT transaction, the
Company may still seek or require additional financing for growth
opportunities, including any expansion that the Company may
undertake internally, for strategic acquisitions or partnerships,
or for expansion of additional sites or major long-term projects.
There can be no assurance that the IFT transaction will be
completed and that if not that any financing will be available on
terms acceptable to the Company, if at all. If future financing
is not available when needed, the Company will be forced to
curtail or discontinue operations. In such event, the creditors
and stockholders may lose, or experience a substantial reduction
in, the value of their indebtedness or investment in the Company.
Forward-Looking Statements
Statements in this Quarterly Report on Form 10QSB that are not
descriptions of historical facts may be forward-looking
statements that are subject to risks and uncertainties, including
economic, competitive and technological factors affecting the
Company's operations, markets, products, services and prices, as
well as other specific factors discussed in the Company's filings
with the Securities and Exchange Commission. These and other
factors may cause actual results to differ materially from those
anticipated.
PART II. OTHER INFORMATION
Item 5. Other Information
On April 25, 1999 and April 26, 1999 respectively, Marc
Doyle and Arthur Bauer resigned as members of the Company's Board
of Directors. These directors will be replaced with IFT appointed
directors, after completion of the change of control transaction.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1.1 the Articles of Amendment to the Articles of
Incorporation re Series B Preferred Stock
3.1.2 the Articles of Amendment to the Articles of
Incorporation re Series C Preferred Stock
10.1 Asset Purchase and Sale Agreement with Interactive Flight
Technologies dated April 29, 1999
10.2 Securities Purchase Agreement, dated as of May 10, 1999,
between the Company and IFT
10.3 Secured Promissory Note, dated January 25, 1999,
made in favor of IFT
10.4 First Allonge to Secured Promissory Note, dated
May 10, 1999, made in favor of IFT
10.5 Second Allonge to Secured Promissory Note, dated
May 10, 1999, made in favor of IFT
10.6 Third Allonge to Secured Promissory Note, dated
May 10, 1999, made in favor of IFT
10.7 Fourth Allonge to Secured Promissory Note, dated
May 10, 1999, made in favor of IFT
10.8 Amendment No. 1 to Registration Rights Agreement,
dated May 10, 1999, between the Company and IFT.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE NETWORK CONNECTION, INC.
(Registrant)
Date: May 13, 1999 By:__/s/ Wilbur
Riner________________________________
Wilbur Riner
Chairman and Chief Executive
Officer
By:__/s/ Bryan R.
Carr________________________________
Bryan R. Carr
Chief Financial and Principal
Accounting Officer
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE NETWORK
CONNECTION, INC. FOR THE QUARTER ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 106,629
<SECURITIES> 45,834
<RECEIVABLES> 4,270,496
<ALLOWANCES> 2,792,000
<INVENTORY> 2,680,847
<CURRENT-ASSETS> 4,520,926
<PP&E> 3,585,479
<DEPRECIATION> 1,170,741
<TOTAL-ASSETS> 7,019,282
<CURRENT-LIABILITIES> 5,423,017
<BONDS> 0
1,548,667
0
<COMMON> 5,200
<OTHER-SE> (650,603)
<TOTAL-LIABILITY-AND-EQUITY> 7,019,282
<SALES> 121,764
<TOTAL-REVENUES> 121,764
<CGS> 93,926
<TOTAL-COSTS> 842,189
<OTHER-EXPENSES> 94,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360,313
<INCOME-PRETAX> (1,269,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,269,183)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
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,
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.
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 ______ __, 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 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.
(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.
(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.
(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 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.
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, 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 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 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 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.
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
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 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, 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 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
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 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.
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.
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:
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) :
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.
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";
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,
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
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
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.
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 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.
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:
"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.
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.
60 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
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:
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 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, 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
IFT. 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.
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 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 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;
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 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.
70 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 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
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, 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.
80 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.
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.
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.
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 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.
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.
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.
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
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 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 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
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.
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 THE NETWORK CONNECTION, INC.,
TECHNOLOGIES, INC., a Delaware a Georgia corporation
Corporation
Wilbur Riner, Sr., President
Irwin L. Gross, Chief
Executive Officer
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made as of May
10, 1999, between THE NETWORK CONNECTION, INC., a Georgia
corporation with principal executive offices located at
1324 Union Hill Road, Alpharetta, Georgia 30004, (the "Company"),
and INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware corporation
("Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Shaar Fund, Ltd. ("Shaar')
are parties to that certain Securities Purchase Agreement (the
"Shaar Purchase Agreement") dated October 23, 1998 pursuant to
which Shaar purchased from the Company 1,500 shares of the
Company's Series B 8% Convertible Preferred Stock, $1,000 Stated
Value per share (the "Series B Shares");
WHEREAS, in connection with Shaar's purchase of the
Series B Shares, the Company and Shaar also entered into a
Registration Rights Agreement dated October 23, 1998 (the
"Registration Rights Agreement") pursuant to which the Company
agreed to register certain shares of its capital stock for the
benefit of Shaar;
WHEREAS, the Company has failed to pay any dividends on
the Series B Shares since the date of issuance and is therefore
in arrears with respect to its dividend obligations;
WHEREAS, the Company has defaulted with respect to its
obligations under the Registration Rights Agreement and pursuant
to the terms thereof is liable for certain damages stated therein
on account of such default;
WHEREAS, the Company purported to redeem the Series B
Shares from Shaar by notice dated December 14, 1998, but such
notice was defective and in any event, the Company failed to
tender the redemption price of such Series B Shares to Shaar
thereafter;
WHEREAS, Shaar and Buyer have entered into a Securities
Purchase Agreement (the "Series B Securities Purchase Agreement")
pursuant to which Buyer will acquire the Series B Shares;
WHEREAS, Shaar will transfer to Buyer Shaar's rights
under the Registration Rights Agreement, Shaar's rights under the
Shaar Purchase Agreement, and certain other rights Shaar obtained
in connection with the purchase by Shaar of the Series B Shares;
WHEREAS, it is a condition to the closing of the
transactions between Buyer and Shaar that the Company execute
this Agreement;
WHEREAS, Buyer has agreed to waive all prior dividend
arrearages on the Series B Shares to and including the date
hereof, and to waive any and all prior defaults arising in
connection with the Series B Shares, whether arising under the
Registration Rights Agreement, the Shaar Purchase Agreement, any
ancillary agreements with respect thereto (whether oral or
written), or otherwise;
WHEREAS, the Company has agreed to issue to Buyer 800
shares of the Company's Series C 8% Convertible Preferred Stock,
$1,000 Stated Value per share (the "Series C Shares") having the
designations rights, preferences, limitations, and privileges set
forth in the Articles of Amendment to the Articles of
Incorporation of the Company dated the date hereof (the
"Amendment"), in consideration for such waivers;
WHEREAS, Buyer is the holder of that certain Secured
Promissory Note dated January 26, 1999, as amended by the Allonge
to Secured Promissory Note dated January 29, 1999, the Second
Allonge to Secured Promissory Note dated March 19, 1999, and the
Third Allonge to Secured Promissory Note dated March 24, 1999
(collectively, the "Note"), made by the Company and payable to
the order of Buyer in the current principal amount of $750,000;
WHEREAS, Buyer and the Company have agreed to amend the
Note by the issuance on the date hereof of that certain Fourth
Allonge to Secured Promissory Note and Buyer has agreed to waive
any alleged defaults through the date hereof under the Note; and
WHEREAS, the parties wish to confirm that the Series B
Shares issued and outstanding after the transfer thereof from
Shaar to Buyer will be in full force and effect in accordance
with their terms as they existed on the original date of issuance
of such shares.
NOW THEREFORE, for and in consideration of the premises
and the mutual covenants contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
I. PURCHASE AND SALE OF SERIES C SHARES
A. Transaction. Buyer hereby agrees to purchase from
the Company, and the Company hereby agrees to issue and sell to
the Buyer in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Securities Act"), 800 Series C Shares.
B. Purchase Price; Form of Payment. In exchange for
receipt of the Series C Shares, and the additional consents and
assurances given by the Company pursuant to Article III herein,
Buyer hereby agrees to waive, to the fullest extent permitted by
law, all prior Company defaults and arrearages arising out of or
related to the Series B Shares, including but not limited to, the
Company's failure to file a registration statement with respect
to the Common Stock as provided in the Registration Rights
Agreement, the failure to have such registration statement
declared effective by the Commission (as hereafter defined) the
failure to pay Liquidated Damages as provided in the Registration
Rights Agreement, the failure to declare or pay dividends on or
with respect to the Series B Shares to and including the date
hereof, and any and all defaults, events of default, and asserted
failures and breaches by the Company under the Shaar Purchase
Agreement and ancillary agreements related thereto (whether oral
or written) with respect to redemption of Series B Shares or
otherwise.
II. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to and covenants and
agrees with the Company as follows:
A. Buyer is purchasing the Series C Shares and the
shares of Common Stock issuable upon conversion of the Series C
Shares (the "Conversion Shares" and, collectively with the Series
C Shares, the "Securities") for its own account, for investment
purposes only and not with a view towards or in connection with
the public sale or distribution thereof in violation of the
Securities Act.
B. Buyer is (i) experienced in making investments of
the kind contemplated by this Agreement, (ii) capable, by reason
of its business and financial experience, of evaluating the
relative merits and risks of an investment in the Securities, and
(iii) able to afford the loss of its investment in the
Securities.
C. Buyer understands that the Securities are being
offered and sold by the Company in reliance on an exemption from
the registration requirements of the Securities Act and
equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Buyer's compliance
with, Buyer's representations, warranties and covenants set forth
in this Agreement to determine the availability of such exemption
and the eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access
to all materials relating to the business, financial position and
results of operations of the Company, and all other materials
requested by Buyer to enable it to make an informed investment
decision with respect to the Securities.
E. Buyer acknowledges that it has been furnished with
copies of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 and all other reports and
documents heretofore filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities
Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since December 31, 1998 (collectively the
"Commission Filings").
F. Buyer acknowledges that in making its decision to
purchase the Securities it has been given an opportunity to ask
questions of and to receive answers from the Company's executive
officers, directors and management personnel concerning the terms
and conditions of the private placement of the Securities by the
Company.
G. Buyer understands that the Securities have not
been approved or disapproved by the Commission or any state
securities commission and that the foregoing authorities have not
reviewed any documents or instruments in connection with the
offer and sale to it of the Securities and have not confirmed or
determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly
authorized, executed and delivered by Buyer and is a valid and
binding agreement of Buyer enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates nor any person
acting on its or their behalf has the intention of entering, or
will enter into, prior to the closing, any put option, short
position or other similar instrument or position with respect to
the Common Stock and neither Buyer nor any of its affiliates nor
any person acting on its or their behalf will use at any time
shares of Common Stock acquired pursuant to this Agreement to
settle any put option, short position or other similar instrument
or position that may have been entered into prior to the
execution of this Agreement.
III. COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to and covenants
and agrees with the Buyer as follows:
A. Capitalization. 1. The authorized capital stock
of the Company consists of 10,000,000 shares of Common Stock, of
which 5,278,737 shares are outstanding on the date hereof and
2,500,000 shares of Preferred Stock, of which only 1,500 shares
of Series B 8% Convertible Preferred Stock are outstanding on the
date hereof. All of the issued and outstanding shares of Common
Stock and Preferred Stock have been duly authorized and validly
issued and are fully paid and non-assessable. As of the date
hereof, the Company has outstanding stock options and warrants to
purchase 1,863,096 shares of Common Stock. The Conversion Shares
have been duly and validly authorized and reserved for issuance
by the Company, and when issued by the Company upon conversion
of, or in lieu of accrued dividends on, the Series C Shares, will
be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by
reason of being such holder. There are no preemptive,
subscription, "call" or other similar rights to acquire the
Common Stock (including the Conversion Shares) that have been
issued or granted to any person.
2. The Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership,
limited liability company, unincorporated business organization,
association, trust or other business entity.
B. Organization; Reporting Company Status. 1. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia and is duly
qualified as a foreign corporation in all jurisdictions in which
the failure to so qualify would have a material adverse effect on
the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the
consummation of any of the transactions contemplated by this
Agreement (a "Material Adverse Effect").
2. The Company has registered its Common Stock
pursuant to Section 12 of the Exchange Act and has timely filed
with the Commission all reports and information required to be
filed by it pursuant to all reporting obligations under Section
13(a) or 15(d), as applicable, of the Exchange Act for the 12-
month period immediately preceding the date hereof. The Common
Stock is listed and traded on the NASDAQ Stock Market ("NASDAQ")
and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or
discontinuance of the eligibility of the Common Stock for such
listing.
C. Authorized Shares. The Company has duly and
validly authorized and reserved for issuance shares of Common
Stock sufficient in number for the conversion, of the Series C
Shares (assuming for purposes of this Section III.C. a Conversion
Price (as defined in the Amendment) of $1.50 per share. The
Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Series C Shares
and the potential conversion of the Series C Shares the Common
Stock. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Series C Shares in
accordance with this Agreement and the Series C Shares is
absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other
stockholders of the Company.
D. Authority; Validity and Enforceability. The
Company has the requisite corporate power and authority to enter
into this Agreement, the Amendment, the Fourth Allonge to Secured
Promissory Note, and Amendment No. 1 to Registration Rights
Agreement dated the date hereof (collectively, the "Transaction
Documents"), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of
the Securities). The execution, delivery and performance by the
Company of this Agreement, the Transaction Documents, and the
consummation by the Company of the transactions contemplated
hereby and thereby, has been duly authorized by all necessary
corporate action on the part of the Company. Each Transaction
Document constitutes a valid and binding obligation of the
Company enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Securities have
been duly and validly authorized for issuance by the Company and,
when executed and delivered by the Company, will be valid and
binding obligations of the Company enforceable against it in
accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally.
E. Non-contravention. The execution and delivery by
the Company of the Transaction Documents, the issuance of the
Securities, and the consummation by the Company of the other
transactions contemplated hereby and thereby, do not and will not
conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default (or an event
which, with notice, passage of time or both, would constitute a
default) under (i) the Articles of Incorporation or By-laws of
the Company or (ii) except for such conflict, breach or default
which would not have a Material Adverse Effect, any indenture,
mortgage, deed of trust or other material agreement or instrument
to which the Company is a party or by which its properties or
assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having
jurisdiction over the Company or any of the Company's properties
or assets.
F. Approvals. No authorization, approval or consent
of any court or public or governmental authority is required to
be obtained by the Company for the issuance and sale of the
Series C Shares (or the Conversion Shares) to Buyer as
contemplated by this Agreement, except such authorizations,
approvals and consents that have been obtained by the Company
prior to the date hereof.
G. Commission Filings. None of the Commission
Filings contained at the time they were filed any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under
which they were made, not misleading.
H. Absence of Certain Changes. Except as disclosed in
the Commission Filings, since the Balance Sheet Date (as defined
in Section III.L.), there has not occurred any change, event or
development in the business, financial condition, or results of
operations of the Company, and there has not existed any
condition having or reasonably likely to have, a Material Adverse
Effect.
I. Full Disclosure. There is no fact known to the
Company (other than general economic or industry conditions known
to the public generally) that has not been fully disclosed in
writing to the Buyer that (i) reasonably would be expected to
have a Material Adverse Effect or (ii) reasonably would be
expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement,
the Amendment or the Registration Rights Agreement.
J. Absence of Litigation. There is no action, suit,
claim, proceeding, inquiry or investigation pending or, to the
Company's knowledge, threatened, by or before any court or public
or governmental authority which, if determined adversely to the
Company, would have a Material Adverse Effect.
K. Absence of Events of Default. No "Event of
Default" (as defined in any agreement or instrument to which the
Company is a party) and no event which, with notice, lapse of
time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing, which could have a
Material Adverse Effect.
L. Financial Statements; No Undisclosed Liabilities.
The Company has delivered to Buyer true and complete copies of
its audited balance sheet as at December 31, 1998 and the related
audited statements of operations and cash flows for the fiscal
year ended December 31, 1998 including the related notes and
schedules thereto (the "Financial Statements"). The Financial
Statements are complete and correct in all material respects, has
been prepared in accordance with United States General Accepted
Accounting Principles ("GAAP") and in conformity with the
practices consistently applied by the Company without
modification of the accounting principles used in the preparation
thereof, and fairly presents the financial position, results of
operations and cash flows of the Company as at the dates and for
the periods indicated. For purposes hereof, the audited balance
sheet of the Company as at December 31, 1998 is hereinafter
referred to as the "Balance Sheet" and December 31, 1998 is
hereinafter referred to as the "Balance Sheet Date." The Company
has no indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise, and whether
due or to become due) that would have been required to be
reflected in, reserved against or otherwise described in the
Balance Sheet or in the notes thereto in accordance with GAAP,
which was not fully reflected in, reserved against or otherwise
described in the Balance Sheet or the notes thereto or was not
incurred in the ordinary course of business consistent with the
Company's past practices since the Balance Sheet Date.
M. Compliance with Laws; Permits. The Company is in
compliance with all laws, rules, regulations, codes, ordinances
and statutes (collectively "Laws") applicable to it or to the
conduct of its business, except for such non-compliance which
would not have a Material Adverse Effect. The Company possesses
all permits, approvals, authorizations, licenses, certificates
and consents from all public and governmental authorities which
are necessary to conduct its business, except for those the
absence of which would not have a Material Adverse Effect.
N. Securities Law Matters. Based, in part on the
representations and warranties of Buyer set forth in Article II
hereof, the offer and sale by the Company of the Securities is
exempt from (i) the registration and prospectus delivery
requirements of the Securities Act and the rules and regulations
of the Commission thereunder and (ii) the registration and/or
qualification provisions of all applicable United States state
securities and "blue sky" laws. The Company shall not directly or
indirectly take, and shall not permit any of its directors,
officers or Affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any
person or entity of Series C Shares or shares of Common Stock),
so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and
sale to Buyer of the Series C Shares (and the Conversion Shares)
as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by the
Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Series C Shares (and the
Conversion Shares) as contemplated by this Agreement or any other
agreement to which the Company is a party.
O. Internal Controls and Procedures. The Company
maintains accurate books and records and internal accounting
controls which provide reasonable assurance that (i) all
transactions to which the Company is a party or by which its
properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's
assets is compared with existing assets at regular intervals;
(iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all
transactions to which the Company is a party or by which its
properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
P. Right of First Refusal. Other than a right of
first refusal which expires on July 23, 1999, granted to Shaar
under the terms of the Shaar Purchase Agreement (which right has
been duly and properly assigned to Buyer and is in full force and
effect), the Company does not have in effect any right of first
refusal with any person with respect to the issuance or sale of
Common Stock, securities convertible into Common Stock, or debt
of the Company.
Q. Environmental Matters. The operations of the
Company are in material compliance with all applicable
environmental laws and all permits issued pursuant to
environmental laws or otherwise. The Company has not received
since the Balance Sheet Date, any written communications alleging
that it may be in violation of any environmental law or any
permit issued pursuant to any environmental law, or may have any
liability under any environmental law.
R. Labor Matters. The Company is not a party to any
labor or collective bargaining agreement and there are no labor
or collective bargaining agreements which pertain to employees of
the Company.
S. Tax Matters. The Company has filed all tax
returns which it is required to file under applicable laws except
for such tax returns in respect of which the failure to so file
does not and could not have a Material Adverse Effect. All such
tax returns as filed are true and correct in all material
respects and have been prepared in accordance with all applicable
laws. The Company is in compliance in all material respects with
all provisions of the Employee Retirement Income Security Act of
1974 and the regulations promulgated thereunder which are
applicable to it.
T. Property. The Company has good and marketable
title to all real and personal property (tangible and intangible,
and including all technology rights and assets) owned by it, free
and clear of all liens, encumbrances and defects except such as
do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of
such property by the Company, and except for the lien securing
the obligation represented by the Note. The Company owns or
possesses adequate and enforceable rights to all patents, patent
applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-
how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge
necessary for the conduct of its business as now being conducted.
To the best of the Company's knowledge, the Company is not
infringing upon or in conflict with any right of any other person
with respect to any of the foregoing intellectual property. No
claims have been asserted by any person to the ownership or use
of such intellectual property and has no knowledge of any basis
for such a claim.
U. No Misrepresentation. To the Company's knowledge,
no representation or warranty of the Company contained in this
Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to
Buyer pursuant to this Agreement, contains any untrue statement
of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein,
not misleading.
V. Adequacy of Consideration. The Board of Directors
of the Company has determined that the consideration to be
received for the Series C Shares to be issued pursuant to the
terms of this Agreement is adequate in accordance with Section 14-
2-621 of the Georgia Business Corporation Code.
IV. COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Buyer acknowledges and agrees
that, upon issuance pursuant to this Agreement, the Securities
shall have endorsed thereon a legend in substantially the
following form (and a stop-transfer order may be placed against
transfer of Securities):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND ARE
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
OTHER LAWS."
B. Filings. The Company shall make all necessary SEC
and "blue sky" filings required to be made by the Company in
connection with the sale of the Securities to the Buyer as
required by all applicable Laws, and shall provide a copy thereof
to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer
beneficially owns any of the Securities, the Company shall use
its best efforts to file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act.
D. Listing. Except to the extent the Company lists
its Common Stock on The New York Stock Exchange or the Nasdaq
National Market System, the Company shall use its best efforts to
maintain its listing of the Common Stock on the NASDAQ.
E. Reserved Conversion Shares. Subject to Article 6
of the Amendment, the Company at all times from and after the
date hereof shall have a sufficient number of shares of Common
Stock duly and validly authorized and reserved for issuance to
satisfy the conversion, in full, of the Series C Shares (assuming
for purposes of this Section IV.E., a Conversion Price of $1.50
per share. In the event the Current Market Price (as defined in
the Amendment) declines to $1.25, the Company shall, within 10
days of the occurrence of such event, authorize and reserve for
issuance such additional shares of Common Stock sufficient in
number for the conversion, in full, of the Series C Shares,
assuming for purposes of this Section IV.E. a Conversion Price of
not greater than $ 1.00 per share, subject to Article 6 of the
Amendment.
F. The Series B Shares. 1. Consent to Transfer and
Assignment. The Company hereby consents to the transfer of the
Series B Shares from Shaar to Buyer, and further consents to the
assignment referred to in Paragraph B of Article VIII of the
Series B Securities Purchase Agreement, providing for the
assignment by Shaar to Buyer of all of its rights under the
Series B Stock.
2. Series B Dividends. The Company confirms,
represents and warrants that no dividends have been paid on or
with respect to the Series B Shares since the date of issuance
nor have funds been set aside for such purpose. After giving
effect to the waiver referred to in Section I.B, dividends on the
Series B Stock shall begin to accrue as of the date hereof.
3. Redemption. The Company hereby withdraws the December 14,
1998 notice of redemption of the Series B Shares, and the Company
and the Buyer hereby confirm, represent, warrant and acknowledge
to one another that such notice of redemption, and any other
agreement with respect to a redemption of Series B Shares
(whether oral or written), is withdrawn or rescinded, and in
either event is of no force or effect, and is void ab initio.
The Company hereby acknowledges that the Series B Shares are
issued and outstanding and have the designations, rights,
preferences, limitations, and privileges set forth in the
Company's Articles of Incorporation as in effect on the date such
shares were originally issued. Neither the sending of the
redemption notice referred to above nor the putative redemption
resulting therefrom, nor any other act or failure to act has had
the effect of terminating or limiting any dividend, conversion,
registration, transfer, or other right of any such Series B
Share, except and only to the extent specifically set forth in
this Agreement
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no
instruction other than the instructions referred to in this
Article V and customary stop transfer instructions prior to the
registration and sale of the Common Stock pursuant to an
effective Securities Act registration statement will be given to
its transfer agent for the Common Stock and that the Common Stock
issuable upon conversion of the Series C Shares otherwise shall
be freely transferable on the books and records of the Company as
and to the extent provided in this Agreement, the Registration
Rights Agreement and applicable law. Nothing contained in this
Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon
resale of such Common Stock. If, at any time, Buyer provides the
Company with an opinion of counsel reasonably satisfactory to the
Company that registration of the resale by Buyer of such Common
Stock is not required under the Securities Act and that the
removal of restrictive legends is permitted under applicable law,
the Company shall permit the transfer of such Common Stock and,
promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive
legends endorsed thereon.
B. The Company shall permit Buyer to exercise its
right to convert the Series C Shares by telecopying an executed
and completed Notice of Conversion to the Company. Each date on
which a Notice of Conversion is telecopied to and received by the
Company in accordance with the provisions hereof shall be deemed
a Conversion Date. Promptly after Buyer delivers the Notice of
Conversion to the Company, Buyer shall deliver to the Company the
Series C Shares being converted. The Company shall transmit the
certificates evidencing the shares of Common Stock issuable upon
conversion of any Series C Shares (together with certificates
evidencing any Series C Shares not being so converted) to Buyer
via express courier, by electronic transfer or otherwise, within
ten business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date").
C. The Company understands that a delay in the
issuance of the shares of Common Stock issuable in lieu of cash
dividends on the Series C Shares or upon the conversion of the
Series C Shares beyond the applicable Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such
loss (and not as a penalty), the Company agrees to pay to Buyer
for late issuance of Common Stock issuable in lieu of cash
dividends on the Series C Shares or upon conversion of the Series
C Shares in accordance with the following schedule (where "No.
Business Days" is defined as the number of business days beyond
ten (10) business days from the Delivery Date referred to in
Section V.B.):
Compensation For Each 500
Shares of
Series C Shares Not
Converted Timely or
500 Shares of Common Stock
Issuable In
Lieu of Cash Dividends or
No. Business Days Compensation
For Each 500 Shares of
Series C Shares
Not Converted Timely or 500
Shares of
Common Stock Issuable In
Lieu of Cash
Dividends
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
more than 10 $250 + 100 for each
Business Day Late beyond
10 days
The Company shall pay to Buyer the compensation described above
by the transfer of immediately available funds upon Buyer's
demand. Nothing herein shall limit Buyer's right to pursue
actual damages for the Company's failure to issue and deliver
Common Stock to Buyer (which actual damages shall be reduced by
the amount of any compensation paid by the Company as described
above in this Section V.D.), and in addition to any other
remedies which may be available to Buyer, in the event the
Company fails for any reason to effect delivery of such shares of
Common Stock within five business days after the relevant
Interest Payment Due Date, or the Delivery Date, as applicable,
Buyer shall be entitled to rescind the relevant Notice of
Conversion by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of
such Notice of Conversion on delivery.
VI. CLOSING.
The date and time of the issuance and sale of the
Series C Shares (the "Closing Date") shall be the date hereof at
10:00 a.m. local time or such other as shall be mutually agreed
upon in writing. The issuance and sale of the Securities shall
occur on the Closing Date at the offices of Weil, Gotshal &
Manages LLP, 767 Fifth Avenue, New York, New York.
VII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to
sell the Securities on the Closing Date to Buyer pursuant to this
Agreement is conditioned upon:
A. The accuracy in all material respects on the
Closing Date of the representations and warranties of Buyer
contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in
which case such accuracy shall be measured as of such specified
date) and the performance by Buyer in all material respects on or
before the Closing Date of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or
before the Closing Date;
B. There shall not be in effect any Law or order,
ruling, judgment or writ of any court or public or governmental
authority restraining, enjoining or otherwise prohibiting any of
the transactions contemplated by this Agreement.
VIII. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to
purchase the Securities on the Closing Date pursuant to this
Agreement is conditioned upon:
A. Delivery by the Company of one or more
certificates (I/N/O Buyer) evidencing the Securities to be
purchased by Buyer pursuant to this Agreement;
B. The accuracy in all material respects on the
Closing Date of the representations and warranties made by the
Company in this Agreement as if made on the Closing Date (except
for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the
performance by the Company in all material respects on or before
the Closing Date of all covenants and agreements of the Company
required to be performed by it pursuant to this Agreement on or
before the Closing Date;
C. Buyer's having received an opinion of counsel for
the Company, dated the Closing Date, substantially in the form of
Annex I attached hereto.
D. There not having occurred (i) any general
suspension of trading in, or limitation on prices listed for, the
Common Stock on NASDAQ, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in
the United States, or (iii) in the case of the foregoing existing
at the date of this Agreement, a material acceleration or
worsening thereof.
E. There not having occurred any event or
development, and there being in existence no condition, having or
which reasonably and forseeably would have a Material Adverse
Effect.
F. The Company shall have delivered to Buyer
reimbursement of Buyer's out-of-pocket costs and expenses
incurred in connection with the transactions contemplated by the
Note and this Agreement (including the fees and disbursements of
Buyer's legal counsel in an amount not to exceed $50,000).
G. There shall not be in effect any Law or order,
ruling, judgment or writ of any court or public or governmental
authority restraining, enjoining or otherwise prohibiting any of
the transactions contemplated by this Agreement.
H. Buyer's receipt of a duly executed Amendment No. 1
to Registration Rights Agreement in form and substance
satisfactory to Buyer.
IX. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made
by each of the Company and Buyer in this Agreement, the annexes,
schedules and exhibits hereto and in each instrument, agreement
and certificate entered into and delivered by them pursuant to
this Agreement, shall survive the Closing and the consummation of
the transactions contemplated hereby for a period of one year.
In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement or
otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to
the Closing Date.
B. The Company hereby agrees to indemnify and hold
harmless the Buyer, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Buyer
Indemnitees"), from and against any and all losses, claims,
damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer
Indemnitees for all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact or breach
of any of the Company's representations or warranties contained
in this Agreement, the annexes, schedules or exhibits hereto or
any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement; or
2. any failure by the Company to perform in any
material respect any of its covenants, agreements, undertakings
or obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to
this Agreement.
C. Buyer hereby agrees to indemnify and hold harmless
the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Losses, and agrees to
reimburse the Company Indemnitees for all out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in
each case promptly as incurred by the Company Indemnitees and to
the extent arising out of or in connection with:
1. any misrepresentation, omission of fact, or breach
of any of Buyer's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by
Buyer pursuant to this Agreement; or
2. any failure by Buyer to perform in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in this Agreement or any instrument,
certificate or agreement entered into or delivered by Buyer
pursuant to this Agreement.
D. Promptly after receipt by either party hereto
seeking indemnification pursuant to this Section IX (an
"Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom
indemnification pursuant to this Section IX is being sought (the
"Indemnifying Party") of the commencement thereof; but the
omission to so notify the Indemnifying Party shall not relieve it
from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is
materially prejudiced and forfeits substantive rights and
defenses by reason of such failure. In connection with any
Claim, the Indemnifying Party shall be entitled to assume the
defense thereof. Notwithstanding the assumption of the defense
of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel (together
with appropriate local counsel) and to participate in the defense
of such Claim, and the Indemnifying Party shall bear the
reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if):
(x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and
the Indemnifying Party reasonably shall have concluded that
representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the
Indemnified Party, (i) potentially differing interests between
such parties in the conduct of the defense of such Claim, or (ii)
if there may be legal defenses available to the Indemnified Party
that are in addition to or disparate from those available to the
Indemnifying Party and which can not be presented by counsel to
the Indemnifying Party, or (z) the Indemnifying Party shall have
failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice
of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than
one firm of legal counsel for the Indemnified Party (together
with appropriate local counsel). The Indemnifying Party shall
not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that
does not include an unconditional release of the Indemnified
Party from all liabilities with respect to such Claim or
judgment.
E. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand
being asserted by a third party, the Indemnified Party promptly
shall deliver notice of such claim to the Indemnifying Party. If
the Indemnified Party disputes the claim, such dispute shall be
resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in
accordance with the procedures and rules of the American
Arbitration Association. Judgment upon any award rendered by any
arbitrators may be entered in any court having competent
jurisdiction thereof.
X. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard
to the conflicts of law principles of such state. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York
in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed
in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other
jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement.
This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.
XI. NOTICES. Except as may be otherwise provided
herein, any notice or other communication or delivery required or
permitted hereunder shall be in writing and shall be delivered
personally or sent by certified mail, postage prepaid, or by a
nationally recognized overnight courier service, by facsimile
with confirmation back if followed promptly by first class mail,
and shall be deemed given when so delivered personally or by
overnight courier service, or, if mailed, three (3) days after
the date of deposit in the United States mails, as follows:
(1) if to the Company, to:
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30004
Attention: Wilbur Riner
With a copy to:
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022-7001
Attention: Peter W. Rothberg, Esquire
(2) if to Buyer, to
Interactive Flight Technologies, Inc.
4041 North Central Avenue
Suite B 200
Phoenix, AZ 86012
Attention: Irvin R. Gross
with a copy to:
Mesirov Gelman Jaffe Cramer Jamieson, LLP
1735 Market Street
Suite 3800
Philadelphia, PA 19103-7598
Attn: Richard P. Jaffe, Esquire
The Company or Buyer may change the foregoing address by notice
given pursuant to this Section XI.
XII. CONFIDENTIALITY. Each of the Company and Buyer
agrees to keep confidential and not to disclose to or use for the
benefit of any third party the terms of this Agreement or any
other information which at any time is communicated by the other
party as being confidential without the prior written approval of
the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already
part of the public domain (except by breach of this Agreement)
and information which is required to be disclosed by law
(including, without limitation, pursuant to Item 10 of Rule 601
of Regulation S-K under the Securities Act and the Exchange Act).
XIII. ASSIGNMENT. This Agreement shall not be
assignable by either of the parties hereto prior to the Closing
without the prior written consent of the other party, and any
attempted assignment contrary to the provisions hereby shall be
null and void; provided, however, that Buyer may assign its
rights and obligations hereunder, in whole or in part, to any
affiliate of Buyer who furnishes to the Company the
representations and warranties set forth in Section II hereof and
otherwise agrees to be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Agreement on the date first above
written.
THE NETWORK CONNECTION, INC.
By:______________________________
Name:
Title:
INTERACTIVE FLIGHT TECHNOLOGIES,
INC.
By: ______________________________
Name:
Title:
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.
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 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.
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.
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
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.
THE NETWORK CONNECTION, INC.
By:
______________________________
(Title)
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 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:
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 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:________________________________
Partial Conversion Grid
Accrued Principal Principal Accrued
Date Interest Converted Balance Interest Authorized
Signature
After After
Converted Conversion Conversion
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
is made this 10th day of May, 1999 by and between THE NETWORK
CONNECTION, INC., a Georgia corporation (the "Company"), and
INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware corporation
("IFT").
WHEREAS, the Company and The Shaar Fund Ltd. ("Shaar")
entered into a Registration Rights Agreement dated October 23,
1998 (the "Registration Rights Agreement");
WHEREAS, the Company issued to Shaar 1,500 shares of
Series B 8% Convertible Preferred Stock (the "Series B Stock")
pursuant to that certain Securities Purchase Agreement between
the Company and Shaar dated October 23, 1998;
WHEREAS, on the date hereof Shaar sold the Series B
Stock to IFT, and in connection with such sale, assigned its
rights under the Registration Rights Agreement to IFT;
WHEREAS, the Company issued to IFT 800 shares of Series
C 8% Convertible Preferred Stock (the "Series C Stock") on the
date hereof, pursuant to that certain Securities Purchase
Agreement dated on the date hereof;
WHEREAS, the Company, as Maker, and IFT, as Payee, are
parties to that certain Secured Promissory Note, dated January
26, 1999, as amended by the Allonge to Secured Promissory Note
dated January 29, 1999, the Second Allonge to Secured Promissory
Note dated March 19, 1999, the Third Allonge to Secured
Promissory Note dated March 24, 1999, and the Fourth Allonge to
Secured Promissory Note dated the date hereof (collectively, the
"Note"), which is convertible into shares of Series C Stock;
WHEREAS, the parties desire that any shares of Common
Stock issuable upon conversion of the Series C Stock be
registrable pursuant to the terms of the Registration Rights
Agreement;
WHEREAS, the parties desire to have IFT waive certain
defaults of the Company which have occurred under the
Registration Rights Agreement; and
WHEREAS, the Company and IFT wish to confirm and modify
IFT's registration rights under the Registration Rights Agreement
and to amend the Registration Rights Agreement, as described
below, by entering into this Amendment No. 1.
NOW, THEREFORE, for and in consideration of the
premises contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the
parties agree and amend the Registration Rights Agreement as
follows:
1. The definition of the term "Registrable
Securities" contained in subparagraph 1(a) of the Registration
Rights Agreement be and it hereby is amended to include in
addition to the securities originally within such definition,
from and after the date hereof, (i) any and all shares of Common
Stock issued pursuant to the conversion of the Series C Stock, or
issued in lieu of cash dividend payments thereon, and (ii) any
and all shares of Common Stock issued pursuant to the exercise of
any of the Additional Warrants (as such term is defined in the
Note) that were issued by the Company to IFT on March 24, 1999 in
accordance with the Note. The Company's obligations under the
Registration Rights Agreement shall henceforth apply to any and
all such shares described in the foregoing sentence.
2. Subparagraph 2(a) of the Registration Rights
Agreement be and it hereby is amended to read as follows:
(a) Filing and Effectiveness of Registration
Statement. The Company shall prepare and file
with the Commission by not later than fifteen
(15) business days after the date hereof, a
Registration Statement relating to the offer
and sale of the Registrable Securities and
shall use its best efforts to cause the
Commission to declare such Registration
Statement effective under the Securities Act as
promptly as practicable but not later than 120
calendar days after such date. Such
registration statement shall assume a
conversion price of One Dollar Fifty Cents
($1.50) per share. The Company shall not
include any other securities in the
Registration Statement relating to the offer
and sale of the Registrable Securities. The
Company shall notify IFT by written notice that
such Registration Statement has been declared
effective by the Commission within 48 hours of
such declaration by the Commission.
3. Subparagraph 2(b) of the Registration Rights
Agreement be and it hereby is amended to read as follows:
(b) Registration Default. If the Registration Statement
covering the Registrable Securities or the Additional Registrable
Securities (as defined in Section 2(d) hereof) required to be
filed by the Company pursuant to Section 2(a) or 2(d) hereof, as
the case may be, is not (i) filed with the Commission within the
time required by the terms of this Agreement or (ii) declared
effective by the Commission within the time required by the terms
of this Agreement (either of which, without duplication, an
"Initial Date"), then the Company shall make the payments to IFT
as provided in the next sentence as liquidated damages and not as
a penalty. The amount to be paid by the Company to IFT shall be
determined as of each Computation Date (as defined below), and
such amount shall be equal to 2% (the "Liquidated Damage Rate")
of the Stated Value per share of all shares of Series B
Preferred Stock and all shares of Series C Preferred Stock
outstanding from the Initial Date to the first Computation Date
and for each Computation Date thereafter, calculated on a pro
rata basis to the date on which the Registration Statement is
filed with (in the event of an Initial Date pursuant to (b) (i)
above) or declared effective by (in the event of an Initial Date
pursuant to (b) (ii) above) the Commission (the "Periodic
Amount"); provided, however, that if any Liquidated Damages are
payable, then the Liquidated Damages shall not be less than Forty
Thousand Dollars ($40,000). The full Periodic Amount shall be
paid by the Company to IFT by wire transfer of immediately
available funds within three days after each Computation Date.
As used in this Section 2(b), "Computation Date" means the date
which is 30 days after the Initial Date and, if the Registration
Statement required to be filed by the Company pursuant to Section
2(a) has not theretofore been declared effective by the
Commission, each date which is 30 days after the previous
Computation Date until such Registration Statement is so declared
effective. Notwithstanding the above, if the Registration
Statement covering the Registrable Securities or the Additional
Registrable Securities (as defined in Section 2(d) hereof)
required to be filed by the Company pursuant to Section 2(a) or
(2d) hereof, as the case may be, is not filed with the Commission
within the time required by the terms of this Agreement, the
Company shall be in default of this Registration Rights
Agreement, as amended.
4. IFT hereby waives, to the fullest extent permitted by law,
all breaches, failures, defaults, and events of defaults of the
Company on and as of the date of this Amendment No. 1 under the
Registration Rights Agreement. This waiver is limited strictly
as written and shall not require or imply any other or further
waivers of any future such breaches, failures, defaults, or
events of default of the Company, and therefore, IFT reserves all
of its rights to insist on strict compliance by the Company with
the terms of the Registration Rights Agreement as hereby amended
from and after the date hereof.
5. The Company hereby acknowledges IFT as the holder
of all rights under the Registration Rights Agreement, as
hereby amended.
6. This Amendment No. 1 is executed, and shall be
considered, as an amendment to the Registration Rights
Agreement, and shall form a part thereof, and the provisions
of the Registration Rights Agreement as amended by this
Amendment No. 1, are hereby ratified and confirmed in all
respects.
7. This Amendment No. 1 may be executed in any number
of counterparts, each of which shall be deemed an original,
and all of which taken together shall constitute but one and
the same instrument. This Amendment No. 1 shall become
binding only when each party hereto has executed and
delivered to the other party one or more counterparts.
IN WITNESS WHEREOF, the parties hereto have duly
executed this Amendment No. 1 to Registration Rights Agreement as
of the date first above written.
THE NETWORK CONNECTION, INC.
By: _______________________________
INTERACTIVE FLIGHT
TECHNOLOGIES, INC.
By:_________________________________
